Telcos must ring the changes or lose out

PARIS, FRANCE: European telecoms operators are fighting a losing battle by trying to hang on to their current business model and will have to re-invent themselves, though that process will take a few years, telecoms executives said.

"The mobile phone market is ripe for disruption: it's bloated, it's (got) huge costs, it's overstaffed, it's got way too many products and it's got confusing messages for the consumer," the chief executive of small handset maker INQ, Frank Meehan, said at the Reuters Global Technology Summit in Paris.

Although European telecom operators have not borne the brunt of the recession, pressure will mount from customers who communicate via social networks such as Facebook or Internet telephony service Skype and demand applications to run on a single device.

"It's a threat to the business model that the industry employs...You can see it as a threat ... but you may as well embrace it... I think Skype is actually an opportunity," said Stan Miller, who heads the international mobile unit of Dutch telecoms group KPN.

Miller has turned around KPN's German E-Plus brand and BASE in Belgium after abandoning subsidised handsets in 2005 and instead launching cheap and simple tariffs.

"I think operators are still working through Skype. Fixed-line operators still make a lot of money even though Skype is everywhere," INQ's Mehan said.

Miller suggested telecom groups could not expect to benefit from opportunities if they continued with business as usual. "Einstein said the definition of insanity is to do everything in the same way and expect different results."

I don't think so- or yes, we can!

Frank Esser, Chief Executive at France's second mobile operator SFR -- owned by French media group Vivendi SA and Britain's Vodafone Group Plc -- fails to see the advantages of working together with Skype.

Asked whether he could envisage Skype as an opportunity rather than a threat, Esser paused and then said: "I don't think so."

He voiced fears that customers would take a cheap data package, ditch the rest and take all the calls for free.

KPN's Miller disagreed.

"What we should be innovative in is in marketing and sales," he said. "What many telcos try and do is to be innovative in terms of trying to create walled gardens so they can hold on to everything."

Miller suggested telecom operators should consider changing their cost base by cooperating with smaller companies, thus enabling them to offer customers flat tariffs.

"Already your iPhone moves into WiFi if you move around... The thing is: can you redesign your business model to an extent that you can embrace new things? I think: yes we can."

The industry's new look wouldn't emerge in the next three or four years, but when it did even the lumbering giants among incumbent telecom groups could be part of that picture.

"It won't happen tomorrow, it will take a lot of transformation and a lot of time," Miller said.