Disruptive Business Models:Industry Convergence Phenomenon

Romanian market has unique timing & potential synergies powered by the Synchronized Liberalization of Telecom, Banking and Electric Power & Gas Utilities industries by new regulations and platform technologies

1.      How do you grow a business in a mature and saturated market?

2.      What to do when your service becomes a commodity and brand and price differentiation are not working anymore in front of the customers?

3.      What to do in more regulated or liberalized industries where new types of competitors are allowed in the field?

4.      How new technologies and new customer behaviors (new younger generations mobile & internet driven) can threaten or help in creating new creative & disruptive models?

Those questions are more and more on the table of executives and top consultancy companies especially in Europe in the following industries: telecom, banking, energy & utilities, retail, transportation! They are looking to design new business models and develop new sources & engines for revenues and business growth. There is not any more room for cost reduction and improved quality of execution; they have done that in the last years!

This is the time for innovation, creativity and having courage to think and act in different ways!

All of these industries in the matured and saturated markets are facing structural business pains due to the following main factors:

1.      No room to growth besides taking from the competitors & Educated high demanding customers,

2.      Increased price competition, the margin cannot support any more discounts

3.      New regulations ( decreased or erased roaming and interconnection tariffs in telecom, new PSD2 in banking, liberalized power & gas utilities markets) that triggers new costs & competitors,

4.      Technology opportunities  & threats that triggers new costs and competitors ( 5G in telecom and fin tech in banking, PSD 2 that gives to retailers the opportunity to become payment initiation providers and skip the banks) ,

5.      New customer demands & buying behaviors driven by the younger generation’s habits which are mobile first & internet driven!

Industry Convergence Phenomenon

As a consequence we can see clearly the first business attempts for the industry convergence phenomenon through which the big players with big brands and large customer bases are trying to enter other industries to generate new sources of revenues, differentiation, increased loyalty and brand awareness while maximizing the synergies with their existing core business distribution/sales/marketing budget & infrastructure:

1.      Telecom players are looking to enter the banking & energy utilities industries, through mobile payments, loans, insurance to their customer base and by selling energy services packaged with their mobile services.

2.      Retailers are looking to enter the banking industries by becoming Payment Initiation Service providers to skip the banks or VISA and Master Card as their suppliers and the telecom industry by selling mobile services packaged with the retail purchases by becoming themselves mobile virtual operators and providing new benefits to their loyal customer base.

3.      Electric Power & Gas & Fuel Utilities players are looking to enter the telecom industry as virtual operators by selling packaged mobile services with their core business services to their customer base and also in the financial industry by selling insurance services

4.      Banks need to fight for customer ownership and loyalty due to the new threats brought by PSD2 regulation starting with 2018. They start acting as market business content aggregator by building large retail partners business ecosystems through which they want to provide additional personalized benefits and special offers to their customer base. They are looking also to enter the telecom industry by becoming virtual operators and by packaging the financial services with their mobile services .They can achieve increased effectiveness in this way by having a powerful currency, their virtual mobile services. They can use the mobile prepaid credit instead of pure retail discounts towards their customer base. The retail partner’s business ecosystem will be not any more squeezed by hard discounts as long as they have the telecom industry margin to play with and deliver in the same time high value benefits to the customers.

What is obvious is that across Europe so far the majority of the real business cases implementation of industry convergence entrance is from Retail to Telecom, Banking to Telecom, and Energy & Utilities to Telecom for more than 10 years and in a very successful way. From 10% to 40% of the market share moving from under the telecom classic operators to under MVNO virtual operators players from all the mentioned industries. Not too many attempts from Telecom to Retail, to Banking or other industries! Why is that happening?

The answer is quite simple!

·        Telecom industry was the most tempting for the others to join as still has the richest profit margin 30/40% comparing with retail, banking, energy & utilities 10-20%

·        The lowest number of competitors in the industry. 3.4 telecom operators per country versus 40/50 retail players or banking players per country. In the Energy & Utilities although the number of players was low as in the telecom industry the main barrier came due to the fact that the utilities markets were not liberalized until lately.

·        The telecom markets were much sooner liberalized by the regulators due to the fact that the virtual operator’s regulations and technologies came in the markets more than 10 years ago.

The landscape is changing though as the Telecom & Energy Utilities & Bankingindustries are more and more regulated these years by state institutions therefore all these three industries are trying lately harder and harder to find new sources of benefits for their customers loyalty and sources of revenues for their business as the core business one is decreasing, they do it by converging with other industries.

The key drivers of successful Industry Convergence Business Implementations:

Right Timing to market. You better sale a pain killer then a vitamin, and sale it when the pain is real.

Quality of execution. The management team needs to learn a new industry.

Real Differentiation not just price, through time proof sustainable bundled /packaged services across industries that cannot be replicated by any single industry player alone.

Relationship & Communication Tools: Mobile Digital Personalized Engagement Software Platforms. There are plenty of loyalty programs implemented on large customer bases out there that are forgotten by the customer’s .They fail because of the lack or poor communication with the customer base. They  do not have  personalized  & real time communication engagement programs & tools implemented in order to keep the loyalty program alive, fresh and appealing in time in front of the customers.

Courage for Bold Strategic middle – long term decisions. Industry Convergence business models are 3-5 years strategic decision & implementation. There are many executives & expats that are not willing to pursue such middle and long term strategic management decisions and execution responsibilities due to lack of courage or lack of personal interest as their employment contract  is just for one or two more years

Key Conclusion: Romania a special case due to unique timing & synergies

Romania as a business market is in a very fortunate position for the Industries Convergence business models and decisions timing as all of the opportunities are happening in the same time and have special synergies due to the liberalization of telecom, banking and electric power & gas industries in the same time! Telecom players want to enter Banking and Power & Energy field in the same time as Banking & Retail & Utilities players want to enter the telecom field as the liberalization of telecom through virtual operator business mode opened in the market by Telekom Romania happens in the same time with the liberalization of the banking & power & gas utilities industries through new regulations.

The odds are in the favor of Banks & Retail players & Power and Gas Utilities for entering the telecom market as this industry is a high margin industry compared with theirs, margin from which they can finance the additional benefits they need to give to their customers. The mobile services are still fulfilling daily recurrent customers’ needs although they became commodities services as utilities are. Therefore customers are not anymore sticking with the brands ,  they go towards trust, fairness in terms of pricing for their real consumption needs as opposed to the all you can eat manipulating approach , quality of customer care and enhanced benefits for their usual and regular spending!

The Banks & Retail players & Power and Gas Utilities entering the telecom industry they accomplish more than a new source of revenue coming from the telecom margin : they actually build their own mobile relationship & communication tool & platform technologies through which they can run real time communication & promotional personalized mobile engagement campaigns and this is actually what will keep alive their brand awareness, customer loyalty & relationship  in time and will act as an engine for growth in the market!

Data: 26.01.2017

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