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Can you have your connectivity cake and eat it?

The telecom industry is facing a fast and traumatic shift in structure, from vertical integration, via various “oblique” business models, to a more horizontally layered structure of transport, platform, service and relationships.

A common lament in the meeting rooms of telcoland is that “we don’t want to become a dumb pipe”. Regardless of the merits or otherwise of the pure connectivity business, there’s an important lesson to be learned here. Many other highly profitable and innovative industries exist despite their services being “commodities”. Thus, in finding inspiration for new strategies and products, you are unlikely to find satisfaction from looking at traditional industry journals, research reports and market intelligence. Each one is likely to be framed around sustaining the current broad status quo.

One of the greatest masters of customer segmentation and relationship management is the UK retailer Tesco. Unlike Wal*Mart, it has adopted a broad spectrum approach to the market, offering both own-label “value” products, as well as the aspirational “Finest” sub-brand.

In its early days they used the brand to introduce pre-packaged meals above the usual quality of factory fare. Over time the brand has been stretched to include more of their range. Indeed, by now even some of the plainest of foods — in this case a sponge cake — have received the margin-enhancing treatment. It can only be a matter of time until Tesco Finest Toilet Roll features in every second British home.

If Tesco are able to create significant margin boosts with relatively modest improvements to product, packaging and promotion, what are the parallel opportunities in telecom?

Our “serving suggestion” is that connectivity is most emphatically not a pure commodity. Operators face many opportunities to differentiate their service by quality (and not just network QoS), bundle together different combinations of connectivity, enable more seamless interoperation of devices such as wireless home gateways and cellular devices, and enable the service to grow with the user. Indeed, the deeper one digs, the more recipes there seem to be, many of which appear untried. You hardly need look further than how Tesco themselves manage the sales and marketing of their own telecom products for ideas.

Who will be the first to offer a pre-paid broadband plan which you can top-up at the supermarket check-out? High free cash flow, no billing costs, no bad debt or fraud. If it turns out to be Tesco who get there first, shame upon the industry.

By drawing inspiration from outside the industry, and benchmarking against best practice, you increase your chances of sweeter, moister and more satisfying returns.

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