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GLOBAL 2016: Brands consolidate and acquire content

As the category moves through an identity crisis

The term “telecom provider” started to seem anachronistic as brands aggressively consolidated and acquired content, reshaping the category even as they tried to clarify its future. As they evolved into networks of value-added information and services, the telecom providers remained identified by their most commoditized activities, voice and text transmission.

Brands worked to leverage their unparalleled access to households and consumer data, which positioned them to be key players, even gatekeepers, in the networking of devices, appliances, machinery, cars and everything else in the coming era of connectivity called the Internet of Things. 

The telecoms also developed business-to-business opportunities, servicing the connectivity needs of corporations and governments, with “Smart Cities” initiatives, for example. And many of the telecom provider brands also developed mobile health programs, particularly useful for people in rural or other underserved markets who gain online access to better health care treatment.

Unfortunately for the telecom providers, they were not alone. Their competitive set expanded to include brands in other categories, including formidable technology leaders with much faster innovation cycles, all seeking to play in the inevitable but amorphous future of hyper-connectivity. 

The only certainty for telecom provider brands was the need to build a subscriber base, which accelerated a period of consolidation as brands acquired competitors to gain content and advertising revenue, increase scale and broaden appeal.

The Japanese telecom provider NTT entered the BrandZ™ Technology Top 10 following its acquisition of Dell Services, which increased the brand’s presence as a global IT services provider. The value of the BrandZ™ Technology Top 10 increased 9 percent, following a 17 percent rise a year ago.

Acquiring content and building scale
In the U.S., AT&T bought DirecTV, a broadcast satellite service, significantly expanding the brand’s ability to provide video entertainment and enabling it to bundle new TV, Internet and mobile offers. Verizon acquired AOL, which provided Verizon with online advertising technology while enriching AOL’s capabilities with Verizon customer data. Ultimately, Verizon could monetize the acquisition with mobile advertising revenue. To add even greater scale, Verizon considered acquiring Yahoo.

AT&T also purchased the Mexican telecom providers Lusacell and Nextel to strengthen its position in the Americas. The Spanish telecom provider Movistar acquired DTS to expand into pay TV in Spain. Spain’s Telefónica acquired GVT in Brazil, which had merged with Vivo, the country’s leading mobile and landline telecom. 

The telecom provider Vodafone purchased ONO, a Spanish high-speed Internet company. To increase content and achieve efficiencies, Vodafone linked its operations in the Netherlands with Liberty Global, the international cable company. The sluggish economies of some of its European markets impacted Vodafone results.

France-based Orange bought a major stake in Groupama Banque, a French financial services company, as a gateway into mobile banking services. In Germany, O2 purchased E Plus, and after rationalizing their brand portfolios, the joined company relaunched the Blau brand as a value-driven option, with the tagline, “Less bla, more Blau.” In a UK market consolidation, BT purchased EE. And Three, owned by Hutchison Whampoa, intended to purchase 02 from Telefónica.

The proposed deal, which would form the UK’s largest telecom provider, faced EU regulator scrutiny. In the U.S., regulators ruled in favor of net neutrality, essentially classifying the Internet as a public utility requiring equal access for all users. Major U.S. telecom providers had opposed neutrality, arguing that heavy Internet consumers, Netflix for example, should pay a fee because of the disproportionate amount of bandwidth they use.

Meeting changing consumer expectations
The telecom provider brands also adjusted to changing consumer priorities. With the erosion of the two-year contract model, consumers often selected their device first and then looked for a carrier, reversing the earlier practice. Even in the U.S., consumers shifted away from the long-term contracts that had been fairly standard. 

Verizon introduced a new campaign with the tagline “Better Matters.” The campaign added a higher purpose to a traditional story of functional competence. The emotional message declared that Verizon built America’s strongest network for a reason, because people depend on the network to work properly. Implicit is the notion that, in a world of “good enough,” “better” is worth a premium.

In making the change, Verizon intended to warm the brand with a more human voice, to contrast with the complex language often used in the telecom category. The execution included a new, cleaner logo and a simplified offering that is more transparent about the cost of a phone and data, with data plans priced simply – small, medium and large – like soft drink portions.

T-Mobile was especially successful in creating a personality around the brand, marketing it in the U.S. as the “Uncarrier.” It introduced a program called “Binge On,” aimed particularly at millennials, which allowed users to stream free video from content suppliers like HBO Now and Showtime. Deutsche Telekom benefitted from the strong performance of T-Mobile, which it owns.

Telecoms were not the only brands building communications relationships with consumers. Mobile virtual network operators (MVNOs), such as Virgin Mobile and Tesco Mobile, rented infrastructure and marketed branded networks. Google introduced an MVNO called Project Fi that routs calls over WiFi or the Sprint or T-mobile networks. It is currently available only for certain Android phone models. Google also planned to expand its Google Fiber Internet service to Los Angeles and Chicago. Facebook’s WhatsApp and Facebook Messenger are free Internet alternatives to communicating over a telecom network. 

Fast-Growing markets
Meanwhile, Facebook collaborated with Deutsche Telekom, Korea’s SKTelecom and others on an initiative called “Telecom Infra Project” to collaborate on infrastructure development. Korea remained the most advanced telecom market technologically. This superiority, from network quality through to download speeds, enables Korean consumers to use their smartphones for more functions.

China’s telecom providers experienced pressure on profits as they invested in rolling out 4G and reduced pricing in response to government desire to increase data transmission speed and lower fees. Market leader China Mobile planned to accelerate rollout of 4G, doubling the number of 4G users it had at the end of 2015 to reach 500 million users in 2016.  

In an effort to compete more effectively against China Mobile, China Unicom and China Telecom announced plans to collaborate on building 4G infrastructure and providing overseas roaming services. In addition, they advocated for smartphone devices that supported six different technologies, making it easier for people to switch carriers. The Chinese telecom providers also supported the government’s Internet+ effort to connect mobile Internet, big data, cloud computing and the Internet of Things.

Brand Building Action Points

1. Communicate brand relevance.
Consumers are not impressed by abstract technology superiority claims. For consumers, the difference between 4G and 5G is important only because the higher speed improves their lives. Explain the benefits to consumers or lose their attention.

2. Build emotional connection with consumers.
Consumers have already invited the telecom providers into their homes. The brands exist in the background most of the time, with low awareness when everything is working fine and immediate frustration when they are not. A more emotional connection, perhaps around content, would strengthen the bond. With the Internet of Things, that bond, and the access it permits, will be critical.

3. Anticipate new competition.
More competitors will enter from outside the telecom provider category. Expect to develop, acquire or partner with other organizations. Content will be critical to keep consumers interested and returning for more.

4. Stand for something beyond competence.
Think about the customer relationship as something that happens before, during, and after purchase. Stand for something beyond competence, because every telecom provider makes competence claims. Make the retail experience about “How can we help you?” not “What can we sell you?”

5. Obsess about customers.
Move away from the discussion about functionality and price. Find an emotional connection that differentiates the brand and resonates with the customer. Look for a connection that persuades consumers to purchase the brand, forgive its mistakes, and become brand advocates.

6. Reward loyalty.
But reward loyal customers in more meaningful ways that perhaps are more lifestyle based rather than simply an extension of the data quota beyond what the customer probably would use.

7. Look outward.
Imagine the world in 10 years. What role does the brand play? Think beyond the term “digital.” All brands are digital in some way. In what specific way is the brand digital? Innovate at the pace subscribers expect. Collaborate with innovative partners.