Challenger brands shift the conversation to price
It was a year of action. With mergers and acquisitions, major brands took steps to build consumer-facing entertainment businesses and position themselves for leadership in the Internet of Things, while challenger brands attempted to disrupt the category, usually with price. The BrandZÔ Telecom Provider Top 10 increased 6 percent in value, following a 9 percent increase a year ago.
These dynamics were especially evident in the US. Verizon negotiated to acquire Yahoo!, having purchased AOL a year ago, and AT&T agreed to buy media giant Time Warner, following its earlier acquisition of Direct TV. These acquisitions transform Verizon and AT&T into entertainment providers, and fortify them against the over-the-top (OTT) options favored by millennials.
Verizon also acquired technology companies, particularly in telematics, to prepare itself for leadership in the Internet of Things (IoT). AT&T actions to expand in IoT included a partnership with IBM. Spain’s Telefónica, which owns Movistar, also sought partnerships with technology companies to establish IoT leadership, with an emphasis on security.
And in a legislative move that endorsed the changing status of telecoms as content providers rather than voice and data conduits, the US congress rescinded the Obama administration’s privacy restrictions. This enabled telecom providers to collect and share customer data, treating the telecoms more like Google or Facebook than like utilities. Similarly, US regulators considered changing Obama-era net neutrality rules that require treating all internet traffic equally.
UK-based Vodafone, which sold its stake in Verizon several years ago, announced plans to merge its India operation with Idea Cellular. Combining India’s second- and third-largest telecom providers would create a brand surpassing Bharti Airtel as the country’s leading telecom provider, with around 400 million wireless subscribers.
Even in China, where the category is dominated by three state-owned enterprises, brands were not immune from competitive pressures. China Telecom and China Unicom, the nation’s No. 2 and 3 carriers, agreed to share resources to match the 4G capability of China Mobile, the category leader, which served 849 million customers, 535 million on 4G, at the end of 2016.
In addition, the Chinese government issued a new telecommunications license to the China Broadcasting Network (CBN). The new challenger could accelerate the expansion of “triple play” service, including phone, Internet, and TV. And, as in all markets, the Chinese telecom providers faced fierce competition from the OTT entities that provide free voice and data communication over the internet.
The AT&T and Verizon transactions potentially add new revenue streams and increase brand differentiation. They also expand the competitive set to include media and entertainment businesses like Netflix, or even Amazon. With its ownership of AOL, and potentially Yahoo!, Verizon gains expertise in managing consumer data and creating targeted advertising.
Meanwhile, challengers Sprint and T-mobile, owned by Deutsche Telecom, aggressively attacked on price, offering contract-free options that appealed to the practical, value-conscious, nomadic spirit of millennials. Sprint ads humorously mocked Verizon’s coverage claims. Because the coverage of all networks has greatly improved since Verizon first claimed network superiority, a Sprint ad advised, “Don’t let a 1 percent difference cost you twice as much.”
The Verizon brand also faced challengers to its fixed-line business that in certain markets includes FiOS (fiber optic wiring). While the wireless business includes only three other national players, the fixed-line business is organized regionally and includes cable providers and competitors such as Xfinity, which joined the BrandZ™ Telecom Providers Top 10. Xfinity plans to introduce mobile service.
In India, a new telecom challenger called Jio entered the market with a promotion offering limited data at a low price. It was not clear how loyal the customers will be when the introductory pricing ends, since Indian mobile users often switch their SIM cards, depending on which telecom—Airtel, Vodafone, or Idea—has the best deal.
Similarly, a challenger, Tele2, entered the Russian market, pressuring the three majors—MTS, Beeline, and MegaFon. Compounding the pressure, a recent national security law changed the rules about customer data retention and government access to data, which increased expenses and squeezed profits.
Vodafone, which operates in 26 countries, more than any other telecom provider, completed its Project Spring initiative, investing in infrastructure with the proceeds from the 2014 sale of its stake in Verizon. The brand also focused on building consumer relationships, strengthening loyalty, and expanding ease of access.
Vodafone focused on four key performance indicators: strengthening connectivity, helping customers manage their budgets, building loyalty, and providing ease of access. In several markets, including the UK and Italy, Vodafone promoted this orientation with an offering that allowed dissatisfied customers to drop their contract after 30 days.
Movistar’s positioning and offering varied somewhat by country. The brand is a quad-play provider in Spain, offering fixed line, wireless, broadband, and TV services. The mix varies in Latin America, where the brand may be a leader or a challenger, depending on the country. Movistar is owned by Telefónica, which is branded Movistar in Spain and many other markets, but also operates as Vivo in Brazil, and O2 in Germany and the UK.
In the UK, BT organized a recent and earlier acquisition to creating a portfolio of three brands—BT, EE, and PlusNet. BT focused on creating clear and complementary brand positions, and coordinating the lines of business, which include fixed line, broadband, sports, and other content.
Major Middle Eastern telecom providers also attempted to move beyond the low-margin voice and data business. They investigated diverse possibilities under the broad rubric of digital lifestyle, and invested in startups to assert leadership in smart cities infrastructure and IoT.
Brand-Building Action Points
1. Reposition for the future
The mismatch between the term “telecom” and actual telecom brand offerings crystalizes the category challenge. Define the business based on how it is likely to evolve over the next 5 or 10 years, and organize strategies around that future.
2. Articulate the benefit
Every telecom provider wants to be different. Many would say that their shift—from pipe transmitting data to digital lifestyle provider—makes them different. But what does that mean, and how is it differentiating? Give customers a reason why they should be with you. Articulate the benefit. It probably is not technical.
3. Protect data
Make the security of the customer’s data a priority. That requires a cultural commitment to implementing all the technology innovations required to secure data, and communicating, in a straightforward and honest way, to make the promise believable.
Telecommunications is a complicated business at a time when consumers seek simplicity. Create propositions that are easily understood, not confusing.