As the uncertainty on the length and effects of the European crisis on the global economy continues, it is becoming all the more likely that no one will be immune to the fallout or recovery scenarios that will play themselves out.
Even the most established, historically secure and well run international companies are reviewing their strategic plans, budgeting, forecasting and scenario planning in light of the possible effects. This is particularly true of those international companies that have large exposure to European markets, or are in turn a local subsidiary of a European parent.
Mobile operators have traditionally fared well in uncertain times, and were even able to emerge from the 2009 global credit crisis fairly unscathed. In light of a possible global crisis led by Europe, operator management's continuing focus will be to deliver on shareholder expectations and manage the sometimes unreasonable financial market demands. This is, of course, achieved through continued customer focus and attention, prudent financial management and sound business practices.
What, then, happens when a competitor decides to adopt a challenger role in the marketplace, and launch innovative and compelling offers at a time when management focus may well be on closing ranks to protect existing profitability?
This is the situation that is playing itself out in South Africa with Cell C, and to a lesser extent in the US with Verizon. Cell C has shaken up the South African market with its recent prepaid, hybrid and postpaid voice offerings, while Verizon has taken an accepted and acknowledged mobile business model and turned it on its head, by charging for data usage only and offering free voice calls.
Unpredictable
Faced with such situations in stable economic times, historic responses have ranged from calm and measured to fast and reactive. Reactions have been based primarily on the companies' existing brand positioning, existing corporate culture, corporate processes allowing for fast market reaction and an appetite for changing the local telecoms environment. With a more uncertain economic outlook for the second half of 2012, operator management teams will be advised to centre on a few focus areas in light of a market challenger.
1) Prioritisation on keeping EBITA values high. Investors will look for signs of business impact due to recent market changes, particularly if the new products and solutions are game-changers. Any signs of a weakening position may have potentially damaging consequences.
Any signs of a weakening position may have potentially damaging consequences.
Michael Stanley is head of consulting and business development at Ericsson, sub-Saharan Africa.
2) Plan for the worst-case scenario. Challengers may be able to achieve quick market share gains and subscriber growth dependent on the other incumbent's desire (or ability) to react quickly. In developing markets, this may result in new subscribers entering the mobile market. However, in more developed markets such as South Africa, this would result in subscriber churn from competitors. An understanding of the potential business impact will be essential to avoid company panic decision-making.
3) A focus on opex reduction and efficiency. Often, across the board cost-cutting does not yield the desired results. There is also the threat that cost-cutting may occur in the wrong areas of the business, affecting customer service and market competitiveness. Cost-cutting needs to be selective and carefully managed in line with long-term company strategies. A further area that will help deliver company efficiencies in both the short and longer term is process re-engineering and design. The existing market uncertainty may be the catalyst for a review of current business processes, to ensure a streamlined business and make it more efficient in anticipation of future challenger threats.
4) Improve free cash flows. This can be achieved through reduced capex investment, but in light of the increasing competitive landscape, this reduction needs to be selective. Often, capex investments see an acceptable ROI a few years out. Halting investment in areas of future growth may well see reduced competitiveness in the future.
5) Communicate. Clear internal communication on how the company is addressing the potential business threat is essential. The strength and frequency of this communication will be dependent on the level of perceived market threat.
Although an innovative market challenger may be a real potential threat, many operators which have already built strong market positions and have invested in their brand positioning will be well situated when the challenger is unable to sustain the funding of their market attack, or the global economy stabilises and the potential global crisis is averted.
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