Convergence: a Source of Hope for the Telecom Industry?

According to a new Study of the European Telecom Market by top Management Consultants A.T. Kearney, Providers Need to Take Concerted Action

DÜSSELDORF, Germany, February 11 - The European telecom market is currently undergoing major
changes: aggressive competition is leading to falling prices and decreasing
revenues. Increased regulation at the European level has exacerbated the
situation for many providers. The industry is currently looking for
solutions. "We're seeing European providers respond to the changed basic
conditions in numerous ways. Companies are constantly in search of innovation
and new revenue sources, and at the same time they're also continuing to
focus on cost reduction. In some European markets, for example the UK and
Switzerland, the current trend is towards consolidation," says Hagen Götz
Hastenteufel, A.T. Kearney.

The study's co-author Robert Kremlicka believes competition
will continue: "There's not much scope left for people to increase the amount
of phoning they do. And even if data transfer volume does increase, it will
be a zero-sum game, because of the price war. Revenue per call minute is
falling so rapidly that in mobile communications, for example, by 2013 they
may only be able to cover their costs."

Fight for growth markets

Under present conditions in the industry, the providers
suffering most are those only involved in classic telecom business, i.e.
operators of pure fixed networks or mobile communications networks. "By 2013,
we expect broadband applications and online services segment to account for
22% of revenues (current level: 5%)," says Hastenteufel. However, it is
precisely in that segment that competition is heating up.

Positive leverage effect of convergence

The study believes convergence will exert a powerful leverage
effect. This essentially involves the integration of mobile communications
and fixed network business, initially in sales and customer service, then
subsequently in marketing and network operation. "In Europe, virtually all
former state-owned providers are positioning themselves as convergent and in
that way trying to generate competitive advantages", says Hastenteufel. This
is palpable in concrete products. Successful convergent products bundle
existing telecom services with new services such as TV.

Convergence in line with what customers want

Integrating mobile communications with the fixed network opens
up ways to ensure stronger customer loyalty and win new customers more
successfully. "Examples have shown that convergent products can bring down
customers' desire to switch by more than half", notes Hastenteufel. Potential
for up- and cross-selling increases, which creates competitive advantages
over pure mobile communications and fixed network providers. "Convergence
fulfils customers' desires for technically high-end yet easy-to-use
telecommunications. Integrating the two technologies opens up further scope
for product innovation."

But A.T. Kearney agrees that convergence is not a panacea, and
will only be successful if implemented in a thoroughgoing, comprehensive
manner.

www.presseportal.de/go2/A.T.Kearney

        For further information, please contact:

        Hagen Götz Hastenteufel
        A.T. Kearney GmbH
        Charlottenstrasse 57
        D-10117 Berlin
        Tel. +49-30-2066-0
        hagen.goetz.hastenteufel@atkearney.com

        Robert Kremlicka
        A.T. Kearney Ges.m.b.H.
        Trattnerhof 1
        A-1010 Vienna
        Tel: +43-1-53667-0
        robert.kremlicka@atkearney.com

For further information, please contact: Hagen Götz Hastenteufel, A.T. Kearney GmbH, Charlottenstrasse 57, D-10117 Berlin, Tel. +49-30-2066-0, hagen.goetz.hastenteufel at atkearney.com; Robert Kremlicka, A.T. Kearney Ges.m.b.H., Trattnerhof 1, A-1010 Vienna, Tel: +43-1-53667-0, robert.kremlicka at atkearney.com