Threatened by startups, telcos try to think like entrepreneurs

The Mobile World Congress keynotes on Monday got off to a pessimistic start with the executives of two of the most prominent mobile operators proclaiming that the industry has significant challenges in the form of over the top (OTT) providers commoditizing their revenue streams without those companies putting any significant investment of their own into the network.

Both Franco Bernabe, Chairman and CEO of Telecom Italia and Li Yue, President of China Mobile painted a gloomy picture and how operators need to focus on fundamentals if they were to survive the ever-growing pressure on their margins.

Each of the operators is going through their growing up phase in the OTT era. Some, like KPN and SMART, are seeing deterioration of their business fundamentals because of users choosing to text or talk via services such as Facebook and WhatsApp. Many do realize that they need to do something, perhaps offer competing services, but are having a hard to time organizing themselves to actually make it happen.

However, there are some positive case studies, both of which point to the tight correlation between innovation and the right organization. Orange and Telefonica have been actively experimenting – figuring out both the new services that will generate incremental value-added services revenue as well as the business models that look different from the past. For example, Orange spun off a skunkworks project dubbed ON, which was led by Giles Corbett who works and sounds like an entrepreneur inside the corporate structure. His team looks at ways they can introduce new innovative services like VoiceFeed, prove the business case in various Orange markets and then encourage the parent to adopt these new services to improve customer loyalty and value-added services revenues.

Similarly, at Telefonica, a team led by Carlos Domingo is constantly thinking out of the box. At the show they announced their Mozilla alliance that focuses on the HTML5 draft. Their efforts on Bluevia, which offers a range of APIs to developers that can be monetized, is an interesting model suggests those apps that help generate traffic like SMS, developer gets a share of the revenue generated,has also received good feedback from the developer ecosystem.

Though it is still early, the initial success clearly points to empowering a group of “intrapreneurs” within the operator organization to operate like startups. In the U.S., Glen Lurie’s Emerging Device group at AT&T (s t) has received similar autonomy that has enabled AT&T to become the leading operator in the machine to machine category.

Instead of being fearful, operators should embrace the opportunity to innovate. But they do require a different organizational structure that allows them to fail fast and learn so that every once in while they have a winner.

Chetan Sharma can be found at his website or @chetansharma on Twitter. He is also a member of the GigaOM Pro analyst community.