Why should Communications Service Providers focus on Customer Quality of Service?

It is no secret that Communications Service Providers (CSPs) are facing increased business challenges. Traditional voice/messaging revenues continue to decline and overall revenues are flattening, while the sustained heavy investment on network infrastructure is still dictated by increasing over-the-top (OTT) mobile broadband traffic that CSPs are unable to monetize. To make things worse, CSPs must deal with market saturation and intensifying competition that often leads to damaging price wars and customer churn.

In fact, churn is still high if not rising. According to a study based on a multi-country survey that industry analyst Ovum released recently, 50% of CSP customers might churn in the next 12 months. More interestingly, the study shows that service quality and in particular the mobile internet browsing experience carries the highest weight in a customer’s decision to churn. And even if some CSPs try to offer commercial compensation for lower quality of service, the latter is detrimental to their business on the long term.  The potentially huge loss of revenue resulting from churn and the margins erosion resulting from the high cost of attracting or retaining customers or compensating unsatisfied customers show how much a CSP’s business, revenues and profitability are dependent on service quality.

On the bright side, a few weeks ago the European Telecom stock market reached $24B gains while the shares of a leading CSP group rose more than 5% in a day following the announcement of positive earnings. The major driver behind this announcement appears to be the increase in mobile data usage, which has relied on improved network speed, performance and Quality of Service (QoS). Better service quality leads to better user experience and to customers spending more on mobile broadband data, which is particularly true for iPhone users. In other words, service quality is inextricably related with revenue growth and shareholder value.

CSPs have realized the strategic nature of service quality, and are seriously investing in it. Part of this investment is on network capital expenditure, such as 4G/LTE rollouts, with global spending nearing $6B per quarter. But investment is also directed at Network Performance, Service Quality and Customer Experience processes and solution. These solutions enable CSPs to transform their business by expanding their focus from network centric management through NOCs (Network Operations Centers) to service and customer centric management through SOCs (Service Operations Centers). This transformation is all the more important in the context of future network migration into the cloud and delivery of services using NFV/SDN (Network Functions Virtualization / Software Defined Networking). It is also critical for CSPs wishing to use their networks as a platform to deliver value added M2M (Machine to Machine) and IoT (Internet of Things) services.

Service quality can prove to be an even more decisive asset for CSPs in the future. Today, Net Neutrality rules and the Open Internet concept prevent direct QoS monetization. However, the ongoing big debate in the industry may lead to some service quality based differentiation schemes sooner or later (similar to fixed-line Internet and other industries such as airlines). More importantly, QoS could potentially become the cornerstone for the win-win, revenue-sharing collaboration model that CSPs and OTT content providers have been looking for. In the meantime, CSPs who transform their business, operations and systems to focus on service quality will reap the benefits of reduced churn, improved revenues and profits, and increased shareholder value.