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e-Health, e-Government and finance

10/10/2012
Vertical markets that are highly coveted by telecom operators
Vertical Markets


IDATE has just published its report "Vertical markets: Health, Government and Finance: What potential for operators?. Capturing vertical markets is clearly an objective shared by many operators. In fact, for Christoph Pennings, Project Manager for this report, "Telecom operators increasingly favour a targeted approach to vertical markets, which they see as a means of developing their activities, in a context of eroding margins, by positioning themselves in new market segments, through greater customization of the services they offer." While vertical markets are certainly not the only remedy to the strong pressure on telcos, they can still provide a considerable boost."

The international benchmark set up in this report is based on a selection of 25 operators, offering services that target specific vertical markets: incumbent operators and new entrants as well as cable operators, operating either fixed and mobile networks or one of the two. This systematic analysis of offers shows that operators consider financial services, health and e-government as the most promising vertical markets and by far the most coveted. This is partly due to their appeal as an area of investment and transformation, but each of these markets also offers specific opportunities for electronic communications services.

"Vertical markets" are a useful concept to describe a move from generic offers to more tailor-made solutions designed to meet the specific needs of 'an industry'. However, customers' requirements within a given industry segment vary almost as much as those of different industries. Within healthcare, services range from remote monitoring to the transmission of critical high-resolution video in real-time or infotainment solutions for patients and staff in hospitals. POS payment solutions are very different from bulk data transmission in finance and so on. Hence, targeting the 'government vertical' is too broad to describe an operator's business and will need further detail. In practice, further segmentation is required and, in order to be successful, operators will need to be very clear about which niche in a given vertical they plan to address and how.

The vertical offers that are available in the market today or under discussion do not imply an entire re-invention of telecom operators' product portfolios. Instead, most vertical offers centre on traditional connectivity but ideally add a few QoS features that make them appealing to the targeted industry, like low latency or security. One of the telecom operators interviewed during the study actually confirmed that about 80% of its healthcare division's revenues come from connectivity. For vertical products somewhat further from their core business, telecom operators with a strong ICT-branch are in a better position to develop the necessary added value to make a product successful in the targeted vertical than players which cannot tap into this kind of resource in-house.

The question is how much impact on revenues (and margins) offers aimed at vertical markets can ultimately have? Clearly, verticalisation of communications solutions is not going to transform the industry as for instance the arrival of mobile did. A match of great innovation and huge market opportunity such as in the case of the M-Pesa service (money transfer service by mobile at Safaricom in Kenya), will remain an exception and a successful replication of such services across different countries will be even more challenging. Yet, the added value of smarter offers, customised to a vertical's requirements, will allow telecom operators to charge a premium over generic plans. The magnitude of this premium will vary widely and depend heavily on the product and the vertical. All in all, vertical markets are most likely not a game changer for the industry, but if operators succeed in addressing the right markets and provide truly differentiated services, vertical offers can collectively deliver a meaningful contribution to set the industry on a more upward sloping growth path.


Christoph PENNINGS
Head of Regulation Practice, DigiWorld by IDATE
c.pennings@idate.org

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Christoph PENNINGS
Head of Regulatory Practice
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