Australia: Communications
Communications, Media and Technology Updater

Europe - Diverse national application of EU regulation hinders the telecoms market

The European Commission in its annual report on the single European Electronic Communications Market on 25 May highlighted that there are, in its view, "serious obstacles" in relation to the establishment of single European telecoms market. In particular, the report noted the divergence of regulatory approaches, the inconsistent application of remedies and the lack of independence of national regulatory authorities (NRAs) across Member States, which, the Commission has argued, leaves consumers and businesses having to face 27 different markets, rather than benefiting from a coherent single market. The Commission commented that it will be taking "specific targeted measures" in tackling the areas that it has identified and so watch this space for the Commission's next steps in pressuring NRAs to get their houses in order.

We have described below some of the key issues that the Commission identified across the Member States:

Institutional and regulatory framework and spectrum management

• The Commission commented that there is a lack of effective separation of activities associated with ownership and control of operators in some Member States and insufficient resources are committed to carry out NRAs' regulatory tasks.
• Market reviews by Member States of remedies for the next generation environment have, in places, been patchy, not conducted at all, or with limited results. The Commission is to continue to use its implementation powers to issue Recommendations to reinforce consistent regulation. In relation to Broadband the competitive situation has stagnated partially because remedies have not been enforced in an effective and timely manner and to this end the Commission will adopt a Recommendation on regulated access to Next Generation Access Networks during 2010.
• In relation to termination rates, the Commission adopted a Recommendation for the regulatory treatment of fixed and mobile call termination rates, which continue to be divergent within Member States.
• The Commission called for coordinated action in relation to opening up the digital dividend spectrum for different services, as it argues that this will create an opportunity for wireless broadband network operators to gain radio spectrum which is expected to reinforce competition in the provision of broadband services.

Consumer interest areas

• Mobile prices still vary widely across Europe which, the Commission argues, "cannot be explained by market characteristics alone" and is therefore clearly a result of a fragmented EU market. In relation to fixed tariffs, these have increasingly diverged across Member States and fragmentation along national lines has not declined over time.
• Transparency obligations, code of conducts and price caps on premium rates and value added services have been implemented in some Member States (but not all).
• Financing mechanisms for universal services have not been activated in most Member States.
• Number portability although now available in all Member States, varies (some have introduced reductions in time limits), but most Member States lag behind the regulatory requirement of one working day and in some Member States, customers are charged at retail level for porting numbers.

Conclusion

The majority of Member States' markets have become more competitive, but between Member States the level of competitiveness varies widely and telecoms markets remain largely national. The fact that EU telecoms rules are not applied consistently across Member States is hindering the establishment of a single telecoms market. In this progress report the Commission has indicated that there is a great deal of work still to be done to address divergences in regulatory approaches and effective enforcement of remedies, and to ensure timely implementation of revisions to the regulatory framework and the Commission intends to step up its efforts to ensure that this work gets done.

Communications and technology companies embrace branding and retailing

Communications and technology companies used to be the backroom boys when it came to branding and retail customers. They were the providers of infrastructure, and their main focus was business to business transactions. At best their brands were subsidiary or product related brands. Rarely were their brands advertised in the mainstream media to consumers, and it was unusual to see any form of retail distribution network dealing direct with retail customers. Retailers sold communications and technology products, but did so under their own retail brands.

Things are changing. Go to any major shopping centre and you will see dedicated retail outlets selling their own brand of communications and technology products. T-Mobile, Vodafone and Hutchison all have their own stores. We have seen Apple establish its own stores, and other companies are looking at more heavily branded retail outlets or stores within stores.

This is an irreversible trend. Why? Because the most valuable interface in the business world is the interface between the customer and the last person in the distribution chain. It is vital that communications and technology companies embrace the challenges of consumer branding and effective retailing. If they don't they will ultimately become commoditised suppliers of product with ever declining margins. That is what happens eventually to every manufacturer or supplier that loses touch with the end consumer.

Years ago customers had pretty simple expectations, and the life of the communications and technology company was easy. Produce a product with a reasonably well known brand and sell it through a network of large retail stores. Everyone shopped at department stores. The world was simple, and the retail message to consumers was simple – we have the products, you come and choose.

These days specialty retailers dominate, as they are able to make more rich and specific promises to customers. They can not just promise that they will have products, they can market their expertise in helping consumers to decide, can promise pricing advantages, can have retail loyalty programs based on aggregate spend and can deliver a consistent shopping experience.

Communications, media and technology companies have been slow to catch on, but many now realise they can get much more traction from their advertising and marketing by remaining in control of the delivery of their promises through to retail level. There is no point having an expensive television advertisement promising consumers a certain feeling when they purchase a product if that promise can be undermined by a poor retail experience. Or by a retailer that is able to offer a competitive product and personalised recommendations as to alternatives. There is nothing more frustrating to a manufacturer than having advertisements driving customers to stores only to find the customers walking out with a competitor product, yet this is exactly what will happen if the manufacturer leaves the retail experience to chance.

Brand strategy needs to be comprehensive to optimise the level of potential sales of a product. It must extend beyond the product to the range and product mix of those retailers selling it, the retail presentation of the product, customer service requirements, price positioning and sales techniques. Otherwise manufacturers can only make the most basic of promises in their advertising and marketing, and are largely dependent on the retailer for everything beyond the core sales activities.

So what do communications and technology companies need to do to achieve optimum performance?

• they must commit to building their brand as a consumer brand that has brand values and real meaning to consumers;
• they must have a comprehensive brand strategy that has an end to end goal in terms of delivering on their brand promises, and indeed ensuring they can confidently make even richer and more specific brand promises in advertising and marketing;
• they should not regard retailing as a foreign land, thereby allowing intermediaries to control the most vital business interface with the end customer. If they can develop strategies to better control the customer experience they will see significant sales increases;
• they should embrace rather than fear multiple channels to market, staring down major customers who try to discourage them from consumer differentiation, as otherwise they will simply lose certain categories of potential customers to others;
• they must not believe internal anecdotes that past forays into consumer brand enhancement, branded retail distribution or direct retailing were failures, or were caused by poor strategy. The most likely cause of any past failure was probably poor execution or lack of commitment; and
• they should not be are afraid to embrace franchised retail formats or incentivised owner operators as part of their business networks. Importantly this can be not just in dedicated retail outlets, but in stores within stores and even co-branded outlets. Branded distribution and franchised retail formats have been proven to generate increased customer loyalty and better customer service in many industries. And of course franchising facilitates rapid growth using the capital, energy and commitment of owner operators.

In almost all business sectors highly compliant retail formats lead the market. Typically the highest levels of compliance are achieved by business format franchises. For large corporations built on hierarchical management structures this is counter intuitive. You would think having a corporate network of employees who can be legally "controlled" would work best. But this ignores human psychology – people work harder for themselves than for others.

It is also challenging. Different management skills are required to engage with owner operators, and the views of senior management are not accepted without question. There needs to be a different training and support infrastructure, and sometimes it seems just to be too hard. However long term, there is no choice. History shows that organisations that embrace the customer interface prosper, and those that abandon it become commoditised. The banking sector has learnt this lesson, and in recent years has been forced to try to reclaim customers lost when branches were closed and intermediaries encouraged in areas such as mortgage broking, financial advice and insurance. Manufacturers that chose to leave retailing to their supermarket customers are now paying for the privilege, and are seeing house brands challenge them if they take their eye off retail brand promotion.

Communication and technology companies are well placed to consider the lessons learnt in other markets, and ensure they have comprehensive retail and brand strategies. They should make more effective use of contracts to secure better compliance with brand promises, and consider the involvement of owner-operators in their distribution channels. This may involve taking a serious look at franchising, licensing and branded distribution. They should embrace multiple channels to market, and see channel management as a business challenge essential to optimum performance. And most importantly they should remember that the most valuable business interface is that between the customer and the person making the sale.

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