Branding And The Wireless Value Chain

A close look at Interbrand’s best brands report reveals interesting results and insights on the wireless industry. Focusing on brands related to the telecommunication industry, which includes hardware, software, and content providers we find the following top brands for 2012:

Note that not a single wireless network operator makes it to the top 100 list (or any telecom operator for that matter). AT&T was there in 2002, but dropped out in 2003. Vodafone, O2, Orange, all have strong and multinational brands, but not strong enough to be in the top 100. Instead, we find the likes of Apple, Samsung, Nokia, and Blackberry, all companies with strong consumer electronics segment. Also, we find over-the-top service providers like Google, Amazon and Facebook. But what does all this mean? I think it displays the power of branding in securing a larger share of consumer spending.

Branding is critical to revenue generation in highly competitive markets and industries. People will flock to buy an Apple iPhone, spending hours in queue on release day. They would also want to access their Facebook page from a mobile device, a tablet or a computer. But when it comes to making a choice between wireless provider A and B, we usually analyze the plans to see who provides the lowest cost (or the lowest cost for our usage behavior). Often, we’ll opt to sign up with the operator who offers the phone we want and pass up on the operator that does not even when they offer a better package.

Differentiation in wireless networks is most often not obvious and consumers are generally imperceptible to difference in performance. Sure there are dropped calls, but this happens on every network. The lack of differentiation means that wireless carriers would compete on price which is what has largely taken place resulting in eroding revenues. Unfortunately, this erosion is happening at a time when consumer demand for data services keeps increasing which pressures operators to upgrade their infrastructure leading to reduced profit margins. For example, in Western Europe, mobile traffic increased by 39% year-on-year in 2012 and sunbscribers consumed 3,077 exabytes of data, but analysts are warning of declining ARPUs. (Check my prior blog: The End of Wireless).

But wireless operators recognize this and are not sitting idly by. They are implementing techniques to capture ever increasing portion of revenue. Such techniques include bundling of different types of services, searching for new revenue streams in novel applications (such as machine-to-machine), and streamlining access to content. But in the absence of the power to develop as strong a brand as other services in the value chain, and the ability to differentiate the service from that of another operator, wireless operators will be at a disadvantage. Consolidation and expansion has been a mean to increase revenue and this will continue in the foreseeable future. Regulators will keep busy!