An interview with Dr. Alexander Rüsli, former President Director & CEO of Indosat Ooredoo.
Back in the 90s, the mobile industry was a land of milk and honey with new territories and new customers to be conquered. In a study for PwC, Dr. Florian Gröne compares the early years of wireless telephony to the California gold rush of 1849; companies moved quickly to claim new territory and rapidly built the infrastructure needed to cover the most populous parts of their respective regions, and then the more rural ones. Customers would flock to operators to sign up for a cellular subscription and most likely would receive a mobile free of charge as they did. Life was good.
Competitive pressure in the global wireless telephony industry then began to rise. From the outside, as companies in industries such as technology and media would move into the space, while at the same time telecom operators would fight one another for subscribers in an oversaturated market. This led to slow growth and what seemed an inevitable commodisation of telcos' primary services.
A race towards the bottom
When the territorial phase ended, Dr. Gröne explains, wireless operators in each market rushed through four generations of technology to bring quality and speed to the level it has today. Service providers would turn to various growth strategies, only to find themselves handing over customers to large global tech firms.
In the 2010s, when Dr Alexander Rüsli led Indosat Ooredoo, a leading telecom and network services provider in Indonesia, he recalls finding himself in the middle of an industry that would enable the digital revolution which was going to have a significant impact on the telco industry:
"The shift to a faster network really enabled the whole digital scenario and is one of the major breakthroughs enabled by the telco industry. It allowed a better customer service through value added services – everything was going so fast that you didn't have to wait and wonder if the payment would go through or not. It didn't go too well in terms of profitability, but the telecom industry has definitely been an enabler for the entire digital industry," Dr. Alexander Rüsli, former President Director and CEO of Indosat Ooredoo, asserts.
The entrance of smartphones created an exponential growth in the need for data, with the launch of Blackberry in 2002, Ericsson's vastly popular R380 smartphone in 2010, followed by iPhone and Android phones. Operators missed out on this creation and tried to capture some of the value created by the ecosystems by launching their own smartphones and apps but to no avail. Then a new generation of smartphone apps began gaining on the operators' cash cows, voice and messaging, which operators would eventually give away for free. In short, operators' services became a utility – easy to compare and subject to increasing competition on price as operators ran out of ways to differentiate themselves from competitors. This in turn made it hard for many to come by the necessary capital to upgrade their networks and to create services to attract new customers.
Telcos lost sight of their customers
Asked what telcos should do differently if they could turn back time, Dr. Rüsli is quick to point out the need to constantly nurture the relationship with the customer:
"One of the things telcos always had was the unique relationship with the customer – but they never took care of it! They would say, ok, the churn is only 3% a month, whereas in the payment space people would freak out over a 3% churn. Being able to build that relationship and provide services that will allow people to stay with you longer is something that should have been done differently. The approach that telcos had was: ok, we give a service because you need us, whatever, and then you'll use us whether you like it or not. That's why the user satisfaction with telcos tends to be very low, and only 3 out of 10 would recommend using their services," Dr. Rüsli says.
In his opinion, there is plenty of learning for financial institutions from what happened to the telco industry in the 90s when it was facing new technology, new regulation and new players that would challenge the status quo. In his own region, he sees two types of financial institutions – one that believes in keeping things the way they have been for decades, wanting regulation to stay unchanged. And, at the other end of the scale, the type of financial company that wants to be the enabler for all the new tech coming out:
"These players want to be the banker for everyone, which means they'll have open APIs and so on. Yes, the margin will erode as they no longer own that fat margin because they're selling mass products to other companies, but on the other hand they're securing their spot on the map of the future. I believe this is the better approach. Unfortunately, very few of those original financial institutions are thinking that way – more have that top-to-bottom approach and are protective of their own business, and we're seeing those people getting disrupted."
A choice between self-disruption or self-destruction
Knowing the corporate world from the inside, Dr. Rüsli predicts many incumbents will continue to run their business the way they always have been:
"It's challenging for incumbents to adapt to new industry conditions because the shareholders for the bigger banks tend to be real financial institutions in the sense that they invest in many things – they'll invest in banks, they'll invest in additional payment companies, and at some point, something has to give …"
According to Dr. Rüsli, these professional financial institutions perceive putting money in the bank as a dividend play, providing them with a regular amount of money to finance other riskier investments with a higher return.
"It has to start at the top – the shareholders have to be willing to expect less return for a while if the bank is going through a phase. Are they willing to forego their dividend for the next 3-4 years? Allow the organisation to evolve, to revolutionise itself into something else that has a future? That's where I see the challenge," Dr. Rüsli worries. If he were to advise a legacy financial institution, bearing in mind what he learned when telco was hit by similar disruptive forces, he doesn't hesitate:
"I would get them to look at the Apple model where they're open to disrupt themselves. But by disrupting themselves, they at least get a piece of the future. You kill your own business by allowing your new business to take over, but at least you'll have a future."