Failure to move away from a defensive business strategy is the top business risk for telecom operators across the world, said Paul Cheung, partner at Ernst & Young, at a press conference in Beijing yesterday. He urged a model where providers shift payment plans from minutes to bytes.

As value shifts from voice to data use, operators need to move away from their legacy strategies focused on customer retention. They have to target revenues from new services that tap into rising demand and master a wider array of charging models to monetize these services, Cheung said.

Paul Cheung (left) and David McGregor (center) at the press conference on Ernst & Young's newly-released report of the top ten business risks for telecom in 2012, in Beijing on June 26, 2012.[Guo Xiaohong/China.org.cn]

In addition to new business model, levels of capital expenditure and regulatory uncertainty represent the biggest threats and opportunities in a transforming telecom sector, according to a report of the top ten business risks for telecom in 2012 released by Ernst & Young.

Telecom operators across the world face changing demands from customers, competitors and regulators, creating new pressure across their organizations, said David McGregor, Asia Pacific Telecommunications Leader at Ernst & Young at the conference. “[Shifting] business models to cater to data services is mission-critical for all,” McGregor said.

As operators widen their range of service, partnerships are no longer just a nice to have—strong industry ecosystems are required to support new propositions. At the same time, new business metrics are needed to more effectively communicate financial and operational performance to the investor community.

Ranking second in the top ten risks is lagging behind on the customer experience, reflecting how operators need to keep pace with changing user expectations.

“While losing customer ownership is an ongoing industry concern, operators recognize that they also share ownership of their customers with a number of players, from device manufacturers to banks,” McGregor said.

The report also highlights that operators should make the most of their customer information assets to optimize network performance and drive the development of new service. Failure to do so would mean that demand can’t be turned into value.

Interestingly enough, “privacy, security and resilience” rose one spot in the report since the 2010 version, reflecting customers’ concerns about data integrity as well as call quality. The challenges are compounded by rising concerns among customers. End users are facing escalating and multiplying privacy and security dangers, as threats converge from a range of environments, including SMS, cloud, Web 2.0 and mobile apps.

The 2012 top business risks for the telecoms sector:

1. Failure to shift the business model from minutes to bytes

2. Disengagement from the changing customer mindset

3. Lack of confidence in return on investment

4. Insufficient information to turn demand into value

5. Lack of regulatory certainty on new market structures

6. Failure to capitalize on new types of connectivity

7. Poorly formulated M&A and partnership strategy

8. Failure to define new business metrics

9. Privacy, security and resilience

10. Lack of organizational flexibility

Top ten risks in telecom 2012 report is the latest in a series of annual reports based on the insights of Ernst & Yong’s sector practitioners, offering the global industrial trend and problems telecom is facing. Ernst & Young is a one of world’s big four in assurance, tax, transaction and advisory services.