Is it time for Ryanair model for telcos?
March 5, 2020 - Jonathan Plant
Ryanair’s model of lowering operation and customer costs while upselling other services has seen them enjoy the highest margins of Europe’s big five airline groups. Could telcos match and leverage a similar proposition?
The model is simple. Run a low(er) cost base, pass savings onto the consumers and look to make additional money by selling other ‘stuff’.
Ryanair have being doing this for years, and it works. Used to be cabin crew on an airline was seen as a glamourous job. Used to be that airline travel was expensive.
Drinks were free and no-one tried to sell you scratch cards or bus tickets from the airport to the city.
Then along came Ryanair.
At first people got a bit tetchy when things went wrong, because they were used to the service levels delivered by the traditional (costly airlines). But Ryanair, and the other budget airlines that followed opened up air travel to many people from whom frequent air travel wasn’t economically possible.
In mobile the move to digital is resetting the cost base for operators. Getting rid of high street stores and call centres and moving sales, marketing and care to an app all drive costs out of the picture. But there’s still the question of the network and IT costs.
This week, the new Japanese mobile operator, Rakuten ran a press conference to announce details of their new mobile service which will launch in April. The main point is that the service will be low cost for unlimited data and calls. There will be one plan which will cost around $27 / month – which is about half of the price of the equivalent plans with the other three incumbent operators in Japan.
This is a brave move, but not entirely unexpected. Rakuten have been regular speakers at telecoms conferences and have made no secret about using cloud based open software to build an open radio access network to lower costs. By running a more cost effective network, Rakuten can pass these savings onto their customers and attract more people to join their service. At this week’s press conference it was said that running an open RAN platform is 40% cheaper than the traditional infrastructure approach.
So the lower cost base model and lower prices ties in with the Ryanair model. As for the upselling of other services, at this week’s press conference, Rakuten’s CFO said that, “company's ability to make a profit depends on the speed of adoption and the sale of additional services to those customers”. Up-selling additional services is often the route to growth for many telcos with data on its own being a low cost commodity to deliver these services. In last week’s Openet blog we discussed how Turkcell is becoming the poster child of digital telcos by upselling a range of digital services and so driving up revenues and profits.
Using the cost savings delivered by the use of openRAN to attract new customers, and thus give a larger base to upsell new digital services to is an interesting move. But this could just be the start. My colleague Tony Gillick wrote in an Openet blog in January about how openRAN is shaking up network economics and how IT costs are also being re-evaluated. The move to open, best of breed solutions can deliver substantial savings over the traditional mega vendor approach to OSS and BSS. These savings from new approaches to network and IT can be used to attract new customers and then upsell them additional services.
This model of lower operating costs, lowering customer costs and upselling additional services works. It worked for Ryanair who for several years have enjoyed highest margins of Europe's big five airline groups.