Dialing Up Risk: How Telecom Will Expand our Risk Management Knowledge

Quick quiz: What industry has been responsible for the world's greatest innovations in the past 20 years?

Hint: Most of the traditional players in the industry operate a lot like utility companies.

Answer: Telecommunications! Yes, telecom companies have paved the way -- or provided the pipes -- for game-changing innovations in medicine, science, business, education and just about every other field during the past two decades. And where there's innovation, there is inevitably a valuable and instructive risk story. My money is on telecom emerging as the most fertile ground for risk management learning in the next 12-24 months.

How much value are we talking about? Well, AT&T posted roughly $124 billion in revenue last year and some $20 billion in net income (as the world's ninth-largest non-oil company by market value). Traditional subscription models pay quite well, thank you very much. How risky? Well, the bulk of that profit comes from monthly subscriber fees: We pay our carriers $50-$75 a month for phone service. But what if a technology company with some cash on hand and a disruptively innovative subscriber/advertising model enters the market (dashing off a check for, say, T-Mobile or Sprint) and figures out a way to charge $10-$20 for monthly phone service?

If that happens, some traditional telecommunications companies -- including those who currently employ more than a quarter-million employees -- could start looking like Circuit City and other traditional retailers.

That's one threat confronting traditional telecommunications companies and their eye-opening profit streams. There is, of course, also a massive opportunity in the form of customers' insatiable appetite for data, 24/7.

A key question for traditional carriers is this: Can they simultaneously become massively more efficient in their traditional line of business while marshaling the creativity necessary to develop and execute innovative new business models to capitalize on a massive opportunity amidst a barrage of new competitors? Ask a management consultant to name a telecom company these days and you will hear some surprising names -- including Facebook, Best Buy, Apple, Roku, Amazon, Hulu, Google, Samsung, Toshiba and other businesses -- in addition to the phone, wireless and cable companies.

While this divergent pair of Big Challenges sounds extreme, it is not all that uncommon. Companies in many industries face a similar need to greatly reduce cost while greatly strengthening their capability to produce innovation.