In the lead up to the Mobile World Congress in February, our experts are outlining four key trends regarding “The future of telco”. Last time, we explored the B2B market potential, touching on the need for transformation. In Part 2, Alastair Birt dives deeper into this topic, explaining why telcos need to creatively dismantle the old ways and rise from the ashes stronger, wiser, and ready to seize the future within its grasp.
Most telecom companies claim to be well on their way to making the shift from communication service providers (CSPs) to digital service providers (DSPs). They draw attention to simplified portfolios, improved customer experiences, a shift to digital channels, and higher NPS as evidence of success.
However, when comparing financial performance over the last decade, the telecoms sector falls far short, as compared to the ‘double-digit’ compound growth rates of hyperscalers, OTT players, and software-as-a-service (SAAS) platform disrupters.
The case for change and the future of telco
The telecom industry’s earlier period of stellar growth depended on three factors:
- The competitive advantage of owning the underlying network.
- Regional presence, and cultural affinity with their target customers.
- Underserved generation of customers, with limited competition.
Today, it’s a very different story, as next-generation customers continue to shift spend and loyalty to whichever brand provides the most utility, experience, and value. On the other hand, research shows that customers are ready and willing to let telecom providers help them in many other areas of their life.
Many of these aren’t small, insignificant areas, nor is this list exhaustive. These are large addressable markets, with many use cases, and potential partners. So, why is it proving so difficult?
Existing telco products infiltrate deeply into customer’s lives, both work and play. The largest operators have massive customer and business scale, an existing platform for billing, and service management. They also have a real-time stream of interaction, content, and location data to mine for opportunities and enable personalization of any service launched.
But, when it comes to building new businesses, telecom operators have historically struggled to scale adjacent business opportunities. A 2021 survey of telco CXOs highlighted corporate culture as the overarching problem, with any new business hampered by:
- Cumbersome corporate processes
- A lack of buy-in from senior management
- And pressure for short-term results in a business where legacy network-margins create an inertia to take risks
Telcos now find themselves at a crossroads. For the next decade, they can either tweak their business and operating models to achieve incremental gains or make the bold choice to reinvent their value-creation formula across a larger set of use cases, and, if possible, over a larger addressable market.
The future: An ‘ecosystem orchestrator’ and platform partner
The more complex something becomes, the more important it is to simplify. Revenues flow to those who simplify “the new”. It goes to those who are able to reduce the friction of buying and using by guiding customers through each stage of their journey – from first recognizing a need to becoming wedded to a service.
Hyperscalers, OTT, and SAAS players have operated on the edge of this curve for the last 10 years, delivering great value to shareholders. We believe that the next generation of telco must emulate these traits and embark on an ambitious organizational transformation:
- Partner with a broader set of successful growth companies. Leverage and combine the strengths of other partners – many outside the established telco ecosystem. At the same time, organizations should sprinkle their own differentiation and creativity into each of the combined solutions they market. Such partnerships provide the manpower, experience, and laser-focus needed to succeed at a task that would otherwise be impossible to execute alone.
- Adopt and emulate a SAAS-centric growth playbook. Transform how you develop and sell products, and the way your people and digital platforms engage with customers at every stage of the lifecycle. This means continually scanning and embedding the most successful SAAS strategies and tactics into your operating model.
- Transform into an ‘orchestrator of value’ in the connectivity ecosystem. In other words, build the capabilities to operate above this layer of software, service partners, and global networks. This will require developing into a bi-modal enterprise – one which knows both when it’s best to ‘own’ the relationship with the customer, and when it’s not, focusing on making partners successful instead.
- Optimize the use of customer and partner data to target, personalize, and deliver a broader set of value-add services for customers. Forget “quad-play” and 30+ segments, the future is ‘mega-play’ to every single unique customer. To achieve this, telcos need to build a scalable, partner-curated set of products and services. They also need to hyper-personalize the offer and the delivery into the hands/devices of every individual, household, and community.
- Consciously reconstruct the enterprise into a use case driven organization. This should be equipped with a lean core which provides the scalable, personalized digital platform and rich database on which to build out their business. At the same time, it should free the outer ring to aggressively chase products and service-markets which fit within their curated partner ecosystem.
Telecom companies need to become the first point of contact for customers when they want innovation, education, and excellence across a much wider set of use cases. This will require a significant shift in organizational brain, muscle, and talent.
The future is already being created
In recent years, we’ve seen more and more evidence that telcos can successfully incubate new products and services, achieving healthy top line growth and M&A activity around these new service models and business units.
Opportunity ahead: Telco for good
Emboldened by this success, we believe that the telecoms industry is now entering a new phase of transformation: From DSP to ecosystem orchestrators. As such, there’ll be a wave of new products, service models, and partnerships across the entire ecosystem, fueled by broader societal change. This is just the beginning.
Connectivity is the central nervous system of our society. Industries will experience unprecedented technological change in the next 10 years, as AI, 5G, Blockchain, AR/VR, Web3, and a convergence of far-reaching technologies take hold and reshape the way we all live and work.
Market success for the telecom industry will rely on many factors, including the five areas of transformation mentioned earlier in the article. Not forgetting, attracting, and retaining the right partnerships and talent to transform, unencumbered by the past.
In Part 3, we outline why and how telcos can empower growth through talented people. Reach out to our experts for more information.
___________
Read more from this series
Part 3 – Telecoms: Why talent is the next frontier for competitive advantage
Alastair Birt
Associate Partner
