Operators must go further with business model transformation

For telecom players, the outlook is uncertain. Internally, they face stagnating and volatile revenues, and operators worldwide aren’t likely to exceed 4% annual growth, particularly in mature and late-stage emerging markets. Legacy revenues are likely to erode faster than new revenue streams can compensate. Capex requirements are also increasing, with the ever-increasing demand for wider coverage and higher capacity for data, and the looming emergence of 5G. Activist investors have also slowed investment into innovation, which threatens to limit corporate agility in the long term.

Externally, operators are facing intensifying competition, not just from other operators and MVNOs, but also from global OTT players. The OTT players continue to set superior customer experience standards – an area which remained under the control of operators until very recently, but also one where operators have traditionally lagged behind customer expectations.

To adapt to these headwinds and protect their core business of connectivity, telcos globally have expanded their service portfolios, entering areas such as IPTV, cloud services and VAS platforms, and have explored partnerships with OTT players across areas such as streaming video-on-demand and financial services. However, OTT players are reducing dependence on their partners, and in some cases stand to disintermediate even core connectivity business models: the continuing decline of messaging and voice revenues due to OTT players is a stark example. Further, with the advent of Soft SIMs (e.g. Apple) and wholesale connectivity models (e.g. Kindle), telecom operators – especially in mature markets – face the threat of a complete loss of customer ownership.

To survive in an era of increasing competition and commoditization, telecom operators must once again revamp their business model. What’s clear is that they must become leaner than they already are, and leverage technology evolutions such as NFV and SDN, to refocus on delivering pervasive quality and significantly minimizing cost.

But to succeed, operators must take it a step further, by choosing and scaling the right services, in view of expected future demand.

Case studies

As an example, an operator in China rightly predicted that demand for IoT connectivity would spike – and as a result of focusing its sales and network building efforts on IoT connectivity, it became the first operator in the world to connect a milestone 80 million IoT devices in early 2016.

There are two lessons to draw from this.

No doubt, operators in China are blessed with a big market at their doorsteps, but the operator’s leadership must correctly identify the right service paradigm to scale. The second key message is that operators must determine services that can be scaled down or de-emphasized – these may include owned messaging and VoIP platforms, given that global OTTs have distinct leadership in these areas. In fact, operators would do well to review their entire portfolio, suite of business models and existing partnerships, to determine where to dedicate both capex and opex.

By determining worthwhile market trends and capitalizing on them, operators have seen successes. As an example, in the mid-2000s, a South Africa-based operator made a bold move to create a mobile money division. It steadily grew its mobile money user base to around 35 million in 2015 across several countries in the African continent, and more importantly shrunk churn from 20% to 2% over time and reduced overall infrastructure costs per user – all this before an OTT or traditional financial service player could gain a foothold in the mobile money space.

Three business transformation exercises

For operators in East and Southeast Asia to similarly pursue this business transformation, there are three exercises that will enable them to determine their path to success.

First, the operator’s core services must be improved and costs suppressed. With digitalization, operators have the opportunity to strengthen value-added interactions at every touchpoint across multiple channels. Network functions virtualization and software defined networking models should be explored and pursued to suppress costs.

Second, scaling the right services at the right time is essential to determine where to direct scarce capital dollars. Additionally, as niches and segments get bigger and its customers diverse, operators would do well by expanding their management and allow a broader degree of division autonomy, for faster decision-making and adaptation.

Third, operators must augment capabilities to match services and also build up internal talent in areas that all operators need, such as big data and fraud prevention. Operators must also change their ways of working and thinking, by investing in services that target new innovation, simplify existing platforms and continually seek to partner with new services that provide unique selling points. An organization that thinks and functions ‘digital-first’ is more likely to be able to adapt and transform its products and services faster.

Above all, operators must continue to increase emphasis on the customer experience that is refined by not just simple usage surveys and tracking, but also intelligent analytics at the core, and joint product development with partners at the edge.

In today’s industries threatened by startups and new entrants, telecom operators who do not think beyond telecom are at the risk of being relegated to being mere utility companies, if not a chapter in a history book.

Written by Damien Dujacquier and Mohit Gidwani, Senior Partner and Principal, respectively, at global consulting firm Roland Berger.

Mr. Dujacquier will be moderating a panel at Capacity Asia 2017, held in Hong Kong this week from December 12-13. 

 Disruptive.Asia is an official media partner of Capacity Asia 2017.