Information and communication technologies (ICTs) are now woven into the fabric of our daily lives. They underpin services across industries as diverse as banking, transportation, media, and health care, just to name a few.
The telecommunications industry still plays a fundamental role in providing this widening range of services that is improving people’s lives, but in this era of great convergence, telecommunications companies (telcos) continue to face profound disruption to their business. Traditional revenue streams are drying up while costs of updating modern telecommunications infrastructure are soaring. How are they adjusting in 2019?
ITU News recently caught up with telecommunications industry analyst Chris Lewis of Lewis Insight to ask him about the top challenges for telcos and how they are changing to meet the new demands. Here are his responses.
Telecommunications was formerly a self-contained industry with its own technology, rules of operation and innovation cycles. The end-to-end control of the telephony market drove a very specific culture and approach to dealing with its customers.
As the technology has evolved to extend from connecting homes and buildings to individuals and ‘things’, it is increasingly exposed to technological, economic and commercial pressures from the outside, which leaves telcos having to react to different cultures and business practices.
Ironically, connectivity has never been so important. However, the price paid for broadband connections, fixed and mobile, does not bear any relationship with the volume of traffic generated across the broader network, nor the value created for third parties. Hence, the pressures on the world’s telcos is to significantly reduce the cost of operations on the one hand, while increasing the range of services supported to its extending customer base on the other.
The temptation for telcos is to venture into multiple adjacent markets, but they all come with their own ecosystem of suppliers and retail channels. So, technology isn’t the main issue, although this is changing dramatically with virtualization, cloud computing and ever more powerful end devices.
The main challenge is to find the right position in the ecosystems that serves the different markets and to make it easy for partners as well as customers to get access to the services they require to support their digital lifestyles.
The following are good examples where the telco has built upon its presence, brand and reach to move into adjacent markets:
- Orange is using its brand to build its financial services portfolio around its mobile footprint with its Ecobank bank acquisition. This was inspired by their presence in North Africa and the facility to transfer money back home for ex-pats working in France.
- BT ventured into Premium Pay TV when it acquired the rights to Premier League soccer and rugby. The initial motivation was to increase connections to its fibre Infinity broadband, but its sports output has been seen as ground-breaking and so well received by the public that BT is now exploring more shared approaches with other media players such as Sky.
- AT&T has gone even further and acquired media assets, including Time Warner. This is the boldest step, requiring much more financial clout, but AT&T believes it can run both the media and telecoms businesses as part of a single entity for the benefit of both customers and shareholders.
Coming in the opposite direction, we also see companies like Rakuten in Japan, a successful e-commerce company now building a greenfield mobile network to extend the reach of its suite of services to compete with the telco-originated players. Reliance Jio in India can also be seen in this context with its broader industry background and leveraging connectivity to give access to its customers of energy and other services.
Since connectivity can find itself embedded into almost every consumer, business and public service, the telco will have to work with a wide variety of players.
Autonomous vehicles, media, financial services, manufacturing and healthcare are all showing early signs of working more closely with telcos in different parts of the world. But, in fact, the role of the smartphone players like Apple and other digital hyperscale players like Google, Amazon and Facebook, means that telcos have struggled in these so-called ‘adjacent’ markets.
Furthermore, it is interesting to see how the former Network Equipment Providers (NEPs) such as Ericsson, Huawei, Nokia and Samsung have built out their global capabilities and now even support some of the telcos in, for example, their Internet of Things (IoT) global delivery. This raises the question of whether telcos may be better positioned as wholesale providers into the digital ecosystem rather than trying to control the different customer groups with enhanced offerings.
Current thinking is definitely that ‘Industry 4.0’ and the enterprise markets offer more fruitful hunting grounds than the consumer side of the business. This requires a rethink when it comes to wholesale, what it comprises and what it means to the partners. Players such as Netflix have developed partnering with the world’s telcos but their scale now suggests that telcos need them more than they need telcos!
Technological shifts in the telecoms world have traditionally been dictated by the telcos and their culture. Virtualization and Cloud are IT-centric developments that clash with the network engineering culture of the telco.
Capital expenditures (Capex) and operational expenditures (Opex) are major costs to the telcos and, in fact, additional investment has been called for to get them over the “double bubble” of legacy maintenance and new virtualized approaches.
The cloud players are making a clear contribution to telcos and their development environments with Amazon Web Services (AWS) and Azure especially doing well. The relatively slow development overall, however, is probably best attributed to the cumbersome processes, stifled innovation and short-term focus on stock markets rather than long-term focus on building the best broadband infrastructure for a country.
There are undoubtedly advantages to having a more agile IT environment in terms of the quick launching of new services and more flexibility to wrap services around the emerging ‘B2B2X’ (business-to-business-to-business/consumer) business models. Getting more in tune with the changing landscape of households as well as business customers in different verticals will be essential as will structural changes within the telcos and a fresh look at the sort of sales people and customer experience channels used.
In short, connectivity in the form of fixed and wireless services have never been so much in demand. However, they are a part of the solution that individuals, households and businesses need to build their future digital lifestyles.
The message for the world’s telcos is to get agile and get accustomed to playing by the rules and wishes of the customers they serve and get out of the old mindset of telecoms being something special.
Chris Lewis is an industry analyst looking at the depth and breadth of the telecoms industry for over 30 years. He founded the Great Telco Debate in 2013 and contributes to industry events including the TM Forum, Mobile World Congress and the DSP Leader Forum. The original version of this article first appeared in ITU News. Views expressed in this article do not necessarily reflect the views of ITU.