Industry perspectives

2015 Telecommunications Trends

Wired and wireless carriers confront a rapidly shifting technology landscape in which small steps toward digitization are no longer enough.

The transformational impact of digitization (the mass adoption of connected digital technologies and applications by consumers, enterprises, and governments) continues to drive telecommunications operators’ most critical strategic and operational decisions. This trend governs how telecom companies try to monetize their infrastructure investments and exploding data traffic, boost newly needed capabilities, rationalize their product and service offerings, improve the customer experience, and evolve their asset portfolios and business models.

So far, the results have been mixed. Global operators’ revenues are stagnating, even as operating and capital expenditures are increasing. Meanwhile, the “over-the-top” (OTT) players — video, audio, and other services such as Netflix and Spotify that piggyback free on telecom systems — are gaining in number and popularity, making the traditional operators’ task that much more difficult.

Telecom operators that have adopted aggressive digitization strategies are generally faring better than their more conservative rivals, although the transition has not been smooth. In some cases, early digital initiatives have been scattershot, and many telecom companies have learned that they must take a more focused approach in determining which digital products and services to offer if they are to capture real opportunities in adjacent businesses and broader digital ecosystems.

For telecom companies, the agenda is challenging. But they can’t avoid taking on these fundamental realities of their industry if they are to maintain and profit by their central role in the digital economy.

Digitization of the core business

Most telecom operators understand the potential benefits — consumer satisfaction, enhanced revenue streams, and cost savings — that can be reaped by providing compelling online digital experiences as well as service automation and more efficient, straight-through processing of financial transactions. For many companies, however, complex legacy architectures and systems and legacy products and services stand in the way of making meaningful inroads into the digital experience. Indeed, because of their size and relative agility, smaller telecom companies appear to be better prepared to pivot away from older systems and provide truly customer-friendly business processes.

For telecom providers, incremental efforts are unlikely to remedy the situation. Instead, companies must completely redefine their relationship with their customers. They must prove that they can offer high-quality, state-of-the-art, and reliable communications services; popular and fresh content on mobile and desktop platforms; and consumer-friendly websites with online billing, troubleshooting, scheduling, and account support. They also should sell their expertise in security, identity authentication, and billing to their business customers. And they must work to monetize the mountains of data that flow through their networks by shifting to experience-based pricing, phasing out unlimited and free data plans, and promoting the consumption of data-heavy content.

Telecom providers must completely redefine their relationships with their customers.

These efforts will require significant investments in new networking technologies as companies continue to deploy 4G networks and develop new 5G systems. Funding should come from optimizing operating costs, in part by using small-cell networks to regulate the available spectrum more efficiently and improving network performance with new management technologies such as software-defined networking and network functions virtualization.

Still, despite their best modernization attempts, telecom firms will likely face a gap between the cost to deploy, maintain, and upgrade the networks needed for the growth in traffic, and the revenues they can generate from that traffic — particularly in emerging markets, where the average revenue per user is low. If regulators fail to devise new schemes to maintain a healthy economic model for operators that will allow them to continue to invest to meet exploding demand, the gap will continue to grow. Meanwhile, telecom companies will need to become better at monetizing the delivery of services that have become essential to the daily lives of everyone around the world. Rather than competing on price — the model virtually every company has followed in the past two decades — operators must figure out how to optimize revenues from different customer segments, especially those segments that are less price sensitive and that value service quality and superior customer experiences.

Digitization of industries

We live in an ever more connected world. The concept known as the Internet of Things (IoT), which was discussed in a recent strategy+business article, will soon link all manner of devices, from toothbrushes to cars to entire cities, into larger and larger networks. The price of connectivity itself is declining, and the enabling devices, such as smartphones and tablets, are themselves becoming less expensive, more powerful, and ubiquitous.

These advances should be a boon for the telecom industry, offering the possibility of further monetizing the additional network traffic. Already, telecom firms are taking advantage of this new user base of people and things by developing a variety of new services, sometimes in partnership with other companies. For example, in the U.S., AT&T is working with IBM on a smart cities program, and Spain’s Telefónica offers an IoT product called Thinking Things that lets individuals develop programs to adjust climate and lighting in rooms, offices, and buildings currently and in the future to control all of the home and office equipment and data they interact with. In conjunction with companies such as Nespresso and Coca-Cola, the U.K.’s Orange has launched a machine-to-machine (M2M) communications system. Germany’s Deutsche Telekom is supporting the digitizing of manufacturing with its Industrie 4.0 initiative. And an Indian firm, Bharti Airtel, is in a joint venture with the State Bank of India to develop mobile banking apps for people unable to access a local branch. Providing such farsighted services for all kinds of industries, equipment, and individual needs is essential for every innovative telecom operator.

Because many of these new services are managed in cloud-based systems, the digital environment will require a higher level of security and privacy protection than currently exists. That potentially presents yet another opportunity — it could be called a duty — for telecoms to set the benchmarks and standards for safeguarding the sensitive personal information shared by consumers, companies, and machines over these ubiquitous networks.

Building digital ecosystems

Recently, telecom providers have begun to pursue growth through innovative digital ecosystems designed around joint ventures, acquisitions, or internal R&D. Sweden’s TeliaSonera, for example, has taken a stake in Zound Industries, a provider of fashionable accessories for electronics, while Australia’s Telstra has invested in digital signatures through DocuSign and in video platforms through Ooyala. Deutsche Telekom Capital Partners has set aside US$620 million to fund German startups. Many major global operators have established their own independent incubators or venture funds focused on digital innovation, and created satellite offices in the Silicon Valley region to gain access to ideas for next-generation services.

Telecom companies have begun to pursue growth through innovative digital ecosystems.

However, developing ecosystems of digital components and applications that can seamlessly provide complementary and synergistic services and products is no easy task, especially given the head start that companies such as Apple and Google already have in covering a range of interwoven communications, multimedia, shopping, entertainment, and financial offerings. For telecom companies, success will depend upon gaining a deeper understanding of coherent digital ecosystems, developing or acquiring the capabilities needed to implement digital ecosystems, and making sure the ecosystem is greater than the sum of its parts. In most cases, this means entering into the right partnerships, developing the application program interfaces needed to create apps, and offering business customers big data analysis, mobile payment programs, and mobile advertising solutions. Without these capabilities, telecoms are unlikely to thrive in this highly competitive arena.

The requirements for digital ecosystems differ significantly for consumers and for business customers. Whereas the former can accept beta-level products, business customers demand more reliable and secure services. In this regard, because of their vast experience and significant capabilities in providing high-quality, well-managed, and dependable networks, telecom operators are already well positioned to fulfill these needs.


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