Future telco: from a walled garden to a digital platform.
Telcos had quite a ride for a while-
Since their early days as phone companies, telecoms operators have made a lot of profits on their own, trying to cover all their customers' network-powered needs.
This stems from the very capital-intensive nature of telecommunications networks. Telcos invest billions in telecoms infrastructure, and as a result want to get the most out of it, keeping all of the value generated or enabled by the network. They focus on acquisition and retention tactics while maximising revenue per user, a very successful and profitable strategy for years.
-yet their walled-garden approach is not working anymore in the digital era.
When web services took off, telcos' reaction was to try and capture online revenue for themselves by mimicking internet services with a "me too" approach (Mail, website hosting, cloud, etc), but the results were lacklustre as they were never fully committed to these services which:
* Mostly were bundled with a subscription as an acquisition/retention tactic, and therefore only required to be "good enough" at best, not best-in-class.
* Were developed using internal resources, shying away from valuable partnerships or outsourcing, even if the underlying technology was not fully mastered.
* Were designed with a technology focus rather than a customer focus, following the cultural trend of an industry that pushes technology rather than use cases, and products rather than services.
This mostly wasn't that much of a problem in the 2000's as mobile growth made up for it and young mobile networks were still mostly controlled by operators, like their landline ancestors.
Enter the iPhone. All of a sudden, walls came tumbling down. One got access to the actual, full-flavoured internet from the iPhone. Telcos lost their main historic asset, which was control over access to their customers.
Then history repeated itself, as telcos' reaction was more of the same, unsuccessfully copying these new mobile services as value kept on being increasingly created outside their garden's wall.
Ten years into the iPhone age, telcos are under heavy pressure
On one hand, customers demand ever-cheaper data, fueled by internet usage, which requires constant network investment; on the other, they are losing most service and voice revenue, to better and more agile internet players. Gradually, connectivity is becoming a commodity, which was the nightmare scenario telcos fought tooth and nail to avoid.
If telcos want to preserve their margins in this new digital economy, operators must find a new business model and not compete on the same services that internet and OTT players provide as they are ill-suited to do so.
Yet so far, telcos' digital strategies seem to be only focused on enhancing user experience (UX) through multi-channel processes and digital tools. This is a very limited view of the digital transformation and essentially revamps a slowly failing business model, therefore missing the real issues.
Leveraging telcos' strengths in order to play by the digital rules
Telcos are network and technically focused organisations, which have only an average scorecard in terms of client relation management. While improving UX could be beneficial, their efforts would be more profitably applied developing new digital services, based on what they know best: the network.
Indeed telcos should capitalise on their strengths, not on their weaknesses:
- First and foremost, telcos are businesses "engineered to deploy and operate" a voice and data transport network.
- Stemming from their primary asset (The network), there is a flow of information generated around the end-user (Whether companies or individuals or both).
- Last but not least telcos have reach for non telco players, as they can push product and services to their customer base.
Evolution of the network
While going after new revenue streams is vital, operators cannot afford to lose focus of their core business. Indeed, they need to push network quality to maintain a satisfied customer base to build their new business model on.
In a "not so distant future" telcos will have a mix of macro mobile networks, complemented by tens of millions of small cells and publicly available/shareable Wi-Fi hotspots.
Telcos could provide an increasing number of consumers with a single "connectivity" service merging fixed and mobile broadband, in an "always best connected" mode, leading to an ultraband connectivity service, as connectivity would be dynamically routed in order to provide the best network experience.
This "always best connected" service would be "charged" as premium to the end client, providing a relief (if not more) for telcos marching towards a commodity prices situation.
A Telco 2.0 business model for the digital era
Telcos' "walled garden" approach will be their downfall in the digital era, where value is mostly generated by a network of partnerships and complementary services.
To survive, telecom operators need to play by the digital rules, bringing about a "Telco 2.0" business model where smart network capabilities are made accessible to third parties, helping them to create new value chains or enhance existing ones.
There are different types of telecom customers:
- Consumer, professionals, companies
- Enterprise clients
- Third party partners providing content, applications and services
Telcos' role should not only to push products to the first type of customers but also:
- To "connect" them to enterprise customers and third-party service providers and advertisers
- Additionally instead of being the point of creation / manufacture of every single service, telcos could create value by pushing products created by third parties to end customers, the network becoming a go-to-market vehicle.
Such a double-sided approach with upstream and downstream customers has been operated for quite some time in different industries:
- Payment / credit card companies (connecting merchants, banks and end clients),
- Software companies providing operating systems (connecting PC users to publishers),
- Internet search companies (connecting search engine users to advertisers).
Yet this would be a Copernican move for telcos as it would mean switching from a Closed Network Model or NetCo, to an open platform model - WebCo or Telco 2.0.
Telcos have already led multiple mostly unsuccessful APIs programs trying to entice developers to build software on top on those, leveraging telecoms information from the network.
To bring this to fruition, telcos should not limit themselves to APIs, but must provide access to their own IT and telecoms resources (much like the Amazon Web Services approach) whether computing, storage or dedicated services that developers could tap into, in order to provide better end customer services. Telcos should even help developers with user targeting built on their own internal data.
The telco 2.0 approach. pic.twitter.com/xfBrYnpCh4
- CommsMEA (@COMMSMEA) August 13, 2017
This would enable operators to tackle one of their major weaknesses, user experience. Indeed, telcos have been talking at length about creating the best UX. But let's face it, as operators are "infrastructure minded/led", rather than "customer focused", results have been murky at best: Not only does telcos' DNA prevent them from having a genuine customer led approach, but also, operators usually have complex legacy IT systems and telecoms equipment that represent a very difficult "beast" to master.
Working hand in hand with a developers' community could help telcos tap into their expertise, mindset and agility to improve its user experience and even pave the way for new IT architecture.
Being your business partner
Last but not least, telcos should embrace a "consulting" approach in order to target enterprise customers.
Those customers would benefit from and end-to-end service tapping into telecoms service and data, as telcos could approach multinational companies or national large enterprise with a service aiming at improving their business or reducing their costs, wrapping telecoms, IT and consulting into a single project.
One of the use cases could be based on Voice 2.0, for example, targeting delivery companies with a service aiming at ensuring the delivery of a product at home, without long interaction with a call centre reducing the cost of operating the delivery business:
- Interactive voice message with deliver choices built in.
- Identification service so that one's information would be shared in the background upon calling the call centre
This would result in multiple benefits as business process would run more smoothly with lower costs.
- The end customer would be satisfied as he would have less friction engaging with the delivery company
- The call centre would have a better RoI (Return on Investment), with less calls, and could cater to complex interactions
As mentioned earlier, telcos should position themselves as a "facilitator" for their clients, being a "go-to the market" channel and curator as they could provide best in class services/market, partnering with third party companies.
Telcos could aggregate services such as music streaming, ride hailing services (quite similar to Starbucks portal on its Wi-Fi network); sharing value with its customers under a promotion form, providing access to its client base to the aforementioned third parties.
In developed countries as telcos are facing internet companies providing best in class, well established products, they should partner with them and push those services to their clients, as there is no point for end clients to choose a me-too product from telcos.
Whereas in emerging countries they could push with their own /telecoms operator-backed services, as they would have less competition, and get market share leveraging network effect, before the arrival of industry juggernauts.
A well-established telecoms operator in the US, has already embraced the telco 2.0 approach. The company's strategic vision stems from the idea of a SDN where users can flexibly modify and scale their services according to their changing needs, with a 75% virtualisation and software controlled network target by 2020.
This is a true telecoms revolution, transforming the company DNA into a software-centric network company. Indeed the telco is transitioning from a hardware-centric company that deploys, operates networks designed to support specific services (And builds and scales networks accordingly), to a 'top-down', software-centric, 'internet-era' service provider that builds and scales services via software, and uses flexible commodity IT hardware to deliver those services when and where needed.
This implies replacing a 'network-operations' mentality with a developers' one focusing on collaboration, with an iterative software development approach, along with project teams working across operational siloes, focusing on developing and implementing software-based solutions that address particular customer needs.
Depending on their position in the market, operators can focus on different aspects of Telco 2.0.
New telecom approach involves unbundling telecoms business into three layers ~ @TariqAshraf pic.twitter.com/OqGt4XMfBJ
- CommsMEA (@COMMSMEA) August 13, 2017
Telcos have been a successful business for quite some time, making a lot of money out of voice, and then out of fixed and mobile data. Yet the dawn of a new era, the internet era has pitted web players against telcos, stealing value from them, and pushing them to the background. Telcos tried to counter this threat, yet have not been very successful, due to their structural and cultural constraints.
The only way forward for telcos is to rethink their single-sided business model, ditching their go-it-alone approach (focusing only on winning an increasing share of the user's wallet based on customer ownership) and 'pivoting' to a software-centric network company in order to provide services to third parties, which will in turn provide services to their own end clients. This situation is very similar to a person who is caught in moving sands, sinking inexorably who could reach out to someone's hand in order to get out, but rather keeps on struggling on his own, only sinking faster. "If we can not live together, we are going to die alone."
About the authors:
Tariq Ashraf, Telecoms strategy expert
Tariq has a 13+ year-long strategy and marketing experience working with tier-1 telecoms operators covering both corporate (Group strategic plan, telco 2.0 strategy, telecoms ICT strategy, push into fixed fibre/cable connectivity), and business strategy (Move to data and to high value segments, mobile/fixed internet/convergence offering definition) in Europe, North America, North Africa and the GCC region.
Tariq is a chartered accountant and a EM Lyon business school MSc in Management graduate.
Vincent Bouder, Digital transformation expert
Vincent Bouder has 15+ years experience working on numerous transformation projects for both telecoms and financial services industries. His leading roles in promoting agility and leveraging software-iterative approach as well as IT and telecoms engineering background give him first-hand understanding of the needs for tier-1 companies to transform in the digital economy. Vincent Bouder is a Polytechnique and Telecoms Paris engineering school graduate.
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