The Rise of the Operator
The global telecoms industry landscape is evolving faster than ever. The decline of revenue streams driven by over-the-top (OTT) competitors continues, forcing and encouraging operators to consider new ways of maintaining and improving relevance to both consumer and business customers. While many have embarked on journeys to become digital service providers, the sector also remains vulnerable to quickening shifts in terms of technology cycles, competitor actions and ever changing customer needs.
The Nightmare Years
Telecommunications companies have gone through a challenging decade, with the industry exposed to multiple disruptions and difficulties in recent times. The smartphone revolution has led to an explosion in demand for data, while the growth of mobile applications has seen a range of disruptive players monetize and take unethical advantage of new customer behaviors. Although this has resulted in a range of new and developing interconnected phenomena, operators’ revenue streams still remain under pressure. The rise of OTT players also brought about mandated price reductions to mobile termination and roaming rates, which have further weakened the sector’s expansion.
From 2008 to 2016 global mobile revenues increased at a compound growth rate of 0.4% yet at the same time, network investments were necessary burdens as operators needed to improve their infrastructure in order to entertain the rise in data requirements. Mass 4g rollout continues, accompanied and supported by the acquisition of new spectrum frequencies such as 5g.
Telcos in all regions have expanded their service portfolios in the last 5 years, which include an ever expanding array of offerings. They are now turning heads as they look to utilise opportunities across tech, FinTech, media and telecommunications (TMT) in areas like enterprise cloud, TV and the Internet of Things (IoT). However, a key challenge for telcos as they attempt to expand their service provisions is that adjacent market tend to offer lower margins, and disruptive competitors are already well-positioned and somewhat ingrained in key segments such as cloud and advertising. As a consequence, profitability is under pressure, with operators’ return on invested capital (ROIC) trending downward. In combination with the lower margins available from adjacent services, this squeeze on profitability reflects other factors, including regulatory price reductions and the high capital intensity required to service the constant and ever increasing demand for mobile data.
People Power
A recent Earnst and Young research report into the future of telecoms indicates that, while telcos say they see talent as a key transformation catalyst, and a lack of digital skills as a top transformation barrier, the people agenda ranks very low as a strategic priority. Going forward, people require as much attention as systems and processes.
Telecoms is an industry in transition but the transformation ( a somewhat internal refurbishment) and development of existing platforms, systems and processes will be as imperative as the creation of new digital initiatives.
The transformation should be viewed as a holistic exercise, and one that also involves accurately monitoring, assessing and reevaluating progress on all counts.
Not all operators are pursuing their transformation goals at the same rate (for various reasons such as regional economical situations). Long-term goals will also need to be adaptable when thinking of the scope for further disruptions and shifts in both regulatory and technology perspectives.
In conclusion, there should be a mix of cost reduction, portfolio diversification, digital skills and organizational agility bound by strategically set road maps. Those who priorities cost control may sacrifice long-term agility by lack of investment in the next couple of years, while those who prize agility and digital service development may already be facing a more obvious and prevalent skills gap. Even those organisations that put their employees at the front and center of their transformation should remain vigilant and ensure that they maximize their exposure to new technologies that can aid transformation of their operations and improve customer-centricity. Looking to the future, all players will have to create equilibrium between more proactive support of the customer experience and more dynamic business and operating models. The rise of the software-centric operator, where IT is woven in the fabric of the business, will determine the winners and losers of this unique revolution.