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.
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.
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.
http://www.strategyand.pwc.com/perspectives/2015-telecommunications-trends
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