Posted Tuesday, July 30th, 2019 by Michael Connolly
To say that the next few years will shape the future of the telecoms industry forever is not an exaggeration. The 21st century has seen immense growth and major shifts in the business, but now as the 2020s approach, telcos are increasingly finding themselves under pressure to find new ways to differentiate themselves, keep traditional business models alive while expanding into new ones, and increase their revenue.
Among the most potentially damaging issues facing telcos is being seen as little more than a utility provider. For the vast majority of consumers, data is the primary service demanded, which is now seen as no different to water or electricity: an immutable essential for modern-day life. Since the provision of data is increasingly overshadowing any other service they offer, it has become almost impossible for telcos to distinguish themselves, leading to the vexing perception of them as pseudo-utility companies. A survey of UK customers found that 64% agreed that ‘there is little or no difference between the telcos.’ Worryingly for these companies, in the case of utilities, the consumer will almost always buy from the cheapest provider and consider little else.
At the turn of the millennium, telcos were riding a wave of massive infrastructure investment and enormous growth as the developed world began to connect en masse. Some telcos had their own OS on mobiles, and if you believe insider perspectives – planned for a future where they ruled the content delivery end of the business. Some went as far as preparing for a world where they would simply lease infrastructure capacity from vendors such as Ericsson or Nokia and focus entirely on the end of the business now dominated by multibillion-dollar OTT services such as WhatsApp or Snapchat.
Time and technological advancement marched ever onward, and that future did not come to pass. Only a few years ago, telcos were still considering offering tiered data plans for their customers, as a response to traditional voice and SMS services falling into decline, though negative perception seems to have shuttered this model for now. According to ComReg’s Q42018 report, in Ireland, voice services on fixed networks were down 17% from the year previous – a serious decline. SMS decreased by 15% in the same period. Young mobile users, in particular, are driving this trend, unwilling to pay for what they perceive as unnecessary extras, while consuming massive amounts of data at low prices. Simply look at the plans telcos are currently offering: free calls, free SMS, but variable amounts of data.
As voice and SMS die a slow death and OTTs strangle them in content delivery, telcos find themselves in the business of managing infrastructure and engaging in a race to the bottom with their competitors to deliver data at the lowest price possible. Their revenues have flatlined, despite a small bump provided by A2P, but serious investment is still required to run and upgrade the infrastructure that allows our world to have this unprecedented level of connectivity.
There is also the danger that major OTT enterprises and tech-giants like Google will muscle in on the telecoms business, cutting out what they see as the middleman in their quest to deliver content to billions of users. SpaceX, Amazon, and others are now investing in extensive satellite internet ventures too, further restricting the space within which telcos operate. These companies have little interest in profiting from the provision of data, instead making their fortunes in content delivery, and could easily supplant telcos as the world’s providers of data.
The issue of new technologies with huge disruptive potential should not be discounted either. It is not inconceivable that display-based devices will be replaced by conversational technology, holographic interfaces, augmented reality, and other forms of cognitive computing. Most telcos have little influence in this growing market beyond providing the bandwidth necessary for it to function, an area which they may find themselves increasingly pushed out of.
In short, many of the trends facing telcos today indicate a high level of uncertainty. They could lead to a huge change in the industry or fizzle out entirely. Shifting customer expectations and pressure from competitors (new and old) endanger telcos’ future prospects. Important traditional revenue streams are in decline with the ascension of OTTs and tech-giants, all challenging telcos to seriously reconsider their core business model.
Telcos will soon have to decide what their future is going to look like. Time and money are in short supply, while market pressure mounts with each passing day.
Triumph of the Telco: The least disruptive and most optimistic future for telcos is one where they continue to own and run the infrastructure and network technology ends of the business, while also retaining the customer relationship.
In a future where an entire generation sees connectivity as a basic need, telcos might set themselves apart by offering superior coverage, speeds, and technological innovation over basic connectivity packages (that may end up governmentally guaranteed to customers). They could even partner with OTTs to offer superior access to certain content delivery services, new IoT technologies, and other aspects of the increasingly ever-present cognitive computing. However, the viability of this model is linked to the future of net neutrality, which is currently a major industry debate. As the owners, controllers, and innovators of network technology, telcos could be highly selective with their OTT partners and stand to create a lucrative end-user focused business.
The provision of data and related services will continue to account for the vast majority of telcos’ business in this scenario. From being able to easily embed and interconnect different smart-home systems and IoT devices into their data plans as well as offering superior access to certain OTTs, telcos could yet return to dominate the B2C environment. On the B2B end of things, telcos could leverage their position as the enablers of all IoT solutions to influence an industry that is expected to grow to over 30 billion connected devices in the near future.
For this glowing vision to come to fruition, international telco alliances or consolidations may have to form against tech-giants eager to impinge on their market. Government regulation of tech-giants or even their potential breakup could be the driving force behind this future, buying time and securing markets for the telcos.
Masters of the Network: In a similar scenario, telcos could find themselves still owning and running the infrastructure and network technology business, but lose out on the customer relationship to OTTs. Alliances and partnerships with other telcos to generate new global telecom standards, expand costly infrastructure, and innovate at a faster-than-ever pace will be even more critical here. Cutting costs will also be key to this model – profit margins could be increased even if revenue remained static, by finding cheaper ways to deliver data, such as NFV or other cloud-based technologies, or even shutting down legacy infrastructure.
Despite losing out on the B2C environment, telcos could still leverage their position as infrastructure owners and technological innovators to become an indispensable middleman between the tech-giants and their customers. Retaining superior network competency and out-innovating silicon valley would be key to blocking them out of the telcos’ core business.
Rather than providing data plans to individual customers, telcos could lease capacity to OTTs, offering premium services with better connectivity to their partners. In this future, telcos leverage their position as the masters of network technology, sustaining and upgrading the essential infrastructure that allows the world to connect (possibly with government subsidy as connectivity becomes internationally mandated).
The Virtual Telco: The viability of this third scenario is largely dependent on the development of software-defined networking (SDN) and network functions virtualisation (NFV). Here, vendors use their size and technological competency to become the driving force in network infrastructure and innovation. Telcos would use their relationship with the customer and in-depth understanding of their needs, to create tailor-made services in an IoT-enabled world, and operate primarily in B2C. The knowledge telcos have of their customers, and their recognition as trusted providers of connectivity would be essential to making this model work.
In a future of smart-homes that might have tens of connected devices, customers will need more tailored data plans with a high level of flexibility. To service all the different individual needs of their customers, telcos will need to go beyond simple prepaid or minute-based plans, instead using their ownership of customer data to create accurate, flexible, and functional price plans for every household or user. This could potentially be accomplished through the use of virtual SIMs with tiered speeds, number of allowed devices, and data usage limits, depending on the customer’s plan, which would be as simple to register and log in as a Neftlix account.
Telcos would focus on this end of the business, moving away from a network infrastructure that is now largely owned and run by vendors. Instead, they might lease capacity from the vendor who owns the network in their area of operation, freeing them from the expensive task of infrastructure management and upgrades, becoming a virtual telco that can supply customised connectivity and cloud-based services to the world.
End of an Era: There is also a serious possibility that telcos could find themselves squeezed on every front and unable to sustain their business, with vendors making inroads on infrastructure, tech-giants eager to provide cheap data for their OTT services, and customers unwilling to see connectivity as anything more than a utility.
In this least-desirable outlook, telcos could end up as subsidiaries to vendors or tech-giants, operating purely as sales and service teams under a brand name. In truth, it would be Google, Amazon, Apple, or Microsoft providing our data and using telco brands for their customer knowledge and as fronts for marketing. They would lose their infrastructure ownership and network competency altogether, becoming a shadow of their former selves.
There may be some saving grace to be found for telcos in the lack of trust people and governments have in tech-giants however. Much of Asia, the Middle East, and Eastern Europe would be loathe to allow such companies more control of their networks. Europe and North America, are still the most lucrative markets, accounting for almost half of global telecom revenue, but the rest of the world contains many faster-growing regions. Nevertheless struggling Western telcos may find it difficult to take business from the established local providers in these countries.
Salvation Through Innovation: Unfortunately for telcos, as it stands, the less optimistic scenarios are the ones that seem most likely. There has been a notable dearth of innovation on their end in recent years. Most telcos have been unable to generate major new revenue streams and have not successfully leveraged their network competency. Despite the massive disruption that the future could hold for them, few telcos seem to be doing anything about it. Even Rich Communication Services (RCS), that many telcos laud as a game-changer, has little potential to alter the trends currently facing them. Apple may not even support it, and OTTs like WhatsApp or Line already provide much the same functionality.
The strength of telcos is in their network infrastructure and the technological competencies they hold in that area. If telcos want to stay relevant and grow their business, their focus must be on securing a future for themselves in a world of tech-giants, OTTs, massive data consumption, and the IoT. Being a dumb-pipe for data while voice and SMS slowly disappear holds little to no future.