Feb 4, 2017

Will digital transformation save the telco industry?

Over the past few weeks, McKinsey [1] and the World Economic Forum (WEF) [2] have weighed in on the debate about long term growth prospects in the telecommunications sector. They have valid concerns which arise from projections for low revenue growth and shrinking margins for telecommunications service providers. The near term prospects for many telcos involves the sale ever increasing volumes of data and cloud services to consumer and business customers on the assumption that price elasticity effects will work in their favor and not undermine top-line, revenue growth.

The McKinsey and WEF ideas rely on optimizing the core business and building at the periphery to support digital services and enhanced customer experiences. These approaches take a narrow view of the market for telcos and one and define competition in terms of other telco service providers. Is that really the right way to address the strategic challenge that faces the industry?

Consider the competition and innovation strategies in these stories from other industry sectors. Ford [3] is teaming up with Amazon to integrate Alexa in order to use voice commands to bridge the connected car and connected home environments. VW [4] is applying IoT platform ideas to implement an open architecture that embraces developers, partners (e.g. logistics companies, trucking companies, suppliers and retailers) and competitors. Qantas Group [5] is looking for ways to leverage its data assets and investment in Data Republic, an open, data exchange platform, to identify new services and revenues beyond those associated with aviation. And, the head of Barclays UK, commenting [6] on how traditional boundaries in the banking world are fading advises his team that “if (they) aren’t eating someone else’s lunch, (they) are doing it wrong. We (banks) are technology companies with a balance sheet”.

The recurring themes in these stories are about:

  • ecosystems (partnering within and across different sectors of the economy through risk/reward sharing business models)
  • and, opportunities in adjacent markets (e.g. re-positioning existing assets to address alternative uses and innovative business opportunities).

Consider how this might work in the telco sector. The illustration below shows the averaged breakdown of spending for a German household. Telecommunications and postal services account for 2.6% of household expenditures; this percentage has been stable for several years and is comparable to the data for economies such as the USA and UK.

Once a telco expands its horizons beyond the 2.6% share of communications-related expenditures there are many new opportunities in relation to lifestyle, transportation, smart home services and wearables. Transportation may entail efficient and low(er) stress journey planning. Or, it might relate to services that enable secure photo archival or sharing (in electronic and print formats). What is important in capitalizing on these opportunities is to look outside traditional boundaries of competition and to address new service ideas and the challenges of working with organizations from other sectors.

A company like Deutsche Telecom seems well placed to capitalize on the wider, household opportunity through its Qivicon [7] business unit and shared platform strategy. Keep in mind, however, that Qivicon began life around 2011; it is not clear that other telcos have the same luxury of time especially as the market is evolving beyond platforms.

Today’s competitive landscape is shaped by personal assistant technologies, another term for the stewardship business model [8] that should be on every telco’s strategic road map when their customer records and transaction data sets are factored into the innovation process.

Will telcos be too late to capitalize on new business opportunities beyond their traditional boundaries? Are fast-followers in danger of targeting soon to be commoditized opportunities? Or, can they visualize the strategic opportunities that IoT and digital enable to take action now and be in a prime position a few years hence? I will follow up these topics in my next article.

[1] Overwhelming OTT: Telcos' growth strategy in a digital world, McKinsey & Co., January 2017

[2] Digital Transformation Initiative – Telecommunications Industry – World Economic Forum, January 2017

[3] Alexa in the Car: Ford, Amazon to Provide Access to Shop, Search and Control Smart Home Features on the Road, https://media.ford.com/content/fordmedia/fna/us/en/news/2017/01/04/alexa-car-ford-amazon-shop-search-home.html

[4] Volkswagen CDO's Perspective Of How Digitization Is Transforming The Automotive Industry, http://www.forbes.com/sites/sarwantsingh/2017/01/05/volkswagen-cdos-perspective-of-how-digitization-is-transforming-the-automotive-industry/#63a067c0e7f5  

[5] Qantas to extract all it can from data exchange investment - https://www.itnews.com.au/news/qantas-to-extract-all-it-can-from-data-exchange-investment-447220

[6]Finance looks to harness digital disruption, Financial Times, 18 January 2017

[7] https://www.qivicon.com/en/

[8] Smart Home – Platform Innovator Strategies - http://www.more-with-mobile.com/2013/09/smart-home-platform-innovator-strategies.html


  1. 8 Feb 2017 Update

    70% of digital transformation projects expected to fail

    There are two reasons that explain current digital transformation failures:

    i) old-school thinking that promotes large scale, wholesale IT digital transformation projects which are 2-4 years long

    ii) superficial addition of on new engagement layers and new mobile applications on top of existing infrastructure, to create a better customer experience

    More here - telecoms.com/479452/70-of-digital-transformation-projects-expected-to-fail/

  2. 9 March 2017 update

    It is interesting to read comments from DT about driving adoption of their smart-home platform offering.


  3. 3 April 2017 update

    Here's a report from Arthur D Little on the prospects for telcos to take advantage of digital service opportunities, notably via B2B2x business models.

    Major strategic choices ahead of TelCos: Reconfiguring for value at http://www.adlittle.com/downloads/tx_adlreports/ADL_Strategic_Choices.pdf


  4. 24 April 2017 update

    Orange indicates strategy of monopolizing household services


  5. 24 April 2017 update

    Q&A: Brian Higgins, VP and GM of Exponent, a Verizon company

    Exponent’s offering spans a wide range of technology areas – big data, AI, IoT, cloud, plus internet and media services. CSPs (i.e. global carriers) who become Exponent’s customers can determine which areas are most important to them and can choose which of our platforms will help them reach their goals more quickly and with significantly less capital investment than if they were to build their own solutions.

    Our mission statement says: “Exponent helps the carrier community capitalize on new and emerging revenue opportunities, through revolutionary technology.”


  6. 11 Jan 2018 update

    Hulu shows telcos there is profit in long-term thinking

    One big question remains; how can the OTTs start from nothing and create immensely successful content businesses, while the telcos are unable to mobilize their millions of customers into any form of successful video venture? We suspect it is down to a lack of patience.

    While Hulu has erupted into the mainstream over the last couple of years, it is not the breakthrough business some might assume. It has been around for quite a while. It was initially founded in 2007, and it now owned by The Walt Disney Company, Time Warner, Comcast and 21st Century Fox, who’s share will be transferred to Walt Disney once the acquisition is complete.

    Outside the US, the business is owned by Nippon in Japan.

    For several years, Hulu was nothing more than a speck on the digital landscape, but with long-term thinking, a more genuine approach to platform design and customer experience, as well as efforts to create a long-list of content partners, it has emerged as one of the front-runners trying to capture the hearts and minds of the cord-cutting generation. Hulu viewers have a median age of 31, nearly 25 years younger than the average broadcast TV viewer, and a median annual household income of $92,000. It doesn’t seem to be doing too badly.


  7. 18 May 2018

    Commentary from TM Forum conference on why "Traditional operators are incapable of digital transformation"