Telco Challenges in Entering Adjacent Markets

I recently come across a couple of experienced industry analysts using some variation of the term “permission to play” when talking about where telco service providers should and should not focus their strategies. As a framework, there is some merit in being disciplined about an organizations core market(s). 

However, if the framework is applied rigidly, the mantra artificially limits the scope for innovation and industry analysis. That is a growing risk for a sector that operates against a backdrop of transformative innovation. It is also a risk because the boundaries between telco, adjacent industries and emerging sectors are blurring.

Kindle and CardioNet 

A decade ago, telco executives were fascinated by Kindle’s eReader service and, even more so, by the $2,000 ARPU for CardioNet’s remote health monitoring service. CardioNet’s initial launch attempts struggled to procure wide area connectivity struggled for traction with the large and established mobile operators. It turns out that telco lawyers were concerned that they might be assuming medical liability risks by straying outside their core business. It required some entrepreneurial orchestration on the part of Qualcomm to engineer an MVNO-like abstraction layer over the Sprint network for CardioNet’s service to see the commercial light of day.

For the telco sector in general, the challenge of developing scalable solutions in an adjacent market (connected health) that relied on wide area connectivity proved too much. As a result, the mHealth opportunity languished for many years. Later, new-entrant providers revived the opportunity through a combination of wearables, over-the-top connectivity, and consumer-centered Apps. 

Permission to Play?

“Telcos should not be in some non-telco sector” is a frequent observation. “Permission to play” can have a stultifying effect on innovation and strategy to the extent that it constrains the opportunities that telcos are able to tackle. However, such sentiments have not stopped Telus in Canada from developing its healthcare line of business. 

A possibly better-known example is Kenya’s Safaricom which began with a simple airtime sharing business. Over time, its M-PESA initiative expanded into a range of money transfer, payments, and lending solutions. In its 2022 annual report, Safaricom reported that the M-PESA portfolio supports 30.5 million customers, over 3 million businesses. Their use contributes almost 40% of Safaricom’s revenues. Who gave Safaricom permission to enter the financial services market?

From a competition perspective, hyperscalers as well as industrial organizations running private 5G networks are playing in the market. How did they get permission to play?

Preparing for the Future 

Why is “permission to play” important for the future of the telecoms industry? With the advent of 5G and early visioning for 6G, the industry is on the cusp of a significant, industry transition. In the past, telcos focused on standards-based, wide-area connectivity. In the future, the industry’s foundations will encompass the interplay between multi-access connectivity, federated cloud, and distributed computing. 

Native AI and high levels of automation will ensure deliver a powerful foundation for service providers to experiment and innovate. Last year, Vodafone committed to become more of a software business with plans to ramp-up recruitment of software engineers. This will allow the organization to change what services it offers and to speed up the pace of service innovation. None of this will be easy as Vodafone adapts to a new way of working. Vodafone’s approach focuses on the internal change challenge. 

By way of contrast, Telenor recently reorganized its corporate structure and launched an externally facing “Adjacent Business” unit. Telenor’s stated intention is to focus and strengthen its adjacent services within existing and potential new independent entities, as well as with others outside Telenor. In a departure from telco recruiting, the unit leader’s background is in financial services and ventures. It seems that Vodafone and Telenor are grasping the nettle of “playing” outside their core, telco competencies. 

If these examples point to an emerging trend, they are even more important as the sector explores the envelope of 6G systems. One reason for this is that value will shift from data connectivity to enablers and solutions that adjacent industry domains can more easily exploit. The complements to connectivity in a 6G world include distributed cloud and distributed computing. Sustainability, native-AI to enable automation and resilience, as well as trustworthiness will drive new requirements. Identity management and interoperability applied to digital assets (e.g., reputation, digital twins, tokenized assets) are other elements of the 6G landscape. If the telco industry is unprepared or unwilling to play in these new domains, it will concede market opportunity to other participants. 

Image credits: Eric Tompkins via unsplash.com and More-with-Mobile