By Tariq Ashraf and Vincent Bouder

Telcos had quite a ride for a while…

Since their early days as phone companies, telecoms operators have made a lot of profits on their own, trying to cover all their customers’ network-powered needs.

This stems from the very capital-intensive nature of telecommunications networks. Telcos invest billions in telecoms infrastructure, and as a result want to get the most out of it, keeping all of the value generated or enabled by the network. They focus on acquisition and retention tactics while maximising revenue per user, a very successful and profitable strategy for years.

…yet their walled-garden approach is not working anymore in the digital era.

When web services took off, telcos’ reaction was to try and capture online revenue for themselves by mimicking internet services with a “me too” approach (Mail, website hosting, cloud, etc), but the results were lacklustre as they were never fully committed to these services which:

• Mostly were bundled with a subscription as an acquisition/retention tactic, and therefore only required to be “good enough” at best, not best-in-class.

• Were developed using internal resources, shying away from valuable partnerships or outsourcing, even if the underlying technology was not fully mastered.

• Were designed with a technology focus rather than a customer focus, following the cultural trend of an industry that pushes technology rather than use cases, and products rather than services.

This mostly wasn’t that much of a problem in the 2000’s as mobile growth made up for it and young mobile networks were still mostly controlled by operators, like their landline ancestors.

Enter the iPhone. All of a sudden, walls came tumbling down. One got access to the actual, full-flavoured internet from the iPhone. Telcos lost their main historic asset, which was control over access to their customers.

Then history repeated itself, as telcos’ reaction was more of the same, unsuccessfully copying these new mobile services as value kept on being increasingly created outside their garden’s wall.

Ten years into the iPhone age, telcos are under heavy pressure

On one hand, customers demand ever-cheaper data, fueled by internet usage, which requires constant network investment; on the other, they are losing most service and voice revenue, to better and more agile internet players. Gradually, connectivity is becoming a commodity, which was the nightmare scenario telcos fought tooth and nail to avoid.

If telcos want to preserve their margins in this new digital economy, operators must find a new business model and not compete on the same services that internet and OTT players provide as they are ill-suited to do so.

Yet so far, telcos’ digital strategies seem to be only focused on enhancing user experience (UX)  through multi-channel processes and digital tools. This is a very limited view of the digital transformation and essentially revamps a slowly failing business model, therefore missing the real issues.

Leveraging telcos’ strengths in order to play by the digital rules

Telcos are network and technically focused organisations, which have only an average scorecard in terms of client relation management. While improving UX could be beneficial, their efforts would be more profitably applied developing new digital services, based on what they know best: the network.

Indeed telcos should capitalise on their strengths, not on their weaknesses:

- First and foremost, telcos are businesses “engineered to deploy and operate” a voice and data transport network.

- Stemming from their primary asset (The network), there is a flow of information generated around the end-user (Whether companies or individuals or both).

- Last but not least telcos have reach for non telco players, as they can push product and services to their customer base.