By Jad Hajj, partner, and Wissam Abdel Samad, manager, with Strategy& (formerly Booz & Company), part of the PwC network.
In recent years, telecom operators in the Middle East and Africa have enjoyed healthy growth, with revenues up 6.7% per annum from 2011-2015. The days of easy growth, however, could soon end. Consumer markets are becoming saturated and operators face increased regulatory and competitive pressures.
Fortunately, telecom operators do have significant opportunities as enterprises’ sophistication and service expectations are changing, creating demand for digital services. Telecom operators must transform themselves, the same way the industries they serve have, to seize these opportunities and to avoid the slower revenue growth or even declines—as has occurred in North America and Europe.
If they do not, then companies that provide value-added services through operators’ networks (such as “over-the-top” providers of entertainment, messaging, social networking, or e-commerce) or on top of operators’ networks (such as cloud and managed services providers for enterprises) will grab most of the customer value. Telecom operators will be left with all the costs involved in maintaining their networks but little of the value to be captured.
The challenge for telecom operators is that they often cannot offer the same range, quality of services, and customer experience to their digital customers that specialised niche players can. Weighed down by obsolete IT systems, rigid organisational structures, and outmoded workplace cultures that prevent cooperation and innovation, telecom operators lack the capabilities to focus on customer experience, operating models with smaller total cost bases, and the mind-sets that can capture the benefits of digitisation.
To meet this challenge, telecom operators need to take five steps to transform themselves into agile digital companies.
First, they should choose their digital strategy.
Beyond acting as traditional network providers, and depending on the operator’s current capabilities and risk and investment appetite, there are two available options: digital enabler or digital life provider. Digital enablers position themselves as platform providers, where other solution providers can securely build their services through standard interfaces. Through this collaborative approach, value is added for customers, and operators get their fair share of revenues. Digital enablers typically have lower margins but are faster at getting products and services to market and have higher growth than traditional operators. By contrast, digital life providers offer many of these innovative, differentiated services themselves. Their offerings span the gamut of their customers’ digital needs, including network infrastructure, managed and outsourced services, and business enablement. Digital life providers could enjoy high margins and high growth, but this kind of full integrated offering is challenging and requires strong innovation capabilities.
Second, operators must rework their operating models to achieve simpler and smaller cost bases, with more efficient networks and lower costs per megabyte.
To decide where and how to trim, they have to understand their management capabilities and their digital progress. Among the cost transformation techniques available are the use of virtual networks, cloud computing, and rationalisation of the product portfolio.
Third, operators should change their workplace culture and how they manage their workforce.
They need a new mind-set that promotes digital transformation through cross-functional collaboration and rapid decision making. This means new capabilities and processes throughout the organisation’s business and functional units.
Fourth, digital enablers or digital life providers need to have digital design and customer-focused capabilities.
This means being faster with innovation and open to collaborating with outside companies. Operators have to know their customers’ needs and interact with them digitally. Centering services on customers is particularly relevant for enterprises, and implies offering more end-to-end solutions, and in cases abandoning traditional subscription business models and opting for more flexible pay-as-you-go models.
Fifth, to achieve the necessary scale, operators must vigorously pursue on-going consolidation of the sector.
Consolidation can help operators to reduce costs, increase market share and the customer base, obtain fixed assets for fixed-mobile convergence, increase cash flow to fund the digital strategy, and obtain digital capabilities. In particular, digital capabilities help operators to provide customers with the integrated digital services they want.
These capabilities also assist with culture change by changing the mindset that leads many operators to separate their telecom products from their value added digital solutions. Operators have to provide their customers with an exhaustive portfolio that is seamlessly integrated, both commercially and technologically. Such convergence is an important signal that operators are on their way to digital maturity.
In the coming years, digital will penetrate most of the consumer and enterprise space. Most new cars and home appliances will be connected to the Internet. Governments and industries such as manufacturing, utilities, healthcare, and transportation will adopt cloud and managed services, along with machine-to-machine applications. Smart city schemes will generate massive volumes of data and business. With new workplace cultures, transformed cost bases, and digital capabilities, operators will finally be able to claim their share of the digital marketplace.