The next era of telco growth will be aced by operators who can tap the exploding demand for data by making smart investments in the core business of connectivity, according to McKinsey research.
While the MEA region represents 8 percent of the global telecommunications market, it contributes nearly 20 percent of the economic profit pool. But the question at this juncture is what lies ahead? Considering the recent financial results, the picture doesn’t look very pretty.
The future priorities of the telcos need to be decided by the nature and potential of the market they operate in. While the operators in the growth markets can still hope to increase their revenues by attaining higher penetration; for operators in the mature markets, there are no easy wins left. For the latter, regaining capital market trust will require reinventing operational models through the smart use of technology, adapted to an era of digital data.
The future of telecommunications is data-centric, and digital-savvy consumers will dominate the next decade of growth. To prepare for the next generation of MEA telecommunications growth, operators will need to make investments in their core business sufficient to maximise revenue and optimise the cost base of their core business. While there is no one story for every player, McKinsey research report ‘Telecommunications industry at cliff’s edge: Time for bold decisions (MEA)’ lists five levers that will divide winners from the rest and which CEOs should evaluate to build competitive advantage. These are advanced analytics, video and OTT content, consolidation, new operating models and digitisation.
Future success depends on operators’ ability to exploit the advantages of big data. Operators using advanced analytics can understand consumer behaviour and hence can focus on as little as 15 per cent of their customer base instead of 60 per cent, thereby becoming much more agile and effective. Advanced analytics can help to reduce support costs, increase customer usage, acquire customers more profitably, and manage customer value.
Video and OTT content
Video accounts for 57% of mobile data traffic in the MEA; this share is expected to grow 66% annually and contribute 72% of total traffic by 2020. Telcos in the MEA region are well positioned to beat global competitors in digital video, if they act before the international companies are better established. The global OTT companies have not yet secured local content, while incumbent pay TV providers have more incentive to protect their core high-end offerings.
Scale remains a requirement of industry success. Consequently, the market will tend to move in a consolidating direction. Three developments will define this trend: network sharing, acquisition and spectrum sharing, and in-market rationalisation and consolidation. Consolidation can reduce costs and investment requirements, making leaders stronger and allowing the less strong to survive, with access to competitive networks at lower cost per user.
New operating models
McKinsey has identified three types of operating models that can help to realise cost savings of 25 to 35 percent. Value-focussed local model focusses on transforming competitiveness. Telco groups with operating companies in more than one MEA country can gain significant competitive advantage by shifting to a cross-border scale model. Operators in one market or a few local markets may find a partnership web model attractive.
McKinsey research shows that 76 per cent of telco customers are satisfied with a customer service journey that is fully digital, compared with 57 per cent satisfaction for interactions through traditional channels. In addition to gaining mastery over customer value management and satisfaction, the telco industry needs to introduce a digitised business model to meet high levels of customer-service satisfaction in the data age and significantly reduce OPEX.