Telcos must adapt if they are to capitalise on 5G

As telcos look for a return on their enormous 5G capital investments, we caught up with David Panhans, managing director and partner at BCG and Faisal Hamady, principal at BCG, to discover how telcos can evolve their business strategy in the 5G era
5G, Next Generation Connectivity, Networks, Telecoms

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How is 5G changing the role of telecoms in 2019 and beyond?

With the emergence of 5G, telecom operators are finding themselves in a tough spot again. While a great share of the operators around the world are exploring 5G opportunities that will be unlike any previous kind of mobile technology in enabling novel new services, there are some catches: use cases won’t all be ready at the same time or applicable in markets, and each will require a different kind of 5G network.

As well, upfront investments in 5G are significant, with considerable ROI likely only in the long-term driven by network cost avoidance and new use cases.

This comes in an era where telcos face unprecedented pressure to deliver value where we have witnessed the median annual shareholder return of the industry plunge to 9.9 per cent over the past five years (2014-2018) which is almost half the 18.1 per cent over the period 2013-2017 (according to the BCG’s value creators report).

As such, growing beyond the core is not only a possibility but an imperative for telcos to deliver and sustain their business models and create value.

Non-organic moves into realising this growth has been a “hot topic,” manifested by having a share of beyond-the-core transaction standing at two thirds from the total acquisitions/investments.

What do telecom operators have to think about now in terms of diversification away from just
traditional mobile usage?

Multiple overarching principles can guide the thinking of telco looking to grow beyond the core:

Start from the customer: Deeply understand the customer perspective to understand what adds value to them in your proposition and why would they buy the products/services from you vs. anyone else in the market.

No silver bullet: Have a portfolio approach. Spread a handful of bets while placing big bets in one to two areas. De-risk your portfolio by keeping proximity to core in a few areas while exploring new frontiers in others.

Focus, on what can move the needle: Carefully manage the breadth of your products/services to ensure enough effort and focus is placed on the big bets – be willing to invest to win at scale.

Local advantage is key: Telcos are local businesses and need to spot local market needs & unique situation, and leverage assets (e.g., brand, channels, customer base, relationships, local data laws) to gain a real competitive advantage.

Be pragmatic: What is your right to play, and where do you NOT have a global disadvantage? Stress-test your new ventures and propositions to ensure that you have a unique selling proposition. The brand is a great asset to leverage, but they are not necessarily what will drive the customers’ choice.

What will the future telecoms giant look like in terms of offerings?

There is a wide option space for diversification beyond the core, but we have witnessed four main archetypes of plays that telecom operators pursue. These are not exclusive, as telcos are typically experimenting with a broad portfolio, but here are the ones that major telcos are doubling-down on as big bets.

‘SuperPipe’ with focus on core communication, carrier services, and infrastructure services, e.g., Verizon that is pursuing a differentiated core network to gain leadership in 5G mainly through acquisitions (e.g., in the B2B infra space) as well as network investments

Enterprise-led play with a focus on B2B ICT services, e.g., Orange that heavily invested in a new Cybersecurity division, supported by carefully curated investments and partnerships in the space, or Deutsche Telecom with the push to platform solutions in well-selected verticals and in some cross-industry with acquisition of ICT units that add system integration capabilities

Content/ads-play with focus on content & advertisement, e.g., AT&T acquisition of DirectTV, Time Warner, and AppNexus to rebalance the portfolio in favor of media and content that will also enable stronger bundles and increase customer stickiness.

Industry-led play with focus on new frontiers with large growth potential, e.g., Singtel tapping into innovation pools, with focus on differentiated OTT content and in digital marketing; or Docomo develop a portfolio of ancillary offers though partnerships for B2C (in gaming, e-commerce, and shopping, media, etc) and advantaged in OTT over global players with a real focus on local content
(e.g. anime).

This article first appeared in the February edition of CommsMEA. Click here to check out the rest of the issue.

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