Traditionally, telecom operators have focused primarily on the consumer segment, however, with the increasing pressure from digital players, telcos have started taking more interest in driving the B2B side of the business. According to Deloitte, higher growth rates are the main attraction for telcos of B2B, but higher net profit margins, a client base willing to pay more for differentiated service, and a reasonable defence against over- the-top substitution (at least for now) also play a part.
So, where in the B2B space rests maximum potential of monetisation for telecom operators? From a telco’s perspective, B2B/ICT value chain ranges from core telco services (connectivity), adjacent IT services (managed network and security, data centre, cloud services) to further out core IT services (systems integration and IT professional services). “It is easier for telcos to focus on adjacent IT services,” says Rob van Dale, Partner, CMT practice , A.T. Kearney Middle East.. “Telcos in the GCC have strong data centre assets, and immediate potential rests in monetising these assets and moving onto cloud services (via hybrid offers).
“Given GCC regulations on data sovereignty and strong relationships of telcos with large customers across verticals including government entities – cloud offers is a perfect place for telcos to enter, gain scale and be successful. Once players have scaled up in adjacent IT services, expanding via M&A and/or partnerships is most sensible for further out in the value chain within core IT services space or for niche areas such as M2M.”
Hany Aly, EVP, enterprise business, du says: “At du, we have always appreciated the value our enterprise customers bring to our operation, and have diversified our portfolio of offerings to encompass their connectivity requirements regardless if they are a small, medium or large enterprise. The advent of the Internet of Things and 5G technologies have further opened the doors of opportunity for telcos to deliver an enhanced suite of services.
“Today, Managed Services is the biggest growth engine in the B2B segment – the digital transformation has brought about a need for managed services including managed network and IT services, OTT services and machine to machine, and IoT services. We are also witnessing an increasing uptake in cloud services including software as a service, platform as a service, cloud management and security among other. We believe that these are the revenue generating services of the future.”
In spite of the efforts by telcos in the B2B space, it’s been observed that telcos are not always the preferred solution provider of choice for businesses. “Enterprises might perceive that upgrading their IT systems will put huge pressures on their CAPEX and OPEX. Having said that, a partner like du can help enterprises upgrade their legacy systems and offer them the optimal business-ready solutions to meet their digital transformation goals at a fraction of the cost that in-house IT upgrades and management would cost,” says Hany.
A recent A.T. Kearney study showed that of all key B2B/ICT purchasing criteria for enterprises, 40% of focus is on delivery lead time and quality & reliability of services. This requires telcos to overcome several challenges. “Telcos globally and - especially in the region – suffer from legacy mindset and need to be more agile to compete with either the cloud behemoths (such as AWS) or IT services majors (such as IBM). Such agility, breadth of product offering, and depth of delivery capability are the main challenges,” says Marc Biosca, Partner, CMT practice, A.T. Kearney Middle East.
He adds how moving further out in the value chain will require telcos to go for a fundamental change along several areas: product development - partnerships / white labeling existing cloud and other products; sales set-up - moving beyond transactional selling to consultative IT selling; ICT service delivery and operations - evolving from managing sites to on-site installation at customers and reselling or stock management. There also has to be a change in the operating model including organisation and capabilities, especially also ramping up the support functions such as procurement, HR, finance, and IT that are not enabled to support the B2B approach. In terms of financials, telcos would have to move beyond fixation on EBITDA and look at metrics such as RoCE, says Marc. “Typically, a large transformation programme is set up to drive these changes within B2B units – and success requires a strong and sustained push from the top.”
When we look at the B2B space, there are SMBs as well as enterprises that telcos are trying to target. Needless to say, the approach has to be different for both. According to Deloitte, more than half of large enterprise customers’ ICT spend tends to be IT related, while small to medium enterprises (SMEs) and small office/ home offices (SOHOs) are still dominated by voice and data services (though they are earlier cloud adopters).
Comparing SMBs and large enterprises, who are more likely to choose telcos as their solution and service providers? Rob is of the opinion that large enterprises are more likely than SMBs to choose telcos as their ICT solution provider. “Telcos typically are ‘incumbent’ service providers at most businesses, including providing data centre services in many cases, and can position as an integrated shop for all adjacent IT services.”
“Large enterprises value strong local presence and ‘one neck to choke’! Given this, operators are well positioned (esp. the incumbents) to leverage their existing assets (connectivity and data centres) and relationships base to play a leading role in delivering ICT projects with large enterprises and Government entities,” adds Rob.
As far as various industry verticals are concerned, is it that few verticals hold the maximum potential for telcos’ B2B solutions and services? Marc says: “Verticalisation and then customisation of B2B/ICT solutions is a mixed bag – works in the case of large global players (e.g. Orange investing in aviation vertical via acquisition of Equant) but too much customisation is an over-kill in early stages of B2B/ICT transformation.”
By 2020, global B2B connectivity services market is expected to reach $500bn, while the ICT services segment is expected to be 2x of that, remarks Rob. “Growth by far is driven by IT services segment (with CAGR of 4% vs connectivity CAGR of 0.5%). In the Middle East, enterprise business of telcos is driven by the overall IT services market growth of 20% annually. Going forward, we continue to see strong momentum for enterprise ICT business for telcos driven by continued need to be more efficient, link better to local country vsion for the country or sectors and a strong push from local Governments to drive ICT growth and retaining more ICT value-add within countries.”
According to Hany, du is definitely seeing an uptake in its enterprise business. “And we expect its growth to overtake the consumer business in the coming years. Telecom operators are competing against cloud giants, IT service specialists, IoT platforms and the like. However, we have an advantage in that we provide the underlying connectivity and the integration for a full suite of enterprise-class ICT services.
The transition from telecommunications provider to an integrated ICT services company is definitely not a joy ride. However, given the customer relations and trust telcos possess, they can definitely leverage the B2B marketspace with a revamp of their business models and strategic collaborations with leading technology players across several domains. The selection and integration of partners is very crucial.