Future of Telcos and Operators: Transform or Bust!Paul Adam
There are about a thousand (if you count by PMLN IDs than number could be much higher) telcos worldwide and they spend about $1.3T USD annually on infrastructure, software, spectrum etc. Mobile telcos (or carriers) account for about 63% of above spending whereas fixed-network providers spend about 36%. Worldwide telco spending is on the upswing and is forecast to reach about $1.6T USD by 2019. In terms of revenues, mobile operators generate about $1T USD. Top 50 telcos are generally considered Tier-1 (that’s my view anyways), this list includes likes of AT&T, Verizon, NTT, China Mobile, DT, Telefonica – you get the idea!
Over the past ten years, telcos have lost a lot of ground to Over-The-Top (OTT) providers such as Google, Netflix, Apple, Amazon, Facebook/WhatsApp etc. Telco voice revenues are down, data flat-to-down, and text messaging (once known as the costliest Megabyte in the sector) has pretty much eroded. Telcos have seen their revenues and margins nose dive due to OTTs which have brought them closer to their worst nightmare of becoming dumb pipes. OTTs like Google are even challenging telcos/operators at their core area of expertise, i.e. connectivity itself with offers like Google Fiber and Google Fi.
Every Tier-1 telco I have spoken to is busy working on virtualizing their telco infra (with NFV/SDN), and has a 2020 vision where they want to be transformed into digital services providers primarily delivering media, enterprise/b2b cloud services, and internet of things (IoT) – mostly M2M. 2020 transformation is unlike anything that telcos have witnessed in the past – this time it is a survival bet – transform or bust!
Let me break down each of the digital service and challenges that telcos are likely to face.
- Media/TV: Confidence in the revenue-generating and churn-reducing potential of TV services has driven recent M&A activity where telcos have acquired pay TV assets in markets such as the Brazil, Germany, Spain, UK (Vodafone/Sky) and US (AT&T/TWC). However, OTTs are massively cutting deals with both media houses as well as producing content in-house given their access to big bucks as well as access to the deep analytics around viewers preferences (e.g. Netflix, Amazon Prime Video). There are also regulatory hurdles in mega mergers, as historically they doesn’t result in lower prices for consumers.
- Enterprise / B2B Cloud services: As we speak, most telcos in the US have abandoned their plans to offer cloud services, why? because of AWS! AT&T long settled on just providing on-ramp in the form of Netbond, Verizon has now sold their data center business, I believe CenturyLink is the only operator at this point with a cloud business. While telco clouds have failed in the form of commodity IaaS offering, I do believe there is an opportunity for telcos to build and offer niche (or vertically integrated aka B2B) clouds leveraging their decade old enterprise customer relationships along with connectivity bundled into the mix. I reckon there will be plenty of road kills as telcos try their hands with cloud services, why? because offering cloud requires serious in-house software chops, agile operations, system integration abilities, ISV partnerships and an organizational structure that doesn’t get in the way of time to market (TTM).
- Internet of Things (IoT): Interest in the IoT (e.g., smart home, security services and connected health applications) is growing, but opinions are mixed on its real-world revenue potential as we speak. As long as operators have realistic revenue expectations and consider the bigger picture with IoT in the product portfolio mix, boosting branding and stick to pull-through for connectivity which is very much core to their DNA today. OTTs like Google, Amazon, and car manufacturers such as Tesla can still very much monetize the IoT value chain while telcos pretty much transport the bits.
In a nutshell, about 3-5 years from now, telco landscape worldwide will be hugely different from what we have today – some will be able to differentiate and succeed and most will disappear (M&A or else).
As an aside, you can also get a scoop of predictions on future of US Telcos and Cable operators from John Legere (CEO of T-Mobile USA) here.
Please feel free to share your thoughts in the comments section below.