We consider the potential financial value of adding analytics, AI and automation (A3) into a telco’s processes. Our modelling assesses the value of A3 in more than 150 processes across core network operations, customer care channels, and sales and marketing.
What is analytics, AI and automation worth to telecoms operators?
This report is the second in a two-part series mapping the process and assessing the financial value of automation, analytics and artificial intelligence (AI) in telecoms. In the first report, The value of analytics, automation and AI for telcos – Part 1: The telco A3 application map, we outlined which type of technology was best suited to which processes across a telco’s operations.
In this report, we assess the financial value of each of the operational areas, in dollar terms, for an average telco. Based on our assessment of operator financials and operational KPIs, the figure below outlines our assumptions on the characteristics of an “average” telco used as the basis for our financial modelling. The characteristics of this telco are as shown below, with a slight skew towards developed market operator characteristics since this is currently where most industry proof points used in our modelling have been implemented.
The characteristics of an average telco
Source: STL Partners, Charlotte Patrick Consult
The first report in the series analysed how each A3 technology could be applied similarly across different functional units of a telecoms operator, e.g. machine learning or automation each have similar processes in network management, channel management and sales and marketing.
Evaluating AI and automation use cases in four domains
To measure financial impact, this report returns to a traditional breakdown of value by functional unit within the telco, breaking down into four key areas:
- Network operations: Network deployment, management and maintenance, and revenue management
- Fraud: Including services, online, and internal fraud risks
- Customer care: Including all assisted and unassisted channels
- Marketing and sales: Understanding customers, managing products, marketing programs, lead management and sales processes.
Through an assessment of nearly 150 individual process areas across a telecoms operator’s core operations, we estimate that A3 can deliver the average telco more than $1 billion dollars in value per year, through a combination of revenue uplift and opex and capex savings, equivalent to 7% of total annual revenues.
As illustrated below, core network operations management accounts for by far the greatest proportion of the value.
The relative value of automation, AI and analytics across telco operations
Source: STL Partners, Charlotte Patrick Consult
This likely still underrepresents the total, long term potential value of A3 to telcos, since this first iteration does not model the value of A3 processes in areas less unique to telecoms, including supply chain, finance, IT and HR. No doubt that even within the core area of operations, there are potential process areas that have yet to be discovered or proven, and which we have overlooked in our initial attempt to model the value of A3 to telcos. Meanwhile, this is focused purely on telco’s internal operations so also excludes any potential revenue uplift from new A3-enabled services, such as data monetisation or development of AI-as-a-service type solutions.
That said, operators cannot implement all of these processes at once. The enormous challenge of restructuring processes to be more automated and data-centric, putting in place the data management and analytics capabilities, training employees and acquiring new skills, among many others, means that while many leading telcos are well on their way to capturing this value in some areas, very few – if any – have implemented A3 across all process areas. As a benchmark, Telefónica is an industry leader in leveraging automation and AI to improve operational efficiency, and in 2019 it reported total operational savings of €429mn across the entire group. While this is primarily focused on customer facing channels, so likely excludes the value of A3 in many network operations processes, for instance energy efficiency which is delivering significant value to Telefónica and others, it suggests there remains lots of value still to capture.
The financial modelling for the value of A3 was done through an individual assessment of each of the 150+ process areas to understand the main activities within that area of operations, and how automation, analytics and/or machine learning and other AI technologies could be used within those activities. From there, we assess the value of integrating these technologies to existing operational functions to make them more efficient and effective. This means that we do not attribute any additional value to telcos from implementing new technologies that include A3 as a core element of their functionality, e.g. a multi-domain service orchestrator, implemented as part of software-defined networking.
Our bottom up assessment of each process is also validated through real-world proof points from operators or vendors. This means that more speculative areas of A3 application in operators are calculated to offer relatively limited value. As more proof points emerge, we will incorporate them into future iterations.
Table of contents
- Executive Summary
- Where is the largest financial benefit from A3?
- What should telcos prioritise in the short term?
- How long will it take for telcos to realise this value?
- What next?
- Breaking down the value of A3 by operational area
- Network, OSS and BSS
- Fraud management
- Care and commercial channels
- Marketing and sales
- Conclusions and recommendations