Innovation best practice becomes table stakes when developing telco propositions that go beyond core connectivity.

How telco innovation can boost differentiation

Historically, telecom operators’ service innovation relied on network capital investment, as voice and messaging services were integral to the network – and there were no alternative sources for communication (telcos’ innovation effectively depended on network equipment vendors).

However, the old capital-intensive approach of investing in new network technologies (e.g. 5G) has not delivered sufficient new value for customers to date. Telcos have been struggling to find valuable problems/use cases for these new technologies to solve – and, therefore, have not secured good returns.

Meanwhile, multiple third parties (e.g. Meta, Tencent, Microsoft) have introduced communication (and other) services that run over the top of the telco network. These companies have innovated directly to address unmet customer needs. They create value in network-independent ways, which relegates connectivity to the status of a commodity – and thereby forces telcos to compete on price (further weakening financials).

To get past this, telcos themselves need to get better at building on top of their infrastructure investments to bring new value to their customers, i.e. innovating beyond the core. They need to follow the lead of those over-the-top (OTT) technology companies and take a customer-led approach to innovation – where customer problems are identified first and technology is assembled to address them.

Such technology companies have been rewarded by capital markets. Investors allow these companies scope to continue investing in innovative solution development and management. These companies have leeway – and capabilities – to invest in longer-term projects. In addition, they can change direction fast to respond to customers and shifting market dynamics. This makes them significant adversaries for telcos with digital aspirations.

Telcos need to learn from technology companies and improve their service innovation efforts. Additionally, they will require evidence of their internal innovation capability to prove to stakeholders that they are up to the challenge, to secure innovation investment and to eventually underpin higher capital market valuations. Telcos require targets and metrics to:

• Validate their innovation capability
• Prove that innovation efforts are translating into organisational and shareholder value.

Twin tasks for sustainable non-core innovation efforts

R&D spend as a share of revenue is a metric STL Partners has used to approximate levels of telco internal innovation. But it is a blunt tool. For example, the spend doesn’t account for all the ways telcos innovate (e.g. partnering, M&A) and it doesn’t do enough to highlight the value that innovation brings. Telcos need a broader set of metrics to evaluate innovation for growth beyond the core.

This report consolidates insights on how to evaluate innovation efforts and contrasts the approaches of two telcos with different innovation ambitions on the same. The telcos are both incumbents in advanced markets, with their main presence in a single market.

If you are not a subscriber, enter your details below to download an extract of the report

Table of contents

• Executive summary
  • Next steps
• Introduction
• Non-core innovation as strategic ambition
• Innovation organisation
• Monitoring innovation inputs
  • Measuring ideation
  • Measuring the delivery mechanism
  • Project-level input assessments
• Measuring innovation outputs
  • Portfolio-level assessment
  • Project-level output assessment
• Driving wider innovation awareness
• Conclusion
  • Nine recommendations for successful non-core innovation
• Index

Related research

• The path to telco growth: STL Partners’ manifesto
• Network innovation as an engine for growth: A manifesto
• Future skills tracker report
• Partnering for telco growth

Author

Nicola Warren

Senior Analyst

Nicola Warren is a senior analyst, leading the Transformation Leadership research service at STL Partners.