This report leverages findings from an extensive research programme conducted in EMEA, including interviews with eight different CSPs and a survey with 54 responses from CSPs across the region. The research explored the progress of telcos within EMEA as they adopt techco practices.
The stagnated telco growth
In recent years, the telco industry has seen growth stagnate as software companies infiltrate their markets and offer more innovative solutions at lower operating costs. The rapid consolidation of major internet players, such as Google and Amazon, is only increasing with time; threatening to not only undermine the telco position, but completely destabilise their revenue model and undermine their ability to operate profitably.
The top seven internet giants saw revenue growth of 72% between 2019 and 2022, pushing their total revenues above that of the telecoms industry as a whole (the figure below shows the revenues of all major telecoms operators and groups). As a result, telcos are urgently reassessing their business model, looking for key areas where they can cut costs and create new revenue streams, leveraging lessons learned from these internet giants to develop their proposition and ensure their long-term survival.
Telco revenues, 2019-2022, trillions of US dollars
Source: STL Partners
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The enterprise customer: Potential growth for techcos
Slowing of consumer profit growth has led telcos to explore the enterprise opportunity
Through the move to techco, telcos hope to increase profit margins. Heavy investment in 5G rollout, as well as an increasing focus on edge computing and distributed networking is providing telcos with a valuable footprint which can be leveraged for enterprise application services – a major new growth market for telcos which have been historically limited to providing connectivity. Our survey respondents felt that growing revenues was the key strategic objectives of 5G and edge, and that this would be achieved through horizontal connectivity products.
Question: What is the primary business objective for your 5G and edge strategy?
Source: STL Partners “Telco to Techco” survey, 2023
Question : Which areas do you think will drive this revenue growth?
Source: STL Partners “Telco to Techco” survey, 2023
Telcos lack the prerequisite skills to properly target these customers
To develop products that truly deliver value to the end-customer, telcos must first develop strong relationships within specific, vertical ecosystems to ensure these products are able to provide real business value for enterprise customers. It is notable that surveyed telcos believed that vertical-specific solutions were the least likely approach to drive revenue growth through 5G and edge (14 respondents), suggesting telcos still believe that if they build the products, the customers will come to them.
Within our benchmarking index, we measured telcos on their development of B2B enterprise groups, with techcos much more likely to give autonomy to groups focusing on specific verticals. Unlike the consumer market, enterprise customers have specific characteristics that limit the effectiveness of a telco horizontal strategy:
- Vertical-specific KPIs: When approaching the “enterprise market”, telcos are aware that each industry operates to a diverse range of KPIs, regulations and expectations. Each industry has unique KPIs reflecting its goals: for example, in manufacturing, annual plant output is a crucial metric, while the retail sector relies on other KPIs such as inventory turnover and customer conversion rate.
- Siloed internal teams: Enterprise organisations often operate with siloed internal teams, particularly in the realms of IT and operational technology departments. These teams function with distinct decision-making processes, priorities and budgets. Techcos typically have strong exposure to all decision makers across the enterprise, ensuring comprehensive buy-in leading to commercial deployments.
Telcos possess valuable technological expertise and robust infrastructure due to their longstanding role as connectivity providers. They have established extensive relationships with enterprise customers, albeit primarily centred around connectivity procurement rather than an application collaborator.
Table of content
- Executive Summary
- Six tenets telcos must consider to pursue a techco transformation
- The enterprise customer: Potential growth for techcos
- Slowing of consumer profit growth has led telcos to explore the enterprise opportunity
- Telcos lack the prerequisite skills to properly target these customers
- Complex and expensive networks limit the profitability of consumer products
- Revenue increases as a result of 5G penetration are not enough to drive growth of the telco as a whole
- Techcos will develop effective customer feedback loops and build only what is demanded
- Changing the organisational model of a telco
- Becoming a techco requires a more horizontal structure with fluid roles
- Cross-functional teams with software-first KPIs will lead telcos into the new world
- Sustainability: No longer a nice to have?
- To reach net-zero targets, telcos must embed sustainability across the organisation
- Collaboration will be instrumental to accelerate sustainability across the industry
- Cloud native: Technology or mindset?
- Network-as-a-service will enable techcos to offer transformative products
- Internal automation and industry collaboration are critical steps to true cloud native NaaS
- Ecosystem participation to develop new expertise
- Techcos will leverage the skills of others through diverse ecosystems of partners
- ISVs will bring applications and expertise to telcos developing their sector-specific capabilities
- Telcos can leverage their trusted local presence to provide value and assurance in an open ecosystem
- Conclusions and recommendations
- Enterprise customer recommendations
- Consumer customer recommendations
- Organisational recommendations
- Sustainability recommendations
- Cloud native recommendations
- Ecosystem recommendations