Are telcos smart enough to make money work?

Telco consumer financial services propositions

Telcos face a perplexing challenge in consumer markets. On the one hand, telcos’ standing with consumers has improved through the COVID-19 pandemic, and demand for connectivity is strong and continues to grow. On the other hand, most consumers are not spending more money with telcos because operators have yet to create compelling new propositions that they can charge more for. In the broadest sense, telcos need to (and can in our view) create more value for consumers and society more generally.

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As discussed in our previous research, we believe the world is now entering a “Coordination Age” in which multiple stakeholders will work together to maximize the potential of the planet’s natural and human resources. New technologies – 5G, analytics, AI, automation, cloud – are making it feasible to coordinate and optimise the allocation of resources in real-time. As providers of connectivity that generates vast amounts of relevant data, telcos can play an important role in enabling this coordination. Although some operators have found it difficult to expand beyond connectivity, the opportunity still exists and may actually be expanding.

In this report, we consider how telcos can support more efficient allocation of capital by playing in the financial services sector.  Financial services (banking) sits in a “sweet spot” for operators: economies of scale are available at a national level, connected technology can change the industry.

Financial Services in the Telecoms sweet spot

financial services

Source STL Partners

The financial services industry is undergoing major disruption brought about by a combination of digitisation and liberalisation – new legislation, such as the EU’s Payment Services Directive, is making it easier for new players to enter the banking market. And there is more disruption to come with the advent of digital currencies – China and the EU have both indicated that they will launch digital currencies, while the U.S. is mulling going down the same route.

A digital currency is intended to be a digital version of cash that is underpinned directly by the country’s central bank. Rather than owning notes or coins, you would own a deposit directly with the central bank. The idea is that a digital currency, in an increasingly cash-free society, would help ensure financial stability by enabling people to store at least some of their money with a trusted official platform, rather than a company or bank that might go bust. A digital currency could also make it easier to bring unbanked citizens (the majority of the world’s population) into the financial system, as central banks could issue digital currencies directly to individuals without them needing to have a commercial bank account. Telcos (and other online service providers) could help consumers to hold digital currency directly with a central bank.

Although the financial services industry has already experienced major upheaval, there is much more to come. “There’s no question that digital currencies and the underlying technology have the potential to drive the next wave in financial services,” Dan Schulman, the CEO of PayPal told investors in February 2021. “I think those technologies can help solve some of the fundamental problems of the system. The fact that there’s this huge prevalence and cost of cash, that there’s lack of access for so many parts of the population into the system, that there’s limited liquidity, there’s high friction in commerce and payments.”

In light of this ongoing disruption, this report reviews the efforts of various operators, such as Orange, Telefónica and Turkcell, to expand into consumer financial services, notably the provision of loans and insurance. A close analysis of their various initiatives offers pointers to the success criteria in this market, while also highlighting some of the potential pitfalls to avoid.

Table of contents

  • Executive Summary
  • Introduction
  • Potential business models
    • Who are you serving?
    • What are you doing for the people you serve?
    • M-Pesa – a springboard into an array of services
    • Docomo demonstrates what can be done
    • But the competition is fierce
  • Applying AI to lending and insurance
    • Analysing hundreds of data points
    • Upstart – one of the frontrunners in automated lending
    • Takeaways
  • From payments to financial portal
    • Takeaways
  • Turkcell goes broad and deep
    • Paycell has a foothold
    • Consumer finance takes a hit
    • Regulation moving in the right direction
    • Turkcell’s broader expansion plans
    • Takeaways
  • Telefónica targets quick loans
    • Growing competition
    • Elsewhere in Latin America
    • Takeaways
  • Momentum builds for Orange
    • The cost of Orange Bank
    • Takeaways
  • Conclusions and recommendations
  • Index

This report builds on earlier STL Partners research, including:

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Connecting Brands with Customers: How leading operators are building sustainable advertising businesses

Executive Summary

2015 has witnessed the turning point at which internet access on mobile devices exceeds desktops and laptops combined for the first time and, worldwide, digital advertising has followed the audience migration from desktop to smartphone and tablet.  A new ecosystem has evolved to service the needs of the mobile advertising industry. Ad exchanges and ad networks have adapted to facilitate access by brands to an ever-wider range of content on multiple devices, whilst DMPs (Data Management Platforms), DSPs & SSPs (Demand Side and Supply Side Platforms respectively) are fuelling the growth of ‘programmatic buying’ by enabling the flow of data within the ecosystem.

There is an opportunity for telcos to establish a sustainable and profitable role as an enabler within this rapidly developing market

Advertising should be an important diversification strategy for telcos as income from core communications continues to decline because they can make use of existing assets (e.g. audience reach, inventory, data), whilst maintaining subscriber trust. Telecoms operators’ ability to use their own customers’ data (with consent) to improve their own service offerings is a key advantage that provides a strong basis for developing advertising and marketing solutions for third-parties.

Walking in the footsteps of giants does not kill the opportunity for telcos

Facebook and Google will represent more than half of the $69 billion worldwide mobile-advertising market in 2015. This dominance has led some operators to question whether they can build a viable advertising business. However STL Partners believes that there has never been a better time for many operators to consider ramping-up their efforts to secure a sustainable practice through leveraging the value of their own customer data. In fact, many telcos are actively working with OTT players such as Google and Facebook to assist them in understanding territory-specific mobile behaviour.

Three telcos lead the way in advertising – Sprint, Turkcell and SingTel – and provide important lessons for others

In the main body of this report, STL Partners identifies the role that each telco has chosen to perform within the advertising ecosystem, assesses their strategy and execution, and identifies the core reasons for their success. The three case studies display several common characteristics and point to six Key Success Factors (KSFs) for a telco advertising business. The first is a ‘start-up mindset’ pre-requisite for establishing such a business and the other five are core actions and capabilities which mutually strengthen each other to produce a ‘flywheel’ that drives growth (see Figure 1).  As a telco exec, whether your organisation is just embarking on the advertising journey, if it has tried to build an advertising business and withdrawn or, indeed, if you are well on the way to building a successful business, we outline how to deliver the following six KSFs in the downloadable report:

  1. How to secure senior management support
  2. How to develop a semi-independent organisation with advertising skills and a start-up culture
  3. How to build or buy best-in-class technical capability and continuously improve
  4. Demand-side: How to build value for subscribers
  5. Supply-side: How to build value for media buyers and sellers
  6. How to pursue opportunities to scale aggressively
Figure 1: The Telco Advertising Business Flywheel

Why now is the right time for telcos to take a more prominent role within mobile advertising

After years of hype, mobile advertising is now starting to mature in terms of technical solutions, business models, and customer acceptance. The catalyst for this growing awareness of the potential of mobile advertising is the increasing demand for first-party (own customer) data to personalize and contextualize marketing communications both within telcos and more widely among enterprises as a way of improving on coarse-grained segmentation. Telcos hold more and better data than most organisations and have wonderful distribution networks (the network itself) for managing information flows, as well as delivering marketing messages and services.

 

For those within and outside telcos that are developing marketing and advertising solutions, we would love to hear your stories and facilitate discussions with your peers, so please do get in touch: contact@stlpartners.com

 

  • Executive Summary
  • Introduction
  • Why is advertising important for Telcos?
  • Walking in the footsteps of Giants?
  • Case study 1: Sprint
  • Summary: Reasons for Sprint’s success
  • A track record in innovation
  • Making data matter
  • How successful is Sprint’s strategy?
  • What does the future hold for Sprint?
  • Case study 2: Turkcell
  • Summary: Reasons for Turkcell’s success
  • A heritage in mobile marketing
  • Retaining control, enabling access
  • Co-opetition from a position of strength
  • How successful is Turkcell’s strategy?
  • What does the future hold for Turkcell?
  • Case study 3: SingTel
  • Summary: Reasons for SingTel’s success
  • Assembling a digital marketing capability through acquisition
  • Retaining revenue within the value chain
  • Providing technology at scale
  • How successful is SingTel’s strategy?
  • What does the future hold for SingTel?
  • Conclusion and recommendations

 

  • Figure 1: The Telco Advertising Business Flywheel
  • Figure 2: Time Spent per Adult per Day with Digital Media, USA, 2008-2015
  • Figure 3: Mobile Internet Ad Spending, Worldwide, 2013 – 2019
  • Figure 4: Mobile Marketing Ecosystem (extract)
  • Figure 5: The “Wheel of Commerce”
  • Figure 6: The Digital Gameboard – an OTT view of the world
  • Figure 6: Sprint’s data asset overview
  • Figure 7: Sprint’s role in the mobile advertising ecosystem
  • Figure 9: Top App Widget
  • Figure 10: Visual voicemail
  • Figure 11: Turkcell’s role in the mobile advertising ecosystem
  • Figure 12: Turkcell’s mobile marketing solution portfolio
  • Figure 13: Turkcell’s permission database overview
  • Figure 14: SingTel’s role in the mobile advertising ecosystem
  • Figure 15: SingTel’s digital portfolio prioritisation
  • Figure 16: The role of first-party data
  • Figure 17: The promise of first-party data
  • Figure 18: The Telco Advertising Business Flywheel