The changing consumer landscape: Telco strategies for success

Winning in the evolving “in home” consumer market

COVID-19 is accelerating significant and lasting changes in consumer behaviours as the majority of the population is being implored to stay at home. As a result, most people now work remotely and stay connected with colleagues, friends, and family via video conferencing. Consumer broadband and telco core services are therefore in extremely high demand and, coupled with the higher burden on the network, consumers have high expectations and dependencies on quality connectivity.

Furthermore, we found that people of all ages (including non-digital natives) are becoming more technically aware. This means they may be willing to purchase more services beyond core connectivity from their broadband provider. At the same time, their expectations on performance are rising. Consumers have a better understanding of the products on offer and, for example, expect Wi-Fi to deliver quoted broadband speeds throughout the house and not just in proximity to the router.

As a result of this changing landscape, there are opportunities, but also challenges that operators must overcome to better address consumers, stay relevant in the market, and win “in the home”.

This report looks at the different strategies telcos can pursue to win “in the home” and address the changing demands of consumers. It draws on an interview programme with eight operators, as well as a survey of more than 1100+ consumers globally . As well as canvassing consumers’ high level views of telcos and their services, the survey explores consumer willingness to buy cybersecurity services from telcos in some depth.

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With increasing technical maturity comes an increasingly demanding market

Consumers are increasing in technical maturity

The consumer market as a whole is becoming much more digital. Over the past decade there has been a big shift towards online and self-service models for B2C services (e.g. ecommerce, online banking, automated chatbots, video streaming). This reflects the advent of the Coordination Age – connecting people to machines, information, and things – and the growing technical maturity of the consumer market.

COVID-19 has been a recent, but significant, driver in pushing consumers towards a more digital age, forcing the use of video conferencing and contactless interactions. Even people who are not considered digitally native are becoming increasingly tech savvy and tech capable customers.

Cisco forecasts that, between 2018 and 2023, the number of Internet users globally will increase from 51% to 66% . It has also forecast an increase in data volumes per capita per month from 1.5GB in 2017 to 9.7GB in 2022 . Depending on the roll out of 5G in different markets, this number may increase significantly as demand for mobile data increases to meet the potential increases in supply.

Furthermore, in our survey of 1,100+ consumers globally, 33% of respondents considered themselves avid users and 51% considered themselves moderate users of technology. Only 16% of the population felt they were light users, using technology only when essential for a limited number of use cases and needing significant support when purchasing and implementing new technology-based solutions.

Though this did not vary significantly by region or existing spend, it did vary (as would be expected) by age – 51% of respondents aged between 25 and 30 considered themselves avid users of technology, while only 18% of respondents over 50 said the same. Nevertheless, even within the 50+ segment, 55% considered themselves moderate users of technology.

Self-proclaimed technical maturity varies significantly by age

Source: STL Partners consumer survey analysis (n=1,131)

The growing technical maturity of consumers suggests a larger slice of the market will be ready and willing to adopt digital solutions from a telco, providing an opportunity for potential growth in the consumer market.

Consumers have higher expectations on telco services

Coupled with the increasing technical maturity comes an increase in consumer expectations. This makes the increasing technical maturity a double edged sword – more consumers will be ready to adopt more digital solutions but, with a better understanding of what’s on offer, they can also be more picky about what they receive and more demanding about performance levels that can be achieved.

An example of this is in home broadband. It is no longer sufficient to deliver quoted throughput speeds only within proximity to the router. A good Wi-Fi connection must now permeate throughout the house, so that high-quality video content and video calls can be streamed from any room without any drop in quality or connection. It must also be able to handle an increasing number of connected devices – Cisco forecasts an increase from a global average of 1.2 to 1.6 connections per person between 2018 and 2023 .

Consumers are also becoming increasingly impatient. In all walks of life, whether it be dating, technology or experiences, consumers want instant gratification. Additionally, with the faster network speeds of 4G+, fibre, and eventually 5G, consumers want (and are used to) continuous video feeds, seamless streaming, and near instant downloads – buffering should be a thing of the past.

One of our interviewees, a Northern European operator, commented: “Consumers are not willing to wait, they want everything here, now, immediately. Whether it is web browsing or video conferencing or video streaming, consumers are increasingly impatient”.

However, these demands extend beyond telco core services and connectivity. In the context of digital maturity, a Mediterranean operator noted “There is increasing demand for more specialized services…there is more of a demand on value-added, rather than core, services”.

This presents new challenges and opportunities for operators seeking growth “in the home”. Telcos need to find a way to address these changing demands to stay relevant and be successful in the consumer market.

Table of Contents

  • Executive summary
  • Introduction
  • Growing demand for core broadband and value-added services
    • COVID-19 is driving significant, and likely lasting, change
    • With increasing technical maturity comes an increasingly demanding market
  • Telcos need new ways to stay relevant in B2C
    • The consumer market is both diverse and difficult to segment
    • Should telcos be looking beyond the triple play?
  • How can telcos differentiate in the consumer market?
    • Differentiate through price
    • Differentiate through new products beyond connectivity
    • Differentiate through reliability of service
  • Conclusions and key recommendations
  • Appendices
    • Appendix 1: Consumer segments used in the survey
    • Appendix 2: Cybersecurity product bundles used in the conjoint analysis

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How telcos can win with SMBs: Strategies for success

SMB markets: An elusive opportunity for telcos

SMBs (small-to-medium-sized businesses) have been a challenging market for telcos historically. Despite this, it remains an attractive opportunity thanks to its sheer size and (potential) margins. Our interview programme, across 10 telcos globally and 100 SMBs in Europe and North America, revealed a feeling that telcos could see real rewards by focusing on this previously underserved market.

“SMB is now a high priority as a large part of our B2B strategy. We see it as a very big and growing opportunity,” noted a Western European Operator. A North American operator commented, “medium enterprises are now an area of great focus for us, there’s lots of potential there. We didn’t use to but are now investing lots of resources.” There are several key factors why telcos are looking to pursue this opportunity now:

  • As consumer average revenue per user (ARPUs) continue to decline, there remains a promise of stability and  growth with business customers.
  • SMBs are becoming more technologically mature and are increasingly embracing trends such as remote working and bring your own device, which can reduce their costs of operation. They have increased need and desire for digital and cloud services, which enable employees to access documents from any device, anywhere – they are often looking to their broadband providers to provide this.
  • Security and compliance are a high priority for SMBs. Previously they may have relied upon the belief that small businesses will not be targeted by cyberattacks, but increasingly SMBs will struggle to do business without being able to prove they are compliant. As this report will go on to highlight, security is an area of key potential telcos should be looking to pursue.
  • Technology such as artificial intelligence (AI) and SD-WAN can enable telcos to provide new services to SMBs while keeping cost of acquisition low.

SMB markets are attractive due to sheer size and (potential) margins

For SMBs, the potential untapped revenues, though relatively small per business, are sizeable when aggregated across SMBs. For example, companies with fewer than 250 employees made up 99% of all enterprises in the EU. But why do telcos often struggle in this space, and what should they do to succeed in this market?

First, it’s important to define what we mean by SMBs and how we should segment them. There is no one clear definition, and segmentation often differs across markets. For example, one operator we spoke to in Mexico pointed out that what they classify as relatively large enterprises would be considered SMBs by telcos in the United States. The definition varies, often dependent on the difference in average company size for each region.

For the purposes of this report, we define SMBs as enterprises with fewer than 100 employees. We also include the category of firms with 2-7 employees – often called SOHO (single office / home office) or VSE (very small enterprise) – in our definition. However, given their size and needs, telcos sometimes group SOHOs with consumers in their “mass-market” lines of business.

The number of potential SMB customers provides the telco with scale of service and large revenue opportunities. These opportunities come from both the acquisition of new customers, for whom operators provide connectivity and communications services (voice, conferencing, UC), and from upselling additional adjacent services to existing customers. These new services might include:

  • Enterprise mobility: management and security of mobile devices, including scenarios like bringyour-own-device (BYOD) and virtual desktops
  • Software-as-a-service: cloud-hosted enterprise software such as productivity software (e.g. Office 365), CRM software (e.g. Salesforce) or accounting packages (e.g. local accounting software)
  • Infrastructure-as-a-service: compute / storage resources and networking capabilities
  • Cybersecurity and disaster recovery: email backup and security services including firewalls, anti-phishing and DDOS attack prevention
  • IoT connectivity: bespoke connectivity solutions for IoT devices (though not the focus of this report, it is a major new area for telco enterprise services).

For most telcos, moving into new services is a crucial move to combat the commoditisation of connectivity. This move is critical in the SMB market, where cost of acquisition of new customers is relatively high, so telcos must offer value-add services to make it profitable.

Telcos’ key challenges in SMB markets: Fragmentation, heterogeneity, “high-touch” engagement

Disparity characterises the SMB market. The divergence of expectations, needs, and technological maturity of SMBs creates fragmentation. Additionally, SMB needs vary by vertical and region, both of which create additional elements of disparity. This market fragmentation has created two crucial challenges for telcos.

  1. It’s hard to understand the customers’ needs because they vary so greatly from one SMB to another.
  2. It’s expensive to serve them because of the time it takes to understand these needs and develop bespoke solutions to address them.

Both of the above challenges are complicated by SMBs’ relatively limited buying power and often limited understanding of their own IT requirements. Despite their smaller budgets, SMBs traditionally require a relatively large investment to win a sale. In comparison to the highly automated, self-service environment of many telcos’ consumer divisions, SMBs want and expect personalised, often dedicated (even face to face) sales and support. Along with knowledge of their product suite, sellers may need to help solve wider IT problems or offer technical guidance. Successful SMB sales teams require broad knowledge and time, making it a comparatively big investment for telcos.

It is not just the sales process that needs to be personalised and consultative; SMBs may also require bespoke product configuration and integration. This kind of service would be expected within a large enterprise but becomes prohibitively expensive within smaller businesses unless it is provided by channels with wider monetisation models (e.g. IT support or equipment sales). In short, SMBs have the engagement expectations of enterprises, with budgets closer to that of consumers. No wonder that few telcos made the effort with SMBs while their consumer businesses were still growing.

To seize this opportunity, telcos must find a way to bridge the gap between the entirely productised world of consumer, and the bespoke sales and services for larger corporates and enterprises.

Table of contents

  • Executive Summary
  • SMB markets: An elusive opportunity for telcos
    • SMB markets are attractive due to sheer size and (potential) margins
    • Telcos’ key challenges in SMB markets: Fragmentation, heterogeneity, “high-touch” engagement
    • There is a disconnect between what telcos think SMBs need and what they actually want
  • Untapped opportunities: Strategies for SMB market success
  • Channel strategies: Engaging SMBs to provide a “high-touch” experience
    • Short term channel strategies
    • Long term channel strategies
  • Product strategies: Where to win quick in a fragmented market
    • Short term product strategies
    • Long-term product strategies
  • Supporting capabilities: Where telcos should invest for success in the SMB market
    • Short-term supporting capabilities needed
    • Long-term supporting capabilities needed
  • Conclusion