Introduction

Why is AT&T doubling down on becoming a new media company, while Verizon Media is retrenching? With divergent strategies at play in the U.S. telecoms market, is there a path or multiple paths to success in the advertising market that other telcos can follow, or is it too soon to tell?

Telcos’ pursuit of the digital advertising market is not a new phenomenon. Early telco-led mobile marketing and advertising initiatives pre-date the mid-2007 launch of the iPhone. The journey began with pre-iPhone primitive text-messaging marketing, moved through display advertising to an increasingly sophisticated data-driven approach. What is new is the flurry of investments the leading U.S. telcos and some others, notably SingTel, have been making over the past few years to compete more holistically and effectively in the advertising/media space.

While their core communications/connectivity services businesses are maturing and being disrupted, U.S. telcos now face the prospect of investing heavily in building out next-generation 5G networks. They are placing bets on new, potentially lucrative and high-growth opportunities in the Internet-of-things (IoT), media/content and fixed wireless, among others. Among these opportunities, brokering digital advertising offers potentially the highest operating margins. AT&T’s Xandr advertising unit reported an operating margin of 68% for the fourth quarter of 2018, compared with 33% in its core communications business.

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Going on the offensive

Telecoms networks have long been the conduits for Google, Facebook, and Amazon, among others, to deliver innovative and disruptive (and mostly free) services, which generate billions in advertising revenues. Many of these same players have also introduced services, such as messaging, voice calls and video-on-demand, which have siphoned off revenues from the telcos that provide the networks they are riding on.

It is against this backdrop that distinct and evolving telco advertising strategies are emerging. And, from a U.S. market perspective, what a difference a year makes. In 2017, it looked like Verizon and AT&T were both doubling down on their advertising/media business strategies, with the aim of growing their piece of the total advertising pie and in turn attempting to siphon off advertising revenues from Google and Facebook, among others. But 2018 proved a watershed year, and now Verizon is pulling back, while AT&T continues full steam ahead.

This report focuses on the U.S. market and specifically how the big two telcos – Verizon and AT&T – have fared in the digital advertising market and what lessons other telcos can take away from their divergent market strategies. The report builds on past STL Partners research including:

The advertising opportunity for telcos

The future of advertising is digital. While spending on traditional advertising may have peaked, investment in digital advertising continues to fuel growth in the overall market. In 2018, global digital advertising revenues reached US$273 billion, and represented 44% of total advertising spend, according to eMarketer. By 2020, the specialist research firm expects digital to represent half of total global advertising spend, and by 2021 to eclipse traditional media spend – reaching US$427 billion globally in 2022. Note, eMarketer’s definition of digital advertising excludes SMS, MMS and P2P messaging-based advertising.

The global advertising opportunity – the future is digital

Source: eMarketer, May 2018

Within digital advertising, the mobile medium is taking over from the desktop as smartphones ship with larger screens and faster connectivity. Advertising agency Zenith, part of the Publicis Media Group, forecasts mobile advertising will account for 30.5% of global advertising expenditure in 2020, up from 19.2% in 2017. It reckons expenditure on mobile advertising will total US$187 billion by 2020, more than twice the US$88 billion spent on desktop advertising, and not far behind the US$192 billion spent on television advertising. At the current rate of growth, mobile advertising will comfortably overtake television in 2021, Zenith believes.

Mobile and cinematic advertising are growing faster than other segments

Source: Zenith

Singtel – a pioneering advertising play

Globally, one of the most advanced telcos in the advertising sector is Singtel, which has made a series of acquisitions to build out its adtech proposition, following its first deal in 2012, which saw it acquire Amobee, an early player in mobile advertising.

By some measures, Singtel is the largest telecoms group in south east Asia. The company and its affiliates serve 700 million mobile customers in 27 countries, including its wholly-owned subsidiary in Australia (Optus) and minority stakes in India, South Asia and Africa (Bharti Airtel, 40% effective stake); Indonesia (Telkomsel, 35% effective stake); Philippines (Globe Telecom, 47% ordinary shares); and mi Thailand (Advanced Info Service, 23% ordinary shares). With that extensive reach, which extends beyond mobile and includes Internet and video/TV customers, Singtel sees advertising as a high-growth opportunity and a way to leverage its customer data assets.

Singtel’s adtech play sits in its Group Digital Life (“GDL”) unit, which focuses on using the latest Internet technologies and assets of the operating companies to develop new revenue and growth engines by entering adjacent businesses where it has a competitive advantage. GDL focuses on three key businesses – digital marketing, regional premium OTT video and advanced analytics and intelligence capabilities, while acting as Singtel’s digital innovation engine through Innov8.

Singtel has spent about a billion dollars on adtech capabilities

*Purchase price not available. Source: Company reports

In the fourth quarter of 2018, GDL contributed 8% (up from 7% in the previous quarter) to the Singtel group’s operating revenue. GDL’s operating revenue for the quarter grew 17%, lifted by a full quarter’s contribution from Videology and growth in Amobee’s programmatic platform business, partially offset by lower media revenues. At an EBITDA level, GDL lost S$16 million after inclusion of Videology’s losses.

Singtel said that Amobee’s programmatic platform business continues to gain traction, while the integration of Videology will further strengthen Amobee’s capabilities in TV and video advertising. Although its advertising business isn’t yet making a major financial contribution, Singtel’s continued investments in this market suggest the Singapore-based operator remains committed and convinced that there are synergies between the telecoms and advertising sectors.

The rest of this report looks at U.S. telcos’ advertising strategies in depth, drawing conclusions and recommendations for other telcos globally.

Contents:

Executive Summary
Introduction
The advertising opportunity for telcos
Singtel – a pioneering advertising play
U.S. mobile market shift in full swing
Telcos’ strategic fits and starts
Google and Facebook strong, but Amazon makes gains
Amazon pulls commerce levers in advertising
Privacy, identity and security challenges and mandates
GDPR: A harbinger of things to come to the U.S.
U.S. telcos’ advertising assets
AT&T goes all-in on advanced advertising
More inventory, stronger monetisation
Balancing advertising and subscriptions
Takeaways
Verizon cuts its losses
The obstacles in the way of Oath
Takeaways
Conclusions and recommendations
Recommendations
Recommendations for major telcos

Figures:

Recommendations for how AT&T can get ahead in advertising
Why Verizon didn’t get ahead in advertising
The global advertising opportunity – the future is digital
Mobile and cinematic advertising are growing faster than other segments
Singtel has spent about a billion dollars on adtech capabilities
US online advertising spend – shift to mobile has already happened
Examples of telcos’ investments/divestments in adtech and content
Amazon gains, but still significant opportunities for telcos
AT&T, Verizon and Comcast’s content and advertising assets
AT&T’s advertising revenues are rising rapidly
Xandr is growing rapidly, but its high margins are sliding downwards
AT&T reaps rewards from Xandr, WarnerMedia, but pay TV is still a drag
Verizon Media (previously Oath) fails to hit revenue growth targets
As Verizon’s ad business struggles, it doubles down on 5G
SWOT analysis and recommendations for big telcos in advertising

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Introduction

Customer experience is at the centre of telcos’ digital transformation efforts

Telecoms is one of many industries that are transitioning towards becoming more digitalised businesses. More specifically within digital transformation, the need to be customer-centric, and improve customer engagement, has been a crucial theme in telco digital transformation efforts. This is exemplified by Orange’s CEO Stèphane Richard who recently claimed that users needed to be “at the core of systems”.

As revenue growth in the industry continues to decline and telecom operators’ core services become commoditised, customer experience remains as one of the few areas operators can differentiate themselves from their competitors and maintain relevance with consumers. This places greater need for operators to make customer engagement a priority.

The way in which telcos engage customers has changed dramatically in recent years through the growth of different channels and touch-points a customer has access to. This is often contributed to the rapid adoption of smartphones and tablets, initiated by the launch of the iPhone in 2007, and the speedy adoption of social media platforms like Facebook (launched 2004) and Twitter (launched in 2006). Customers now expect businesses to be digitally savvy, knowledgeable and “joined-up” in their interactions with them.

There is no shortage of commentators and technology providers extolling the virtues of a more customercentric focus, urging operators adopt an omnichannel approach. By integrating online, call centre and bricks-and-mortar store customer experiences – through omnichannel capabilities – the promise to operators is that they can deliver joined-up customer experiences: simultaneously improving the effectiveness of telecoms marketing by building a ‘single-view’ of the customer, reducing time spent on resolving customer service issues, and preventing data from getting stuck in specific siloes.

But are these investments in technology (and the considerable internal resource implications) really a priority for operators or just another example of technology vendors pushing operators to spend more on expensive capabilities that they will never benefit from? Our survey suggests that those operators who have built omnichannel capabilities are reaping the rewards. However, operators also appreciate that success is not just down to implementing fancy systems: it’s also about what you do with them and having the right skills.

Telcos’ benchmarks come from within and outside the industry

Although most telcos are investing in their efforts to digitise the customer experience, it may not be obvious where they should be concentrating their efforts and what targets they should be aiming for. For this, there is a need to determine what the relevant benchmarks are when it comes to best-practice for digital engagement, how well they stack up and how they should seek to close the gap.

Telcos are looking to learn from outside their industry as customer engagement is a domain that all businesses constantly seek to improve. Digital natives, companies such as Google, Facebook and Netflix that started off as digital businesses and did not have to make a transition from legacy practices, are often leading the way when it comes to offering customers a truly digitized experience. However, for a telco, it may seem like an unrealistic dream to replicate their efforts, therefore telcos often look for best-practice examples from other industries, which are undergoing a digital transformation and still have the burden of legacy services, systems, processes, people and infrastructure. These industries include finance, retail and media.

Nonetheless, when comparing telcos’ digital customer engagement to these industries, many different measures suggest that telcos are lagging behind. When looking at cross-industry Net Promoter Scores (NPS), telecoms operators come out at an average of 11% compared to an average of 50% for retail (which leads all industries). The next worst industry, insurance, has an average score of 23%, just over twice that of telecoms.

These statistics suggest there is room for improvement, but in which specific areas do the most critical gaps exist and how should telcos go about changing this?

So, STL Partners has attempted to answer two questions:

What should telcos be aiming for?
How well are telcos measuring up to their ambitions in digital customer engagement?

To address this, we created an online tool to benchmark telcos across various metrics in three domains related to digital customer engagement: commerce, marketing and sales & service.

The Digital Customer Engagement Benchmarking Study5 took place in two phases. The first phase was focused on commerce and took place over July and August 2016. In the second phase, the scope was expanded to include marketing and sales & service and took place in April and May 2017. In total, 70 respondents from 47 telecoms operators took part in the study.

For the purposes of this study, operators are categorised into 2 ‘peer groups’:

Mature Market: Medium-high income per user, predominantly post-pay, developed fixed infrastructure
Mobile First: Low-Medium income per user, predominantly pre-pay with limited fixed infrastructure

Figure 1: Respondents by region and peer group

Source: STL Partners

Contents:

Preface
Executive Summary
Introduction
Characterising operators’ digital customer engagement strategies
Commerce: selling more digitally and selling digitally more
Telcos’ online channels are still not being used enough by customers and prospects
Revenue benefits from online channels are relatively lower
Leveraging digital channels to upsell customers is one way to help drive online revenue
Data use is the key differentiator for a successful digital commerce approach
What is best practice for commerce?
Commerce Case Studies
Marketing: this time it’s personal
A (good) personalised marketing approach is more likely to secure returns…
…but most telcos’ marketing still uses traditional customer segmentation
What is best practice for marketing?
Marketing Case Studies
Sales & Service: Delivering the promise
Customers of the Omnichannel operator group are most actively engaged on digital channels
Online service engagement requires adequate channels and functionality
Omnichannel operators add value to customer service by ensuring complete visibility of customers
What is best practice for sales & service?
Sales & Service Case Study
Conclusions

Figures:

Figure 1: Respondents by region and peer group
Figure 2: Mapping operator digital customer engagement strategies
Figure 3: On average, less than 20% of total sales are from online channels
Figure 4: Variation between average telco and best performer across online sales
Figure 5: ARPU tends to be higher for customers who purchase their core package on offline channels
Figure 6: Mature Market operators have higher online attachment rates than Mobile First
Figure 7: Most operators are offering at least one online channel for upgrades
Figure 8: Omnichannel operators out-perform in digital commerce
Figure 9: Our research shows a link between the levels of personalised marketing and online marketing conversion rate
Figure 10: Most operators are not using personalised marketing techniques
Figure 11: On average, most customer interactions are not contextual
Figure 12: Online marketing conversion rates are at 31% across operators
Figure 13: A minority of purchases are being scaled up
Figure 14: Omnichannel operators excel in app-based customer engagementrst
Figure 15: Omnichannel operators are ahead in the number of channels a customer can use to raise a ticket
Figure 16: Omnichannel operators excel in the functionality of their channel offerings
Figure 17: Omnichannel operators lead converged billing capabilities
Figure 18: Omnichannel operators are on average twice as likely to have complete and partial visibility of customers compared to Digital Nascent operators

Tag: Digital marketing

How telcos can get ahead in advertising

Introduction

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Going on the offensive

The advertising opportunity for telcos

The global advertising opportunity – the future is digital

Mobile and cinematic advertising are growing faster than other segments

Singtel – a pioneering advertising play

Singtel has spent about a billion dollars on adtech capabilities

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Telco digital customer engagement: What makes a winning strategy?

Introduction

Customer experience is at the centre of telcos’ digital transformation efforts

Telcos’ benchmarks come from within and outside the industry

Figure 1: Respondents by region and peer group

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