Tag: digital transformation

The state of telco transformation

There are two possible interpretations of the phrase “the state of transformation”:

  1. How is transformation going at telcos, i.e. where are telcos on the path to transformation
  2. The condition of transformation, i.e. what does it mean to be in the process of transforming.

Over the summer of 2022, STL Partners carried out nine in-depth interviews with telco employees that were involved in influencing, coordinating, or implementing large change projects at their organisations. These change makers came from various disciplines: Strategy, HR, Transformation project management, Networks, Technology, as well as Research. Our first intention was to illuminate the first interpretation (where are telcos on the path to
transformation), but our findings suggest that transformation paths (and indeed end states) are unique to each operator, making it difficult to compare progress between telcos.

No one path – overlapping changes in multiple areas

Source: STL Partners

We have mainly come away with findings on the latter point – identifying the types of change initiatives underway and the challenges that change-makers are encountering on their journeys.

This report brings together insights from our interviews, contextualised with further information from secondary sources and ongoing conversations with operators, to give a sense of what telcos mean when they talk about transformation and what their challenges are in becoming more adaptable as organisations to find growth.

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Why is Transformation important to telcos

Far from being an irrelevant or out-dated concept, telcos continue to transform internally. Transformation is understood as a deep change initiative that might involve a shift in foundational technology or a broad-based change in the way an organisation does things, i.e. the culture, processes and the people required – or both.

Most commonly, transformation involves the integration of digital technologies/tools (e.g. cloud, automation, data analytics) into organisational processes to improve business outcomes – with an impact on ways of working (“digital transformation”).

Some telcos talk about transformation in terms of functional initiatives (e.g. IT modernisation), ostensibly affecting a subset of the business, while others talk about transformation from an organisation-wide perspective (e.g. a change in culture like Lean Six Sigma).

The common feature between telco narratives about transformation is that they are motivated by
trying to improve the organisation’s ability to achieve their future vision. This could involve:

  • Making the business more efficient,
  • Creating new value/finding new revenues,
  • Improving outcomes for customers.

Transformations are also undertaken when the vision changes (e.g. when a new leader takes the helm). STL observes that interview respondents described technology-led transformations as aligned to efficiency benefits in the first instance, while organisation-led change was more aligned to responsiveness, particularly in relation to customer needs (improving outcomes). Respondents tended to describe combined technology- and organisation-led change initiatives when there was an ambition to do new things/create new value for customers.

The meaning of transformation – activities cited in interviews

Source: STL Partners

Respondents also mentioned:

  • Transformation in the context of the industry, particularly the possibility that new technologies may change the shape of an industry (e.g. tech companies may find it easier to enter telecoms with their technology capabilities, while telcos may find it difficult to extend services up the technology value chain).
  • The enterprise opportunity represented by digital transformation services.

These were not topics for further exploration in our interviews. Industry transformation is a topic for STL’s Executive Briefing Service – however the threat of industry disruption can and should be an inspiration for corporate transformation. Digital transformation services are covered in our Enterprise stream.

Table of contents

  • Executive Summary
  • Introduction
  • Why is Transformation important to telcos
    • Different change trajectories
  • The condition of transformation – being in the process of it
    • Where do telcos have transformation efforts underway
    • How are transformation projects approached at telcos?
    • Who is responsible for transformation?
  • Barriers to transformation
    • Change leadership issues
    • People challenges
    • Execution difficulties
  • What is holding telcos back from being future-ready organisations?
    • Out with the old…
    • …In with the new
  • Conclusion
    • Recommendations

Related Research

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Telco cloud: short-term pain, long-term gain

Telcos have invested in telco cloud for several years: Where’s the RoI?

Over a number of years – starting in around 2014, and gathering pace from 2016 onwards – telcos have invested a large amount of money and effort on the development and deployment of their ‘telco cloud’ infrastructure, virtualised network functions (VNFs), and associated operations: long enough to expect to see measurable returns. As we set out later in this report, operators initially hoped that virtualisation would make their networks cheaper to run, or at least that it would prevent the cost of scaling up their networks to meet surging demand from spiralling out of control. The assumption was that buying commercial off-the-shelf (COTS) hardware and running network functions as software over it would work out less costly than buying proprietary network appliances from the vendors. Therefore, all things being equal, virtualisation should have translated into lower opex and capex.

However, when scrutinising operators’ reported financials over the past six years, it is impossible to determine whether this has been the case or not:

  • First, the goalposts are constantly shifting in the telecoms world, especially in recent years when massive 5G and fibre roll-outs have translated into substantial capex increases for many operators. But this does not mean that what they buy is more (or less) expensive per unit, just that they need more of it.
  • Most virtualisation effort has gone into core networks, which do not represent a large proportion of an operator’s cost base. In fact, overall expenditure on the core is dwarfed by what needs to be spent on the fixed and mobile access networks. As a ballpark estimate, for example, the Radio Access Network (RAN) represents 60% of mobile network capex.
  • Finally, most large telco groups are integrated operators that report capex or opex (or both) for their fixed and mobile units as a whole; this makes it even more difficult to identify any cost savings related to mobile core or any other virtualisation.

For this reason, when STL Partners set out to assess the economic benefit of virtualisation in the first half of 2022, it quickly became apparent that the only way to do this would be through talking directly to telcos’ CTOs and principal network engineers, and to those selling virtualisation solutions to them. Accordingly, STL Partners carried out an intensive interview programme among leading operators and vendors to find out how they quantify the benefits, financial or otherwise, from telco cloud.

What emerged was a complex and nuanced picture: while telcos struggle to demonstrate RoI from their network cloudification activities to date, many other benefits have accrued, and telcos are growing in their conviction that further cloudification is essential to meet the business, innovation and technology challenges that lie ahead – many of which cannot (yet) be quantified.

The people we spoke to comprised senior, programme-leading engineers, executives and strategists from eight operators and five vendors.

The operators concerned included: four Tier-1 players, three Tier-2 and one Tier-3. These telcos were also evenly split across the three deployment pathways explained below: two Pathway 1 (single-vendor/full-stack); three Pathway 2 (vendor-supported best-of-breed); and three Pathway 3 (DIY best-of-breed).

Four of the vendors interviewed were leading global providers of telco cloud platforms, infrastructure and integration services, and one was a challenger vendor focused on the 5G Standalone (SA) core. The figure below represents the geographical distribution of our interviewees, both telcos and vendors. Although we lacked interviewees from the APAC region and did not gain access to any Chinese operators, we were able to gain some regional insight through interviewing a new entrant in one of the major Asian markets.

Geographical distribution of STL Partners’ telco cloud benefit survey

 

Source: STL Partners

Virtualisation will go through three phases, corresponding to three deployment pathways

This process of telco cloudification has already gone through two phases and is entering a third phase, as illustrated below and as decribed in our Telco Cloud Manifesto, published in March 2021:

Phases of telco cloudification

Source: STL Partners

Effectively, each of these phases represents an approximately three to five-year investment cycle. Telcos have begun these investments at different times: Tier-1 telcos are generally now in the midst of their Phase 2 investments. By contrast, Tier-2s and -3s, smaller MNOs, and Tier-1s in developing markets are generally still going through their initial, Phase 1 investments in virtualisation.

Given that the leading Tier-1 players are now well into their second virtualisation investment cycle, it seems reasonable to expect that they would be able to demonstrate a return on investment from the first phase. This is particularly apt in that telcos entered into the first phase – Network Functions Virtualisation (NFV) – with the specific goal of achieving quantifiable financial and operational benefits, such as:

  • Reduction in operational and capital expenditures (opex and capex), resulting from the ability to deliver and run NFs from software running on COTS hardware (cheaper per unit, but also more likely to attract economies of scale), rather than from expensive, dedicated equipment requiring ongoing, vendor-provided support, maintenance and upgrades
  • Greater scalability and resource efficiency, resulting from the ability to dynamically increase or decrease the capacity of network-function Virtual Machines (VMs), or to create new instances of them to meet fluctuating network capacity and throughput requirements, rather than having to purchase and maintain over-specified, redundant physical appliances and facilities to guarantee the same sort of capacity and resilience
  • Generation of new revenue streams, resulting from the ability that the software-centricity of virtualised networks provides to rapidly innovate and activate services that more closely address customer needs.

Problem: With a few exceptions, telcos cannot demonstrate RoI from virtualisation

Some of the leading telco advocates of virtualisation have claimed variously to have achieved capex and/or opex reductions, and increases in top-line revenues, thanks to their telco cloud investments. For example, in January 2022, it was reported that some technical modelling had vindicated the cost-reduction claims of Japanese greenfield, ‘cloud-native’ operator Rakuten Mobile: it showed that Rakuten’s capex per cell site was around 40% lower, and its opex 30% lower, than the MNO incumbents in the same market. Some of the savings derived from automation gains related to virtualisation, allowing cell sites to be activated and run remotely on practically a ‘plug and play’ basis.

Similarly, Vodafone claimed in 2020 that it had reduced the cost of its mobile cores by 50% by running them as VNFs on the VMware telco cloud platform.

The problem is that the few telcos that are willing to quantify the success of their virtualisation programmes in this way are those that have championed telco cloud most vocally. And these telcos have also gone further and deeper with cloudification than the greater mass of the industry, and are now pushing on with Phase 3 virtualisation: full cloud-native. This means that they are under a greater pressure to lay claim to positive RoI and are able to muster data points of different types that appear to demonstrate real benefits, without being explicit about the baseline underpinning their claims: what their costs and revenues would, or might, have been had they persisted with the old physical appliance-centric model.

But this is an unreal comparison. Virtualisation has arisen because telco networks need to do more, and different things, than the old appliance-dependent networks enabled them to do. In the colourful expression of one of the industry experts we interviewed as part of our research, this is like comparing a horse to a computer.

In the first part of this report, we discuss the reasons why telcos generally cannot unequivocally demonstrate RoI from their telco cloud investments to date. In the second part, we discuss the range of benefits, actual and prospective, that telcos and vendors have observed from network cloudification, broken down by the three main pathways that telcos are following, as referred to above.

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Table of Contents

  • Executive Summary
  • Telcos have invested in telco cloud for several years: Where’s the RoI?
    • Virtualisation will go through three phases, corresponding to three deployment pathways
    • Problem: With a few exceptions, telcos cannot demonstrate RoI from virtualisation
  • Why do operators struggle to demonstrate RoI from their telco cloud investments to date?
    • For some players, it is clear that NFV did not generate RoI
    • It has also proved impossible to measure any gains, even if achieved
  • Is virtualisation so important that RoI does not matter?
  • Short-term pain for long-term gain: Why telco cloud is mission-critical
    • Cost savings are achievable
    • Operational efficiencies also gather pace as telcos progress through the telco cloud phases
    • Virtualisation both drives and is driven by organisational and process change
    • Cloud-native and CI/CD are restructuring telcos’ business models and cost base
  • Conclusion: Telco cloud benefits are deferred but assured
  • Index

Related research

Reliance Jio: Learning from India’s problem solver

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Introduction

This year marks the 25th anniversary of mobile networks in India. The huge potential of the market has attracted many players (even as recently as 2016, there were 12 mobile operators in India). But most have had their fingers burned by the complexities of this market, as well as intense competition, particularly following the entry of Reliance Jio in September 2016.

In the past four years, Reliance Jio has gone from strength to strength, becoming the leading telco in terms of mobile subscriber numbers in December 2019, dramatically expanding internet access and driving adoption of digital services across the country. It is not an exaggeration to say that Jio played a major role in the digital transformation of India to date.

Evidence of Jio’s impact on the Indian market

Source: STL Partners

Jio leads Indian telecoms

By delivering broad societal progress and value, Jio has been able to overcome many of the regulatory and political challenges that have hindered other new entrants to the Indian telecoms market. Jio is in good standing as regards its future ambitions in the digital environment, helping it to attract over USD20 billion in investment between April and July 2020 from Facebook, Google and other international investors.

In India, Reliance Jio has trialled elements of a Coordination Age approach, setting out to solve various socio-economic problems by matching supply and demand, while moving up the value chain to unlock further sources of revenue growth.

At the time of Jio’s entry, India was still predominantly a 3G market, with voice calls being the main application. Although there were a multitude of plans on offer and the retail price per minute was among the lowest in the world, mobile communications remained out of reach for many (not helped by high license and spectrum fees that translated into upward pressure on pricing).

Reliance Industries recognised an opportunity to use the advent of 4G technology to build a data-first telecoms player that could support its wider aspirations to develop a globally competitive technology business in India. Accordingly, it obtained a nationwide license to operate a 4G network and encouraged take-up with a promotion that offered customers free voice calls forever.

The existing operators rushed to defend their market positions by dropping their prices resulting in a price war that destroyed value in the market and has led to consolidation and insolvencies such that, aside from Jio, only two privately-owned operators remain – with the real possibility that the market will shrink further and become a duopoly.

STL Partners covered the success of Jio’s disruptive market entry strategy in Telco-Driven Disruption: Will AT&T, Axiata, Reliance Jio and Turkcell succeed? report in 2017. This report considers Jio’s strategy in the context of the Coordination Age. It looks at what this has meant for the market and highlights the implications for operators in other developing markets.

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Table of Contents

  • Executive Summary
  • Introduction
  • Interventionist government shapes market
    • Mobile market overview
    • The shifting sands of policy
  • Jio overtakes the incumbents
  • The rise of Reliance Jio
    • Leveraging the strength of a conglomerate
    • Restructuring and renewal
  • Major emphasis on partnerships
    • Start-ups
    • Global technology partners
  • Competitor positions
    • Bharti Airtel faring better than Vodafone Idea
    • Competitors’ relationship with the government
  • Conclusions
    • Lessons for telcos in developing markets
  • Index

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5G impact on transport and logistics: $280bn of benefits in 2030

The challenges facing the transport and logistics industry

The transport and logistics industry is a fundamental sector that acts as the backbone to a country’s economy, and plays an essential role underpinning other core sectors such as manufacturing and retail. Challenges and opportunities facing the transport and logistics industry are also closely tracked and influenced by national and local governments, who are often responsible for investments in supporting transport infrastructure (e.g. roads, rail networks etc.).

As the movement of people and goods across the world increases, the industry is evolving to meet these demands. However, it faces challenges in doing so. The logistics industry has been under significant pressure for some time. Capital and fixed operating costs are high, and companies are struggling to differentiate. Despite growing demand, many firms are suffering from eroding margins. The UK market exemplifies these issues, with revenue growth across the industry low or negative. The COVID-19 pandemic has exacerbated these issues and thrown up unforeseen challenges, with the airline industry being particularly badly hit.

UK top 100 hauliers reported operating margin

Declining logistics margins

Source: FTA Logistics Report 2019

Although the rise in online retail and growing international trade have helped to stimulate the industry, there are still pain-points that are hindering growth. These include volatile diesel prices, driver shortages, and increasing pressure from governments and the general public to be more environmentally friendly.

The focus for the majority of the industry is therefore on cost-cutting and improving operating efficiency. For many companies, investing in new technologies provides an opportunity to transform their operations and drive efficiencies. There is significant scope to do this since the industry as a whole is generally not as digitised as other verticals, and because there is room to make improvements to currently under-utilised assets. For example, in the UK, 30% of goods vehicles on roads are running completely empty, and the freight vehicles that are carrying goods carry an average of 60% of their potential capacity.

UK logistics industry focus is cost-cutting and efficiency

Cost-cutting and efficiencies in logistics

Source: FTA Logistics Report 2019

As well as looking to improve efficiencies, safety and environmental impact are key areas of focus for the transport and logistics industry and government stakeholders:

  • Safety: enhancing safety of transport, particularly road transport, which is the most widely used, is an ongoing goal for the industry. Doing so benefits society as a whole, with fewer casualties due to road traffic accidents, for example, but also directly benefits transport and logistics companies through a positive impact on their branding and a decrease in insurance premiums. The industry is adopting new innovations and technologies such as ‘black box’ driver monitoring and/or alerts to improve safety.
  • Environmental impact: the drive to become greener is increasingly paramount. The industry is currently responsible for almost a quarter of the world’s CO2 emissions , and 14% of overall emissions. Road vehicles are responsible for the majority of this, contributing to nearly three-quarters of global transport emissions. As the population becomes more environmentally conscious, governments are passing regulations and setting sustainability targets to try to reduce emissions and consumption of non-renewable energy sources. For example, the United Nations has adopted 17 Sustainable Development Goals (SDGs) that aim to reduce inequality while tackling climate change. The industry must adapt to these regulations, and large players are taking steps to improve their practices. Logistics heavyweight DHL has committed to zero emissions by 2050 and in the shipping industry, the International Maritime Organisation (IMO) have declared they will halve carbon emissions in this time period.

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The role of technology in driving efficiency

For the industry to address these challenges and achieve efficiencies, it will need to adopt new technologies.

The catalyst for digital transformation will be data – in particular the generation of richer and more comprehensive data and the analysis of this data to produce insights to better inform decision making. The figure below shows the four pillars of technology that will drive improvements in efficiency.

The four pillars of technology that will help in driving efficiency

Digital pillars for efficiency

Source: STL Partners

Digital transformation: Transport and logistics lags behind

The need to digitise is not only driven by internal ambitions for greater efficiency in operations, but also by external pressures as customer expectations change. Requirements for last mile experiences in particular are evolving, as customers become accustomed to shorter and more flexible delivery times and greater visibility of the delivery process. Their cost expectations are also changing, with these improvements being expected for a smaller fee or even for free.

Despite the impetus to transform, the logistics industry lags behind other industries when it comes to digital transformation. There are two core reasons for this:

  • The degree of automation is limited
  • There is a reluctance to share information

The role of 5G networks in digital transformation

5G especially holds the potential to help drive digitalisation and address some of these challenges, both through enabling new and improved use cases and in its role in helping to catalyse the digital transformation journey. As 5G is rolled out, it could have a significant effect on supply chains, the wider transport industry and society more generally. This report explores the benefit of 5G to the industry and consider the actions that need to be taken by the industry, by governments, and by telecoms operators to reap the benefits.

Report findings are based on extensive research into the impact of 5G on the transport and logistics industry, including 10 interviews with enterprises and telco executives and an industry survey with more than 100 participants in both developed and developing markets.

Table of contents

  • Preface
  • Executive Summary
    • 5G can provide $280Bn of benefits to the transport and logistics industry
    • 5G’s unique capabilities enable new and enhanced use cases
    • However, there are challenges to adopting 5G
  • Introduction: A major industry under increasing pressure
    • The challenges facing the transport and logistics industry
    • The role of technology in driving efficiency
    • Digital transformation: Transport and logistics lags behind
    • The role of 5G networks in digital transformation
  • The impact of 5G on the transport and logistics industry
    • What is 5G?
    • 5G’s relevance in transport and logistics
  • New and improved use cases and applications enabled by 5G
    • Real-time routing and optimisation
    • Automated last 100 yards delivery
    • Connected traffic infrastructure
  • 5G impact: Increased productivity to drive $280bn rise in GDP
    • It’s not just about money: 5G’s socio-economic benefits
  • Next steps for the T&L industry
    • The role of governments
    • Collaboration with the telecommunications industry
  • Conclusion

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Recovering from COVID: 5G to stimulate growth and drive productivity

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Related webinar: How will 5G transform transport and logistics?

In this webinar, we share learnings from 100+ interviews and surveys with industry professionals. During the presentation we will look to answer:

  • How will 5G accelerate digital transformation of the transport and logistics industry?
  • What are the key 5G-enabled use cases and what benefits could these deliver?
  • What must change within the industry to unlock this transformation?
  • What is the role for telcos – how can they work with industry leaders to increase adoption of 5G and build new revenues beyond core communication services?

Date: Thursday 10th September 2020
Time: 4pm BST

View the webinar recording

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The 5G opportunity and value to verticals

In October 2019, STL Partners published research highlighting the benefits 5G-enabled use cases could unlock for industries. Our forecast predicted a potential $1.4 trillion increase in global GDP by 2030 across eight key industries.

In this short paper we look to update these numbers and explore new insights and conclusions based on two key factors:

  1. STL Partners has produced new research on the impact of 5G on the transport and logistics industry. This has led to more granular insight on the unique benefits and use cases for this vertical.
  2. COVID has changed the global landscape. It has increased demand for some 5G use cases, such as remote patient monitoring or video analytics solutions that determine if the public are respecting social distancing, but has also brought about economic uncertainty. We reflect these nuances in our updated figures.

5G enabled use cases could increase GDP by $1.5 trillion by 2030 – an increase from our original forecast

Source: STL Partners

5G’s impact on transport and logistics: Fresh analysis and new use cases

In 2019, we deep-dived into the 5G opportunity within two key verticals: healthcare and manufacturing. We have since performed a similar deep-dive on the transport and logistics industry, consisting of primary research with experts in the industry. We interviewed 10 enterprises, solutions providers, and members of 5G testbeds who were focused on transport and logistics, as well as surveying 100+ individuals who work in the industry to test the impact they predicted for three key 5G use cases. We will shortly be publishing a full report on these findings in detail.

We have revised our estimation on the impact of 5G on the transport and logistics industry. In 2019, we predicted 5G enabled use cases could increase the GDP value of the transport and logistics industry by 3.5% in 2030. We now believe the impact could be as high as 6%, though importantly some of these benefits are indirect rather than direct.

New forecasts show a bigger impact to the transport and logistics industry

Source: STL Partners

The three 5G-enabled solutions newly explored in detail in our study were:

  • Real-time routing and optimisation: Sensors collect data throughout the supply chain to improve visibility and optimise processes through real-time dynamic routing and scheduling;
  • Automated last 100 metres delivery: Using drones or automated delivery vehicles for the last ‘hundred yards’ of delivery, where the delivery van acts as a mobile final distribution point;
  • Connected traffic infrastructure: Smart sensors or cameras are integrated into traffic infrastructure to collect data about oncoming traffic and trigger real-time actions such as rerouting vehicles or changing traffic lights.

Benefits from these use cases include fewer traffic jams, more efficient supply chains, less fuel required and fewer accidents on the roads.

COVID has changed the landscape and appetite for 5G services

COVID-19 has caused a global economic slowdown. There has been a widespread fall in output across services, production, and construction in all major economies. Social distancing and nationwide lockdowns have led to a significant fall in consumer demand, to business and factory closures, and to supply chain disruptions. The pandemic’s interruption to international trade has far exceeded the impact of the US-China trade war and had a major impact on national economies. Lower international trade, coupled with a precipitous fall in passenger air travel, has also caused the air industry to enter a tailspin.

Table of Contents

  • Preface
  • The 5G opportunity: Updated forecast on value to verticals
  • 5G’s impact on transport and logistics: Fresh analysis and new use cases
    • Increased productivity through more efficient roads: An impact beyond transport and logistics
  • COVID has changed the landscape and appetite for 5G services
    • COVID has impacted the GDP of every country – and outlook for recovery is still unclear
    • Operators’ 5G strategies and roll out have also been impacted
    • Appetite for 5G-enabled healthcare services has been accelerated
  • Conclusion: Where next for the industry?

Telco Cloud: Why it hasn’t delivered, and what must change for 5G

Related Webinar – 5G Telco Clouds: Where we are and where we are headed

This research report will be expanded upon on our upcoming webinar 5G Telco Clouds: Where we are and where we are headed. In this webinar we will argue that 5G will only pay if telcos find a way to make telco clouds work. We will look to address the following key questions:

  • Why have telcos struggled to realise the telco cloud promise?
  • What do telcos need to do to unlock the key benefits?
  • Why is now the time for telcos to try again?

Join us on April 8th 16:00 – 17:00 GMT by using this registration link.

Telco cloud: big promises, undelivered

A network running in the cloud

Back in the early 2010s, the idea that a telecoms operator could run its network in the cloud was earth-shattering. Telecoms networks were complicated and highly-bespoke, and therefore expensive to build, and operate. What if we could find a way to run networks on common, shared resources – like the cloud computing companies do with IT applications? This would be beneficial in a whole host of ways, mostly related to flexibility and efficiency. The industry was sold.

In 2012, ETSI started the ball rolling when it unveiled the Network Functions Virtualisation (NFV) whitepaper, which borrowed the IT world’s concept of server-virtualisation and gave it a networking spin. Network functions would cease to be tied to dedicated pieces of equipment, and instead would run inside “virtual machines” (VMs) hosted on generic computing equipment. In essence, network functions would become software apps, known as virtual network functions (VNFs).

Because the software (the VNF) is not tied to hardware, operators would have much more flexibility over how their network is deployed. As long as we figure out a suitable way to control and configure the apps, we should be able to scale deployments up and down to meet requirements at a given time. And as long as we have enough high-volume servers, switches and storage devices connected together, it’s as simple as spinning up a new instance of the VNF – much simpler than before, when we needed to procure and deploy dedicated pieces of equipment with hefty price tags attached.

An additional benefit of moving to a software model is that operators have a far greater degree of control than before over where network functions physically reside. NFV infrastructure can directly replace old-school networking equipment in the operator’s central offices and points of presence, but the software can in theory run anywhere – in the operator’s private centralised data centre, in a datacentre managed by someone else, or even in a public hyperscale cloud. With a bit of re-engineering, it would be possible to distribute resources throughout a network, perhaps placing traffic-intensive user functions in a hub closer to the user, so that less traffic needs to go back and forth to the central control point. The key is that operators are free to choose, and shift workloads around, dependent on what they need to achieve.

The telco cloud promise

Somewhere along the way, we began talking about the telco cloud. This is a term that means many things to many people. At its most basic level, it refers specifically to the data centre resources supporting a carrier-grade telecoms network: hardware and software infrastructure, with NFV as the underlying technology. But over time, the term has started to also be associated with cloud business practices – that is to say, the innovation-focussed business model of successful cloud computing companies

Figure 2: Telco cloud defined: New technology and new ways of working

Telco cloud: Virtualised & programmable infrastructure together with cloud business practices

Source: STL Partners

In this model, telco infrastructure becomes a flexible technology platform which can be leveraged to enable new ways of working across an operator’s business. Operations become easier to automate. Product development and testing becomes more straightforward – and can happen more quickly than before. With less need for high capital spend on equipment, there is more potential for shorter, success-based funding cycles which promote innovation.

Much has been written about the vast potential of such a telco cloud, by analysts and marketers alike. Indeed, STL Partners has been partial to the same. For this reason, we will avoid a thorough investigation here. Instead, we will use a simplified framework which covers the four major buckets of value which telco cloud is supposed to help us unlock:

Figure 3: The telco cloud promise: Major buckets of value to be unlocked

Four buckets of value from telco cloud: Openness; Flexibility, visibility & control; Performance at scale; Agile service introduction

Source: STL Partners

These four buckets cover the most commonly-cited expectations of telcos moving to the cloud. Swallowed within them all, to some extent, is a fifth expectation: cost savings, which have been promised as a side-effect. These expectations have their origin in what the analyst and vendor community has promised – and so, in theory, they should be realistic and achievable.

The less-exciting reality

At STL Partners, we track the progress of telco cloud primarily through our NFV Deployment Tracker, a comprehensive database of live deployments of telco cloud technologies (NFV, SDN and beyond) in telecoms networks across the planet. The emphasis is on live rather than those running in testbeds or as proofs of concept, since we believe this is a fairer reflection of how mature the industry really is in this regard.

What we find is that, after a slow start, telcos have really taken to telco cloud since 2017, where we have seen a surge in deployments:

Figure 4: Total live deployments of telco cloud technology, 2015-2019
Includes NFVi, VNF, SDN deployments running in live production networks, globally

Telco cloud deployments have risen substantially over the past few years

Source: STL Partners NFV Deployment Tracker

All of the major operator groups around the world are now running telco clouds, as well as a significant long tail of smaller players. As we have explained previously, the primary driving force in that surge has been the move to virtualise mobile core networks in response to data traffic growth, and in preparation for roll-out of 5G networks. To date, most of it is based on NFV: taking existing physical core network functions (components of the Evolved Packet Core or the IP Multimedia Subsystem, in most cases) and running them in virtual machines. No operator has completely decommissioned legacy network infrastructure, but in many cases these deployments are already very ambitious, supporting 50% or more of a mobile operator’s total network traffic.

Yet, despite a surge in deployments, operators we work with are increasingly frustrated in the results. The technology works, but we are a long way from unlocking the value promised in Figure 2. Solutions to date are far from open and vendor-neutral. The ability to monitor, optimise and modify systems is far from ubiquitous. Performance is acceptable, but nothing to write home about, and not yet proven at mass scale. Examples of truly innovative services built on telco cloud platforms are few and far between.

We are continually asked: will telco cloud really deliver? And what needs to change for that to happen?

The problem: flawed approaches to deployment

Learning from those on the front line

The STL Partners hypothesis is that telco cloud, in and of itself, is not the problem. From a theoretical standpoint, there is no reason that virtualised and programmable network and IT infrastructure cannot be a platform for delivering the telco cloud promise. Instead, we believe that the reason it has not yet delivered is linked to how the technology has been deployed, both in terms of the technical architecture, and how the telco has organised itself to operate it.

To test this hypothesis, we conducted primary research with fifteen telecoms operators at different stages in their telco cloud journey. We asked them about their deployments to date, how they have been delivered, the challenges encountered, how successful they have been, and how they see things unfolding in the future.

Our sample includes individuals leading telco cloud deployment at a range of mobile, fixed and converged network operators of all shapes and sizes, and in all regions of the world. Titles vary widely, but include Chief Technology Officers, Heads of Technology Exploration and Chief Network Architects. Our criteria were that individuals needed to be knee-deep in their organisation’s NFV deployments, not just from a strategic standpoint, but also close to the operational complexities of making it happen.

What we found is that most telco cloud deployments to date fall into two categories, driven by the operator’s starting point in making the decision to proceed:

Figure 5: Two starting points for deploying telco cloud

Function-first "we need to virtualise XYZ" vs platform-first "we want to build a cloud platform"

Source: STL Partners

The operators we spoke to were split between these two camps. What we found is that the starting points greatly affect how the technology is deployed. In the coming pages, we will explain both in more detail.

Table of contents

  • Executive Summary
  • Telco cloud: big promises, undelivered
    • A network running in the cloud
    • The telco cloud promise
    • The less-exciting reality
  • The problem: flawed approaches to deployment
    • Learning from those on the front line
    • A function-first approach to telco cloud
    • A platform-first approach to telco cloud
  • The solution: change, collaboration and integration
    • Multi-vendor telco cloud is preferred
    • The internal transformation problem
    • The need to foster collaboration and integration
    • Standards versus blueprints
    • Insufficient management and orchestration solutions
    • Vendor partnerships and pre-integration
  • Conclusions: A better telco cloud is possible, and 5G makes it an urgent priority

Culture, leadership and purpose in telcos: Four key actions

Understanding culture, leadership and purpose

STL Partners has surveyed 168 telco execs about leadership, culture and purpose in the telecoms industry.

This research is part of our overall programme to help understand and develop how telcos can optimise their performance and reinvigorate growth and innovation. Respondents were asked to think about the telco they knew best, and answer a series of questions relating to different drivers of success:

  • Culture: Values and behaviours and the telco’s employees
  • Leadership: The way in which leaders drive the organisation
  • Purpose: The reason that the telco exists and operates
  • Digital: The telco’s ‘digital’ goals, skills and capabilities

Respondents were a mix of senior executives from telecoms operators worldwide, across a variety of functions and geographies.

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Findings include:

  • Half of respondents believe that it is harder to get things done in telecoms operators than elsewhere
  • Leadership vision, alignment and delivery are seen to be a significant enabler to success by 43% of respondents
  • There are mixed views of the impact of company culture on success: seen as a barrier by 57% and a significant enabler by 33%
  • Some telcos are outperforming others. For example, Elisa’s culture is perceived as significantly more effective than others
  • … and more.

We also explore correlation between answers to different questions to suggest four key actions to driving greater success.

Table of contents

  • Executive Summary
  • Introduction & methodology
  • Analysis of results
  • Full survey results
    • Culture
    • Leadership
    • Purpose
    • Digital
    • Correlation analysis
  • About STL Partners

 

$1.4tn of benefits in 2030: 5G’s impact on industry verticals

Understanding the 5G opportunity in other industries

The aim of this report is to highlight the impact that 5G will have on global GDP between 2020 and 2030. To do this, we have focused on eight industries where we feel 5G will have the largest impact. Often when 5G is discussed, the focus is on the impact it will have on the consumer market. Here, we argue that 5G will unlock significant new revenue opportunities in the enterprise space, enabling innovative use cases that are currently impossible to scale commercially (with existing technologies).

Insight from this report is explored further in the following publications:

The document was researched and written independently by STL Partners, supported by Huawei. STL’s conclusions are entirely independent and built on ongoing research into the future of telecoms. STL Partners has written widely on the topic of 5G, including a recent two-part series into the short- and long-term opportunities unlocked by 5G, and lessons that can be learnt from early movers.

Comparing apples with apples: How to compare nascent 5G with established 4G

If you compare the technological specifications for 3GPP release 14 and 3GPP release 15 (the first 5G release), you might be underwhelmed. Despite the hype that 5G will be transformative, it does not appear to be delivering much more than incremental increases in speed and reliability. But, of course, 4G is now a mature form of connectivity (having been in-life for 6+ years) whereas 5G is still nascent.

To compare apples with apples, it makes sense to compare 5G release 16, where capabilities such as ultra-reliable low-latency and network slicing are being added, with LTE today.

Mature 5G benchmarked against the capabilities of mature 4G

Mature 5G benchmarked against mature 4G

Source: ITU, Nokia, ublox, gps world

Of course, these figures represent a best-case scenario occurring in a laboratory environment. This is true for both the 4G and 5G numbers. It’s also true that, in reality, it will take time before we see commercialised rollout of enhanced mobile broadband (“pure 5G”) rather than enhanced mobile broadband with 4G fall-back alongside fixed wireless access. Despite this, these figures make clear that when 5G reaches maturity, it will far outstrip the capabilities of 4G, and unlock new use cases.

Our assumption is that by 2025 5G technology will be mature, enabling massive M2M / IoT use cases as well as those that require ultra-reliable low-latency communications. Several of the 5G use cases we’ll go on to explore in more detail are reliant on this technology, so it is important to acknowledge that their commercialisation is only likely to start from around 2023 and in many markets they still won’t be fully deployed in 2030.

It’s not all about LTE: 5G must be compared to all available technology

Mobile is not the only form of connectivity used by enterprises. Plenty of industries are also making use of Wi-Fi, LPWAN, Zigbee, Bluetooth and fixed connectivity as part of their overall connectivity solution. When 5G is rolled out, in some cases, it will need to integrate with these existing technologies rather than replace them. The table below summarises some of the key benefits and shortcomings of current technologies, including highlighting the sorts of situations in which industries are making use of them.

Current technologies will not be entirely replaced by 5G, but it can address some of they key shortcomings

current technologies will not be entirely replaced by 5G, but it can address some of their key shortcomings

There are clear scenarios where 5G will be superior to existing technologies and bring significant benefits to industrial users. Ultimately, in particular, 5G will enable:

  1. Low latency and high bandwidth requirements for wireless connectivity
  2. Massive IoT through ability to handle high cell density
  3. Ultra-reliable and secure connectivity.

Table of Contents

  • Preface
  • Executive Summary
    • 5G enabled solutions are estimated to add c.$1.4 trillion to global GDP in 2030
    • Operators must embrace new business models to unlock significant revenues with 5G
    • Recommendations for operators: how to capitalise on the 5G opportunity
  • Introduction
    • Background
    • Comparing apples with apples: how to compare nascent 5G with established 4G
    • It’s not all about LTE: 5G must be compared to all available technology
    • 5G deployment: 5G will mature over the next ten years
  • 5G will add more than $1.4 trillion to the global economy by 2030
  • Mobile network operator strategic options with 5G
    • 5G alone will not change the game for operators
    • Strategic options for operators to add more value with 5G
  • 5G-enabled digital transformation in healthcare
    • Example 5G use case: Remote patient monitoring
    • Implications for telcos
  • 5G-enabled digital transformation in manufacturing
    • 5G can create $740bn in additional GDP by 2030
    • Example 5G use case: Advanced predictive maintenance
    • Implications for telcos
  • Conclusions for operators: how to capitalise on the 5G opportunity

Table of Figures

  • Figure 1: Mature 5G benchmarked against the capabilities of mature 4G
  • Figure 2: Current technologies will not be entirely replaced by 5G, but it can address some of their key shortcomings
  • Figure 3: Forecast of 5G deployment in major regions
  • Figure 4: Responses from industry surveys
  • Figure 5: 5G will contribute ~$1.4 trillion to global GDP by 2030
  • Figure 6: Manufacturing, energy & extractives and media, sports & entertainment industries will see the largest upticks to their industry thanks to 5G use cases
  • Figure 7: In 2030, manufacturing and construction will be the largest industry sectors (in 2030)
  • Figure 8: High income countries will see almost 75% of the benefit of 5G in 2025, but the share is more even across all geographies by 2030
  • Figure 9: 4G rollout did not produce sustainable revenue increase
  • Figure 10: What should telcos’ role be in 5G B2B?
  • Figure 11: As telcos move beyond just connectivity, they can increase their share of the wallet
  • Figure 12: Telcos must focus efforts in specific verticals – some are already doing this
  • Figure 13: Global impact of 5G on healthcare across four key contact points
  • Figure 14: Remote patient monitoring enables wearables to send data about the patient to the hospital for monitoring
  • Figure 15: Estimated impact of 5G-enabled remote patient monitoring
  • Figure 16: The potential roles for telcos can within healthcare
  • Figure 17: The TELUS Health Exchange as a point of coordination
  • Figure 18: There is opportunity for telcos’ to play multiple roles higher up the value chain in healthcare
  • Figure 19: Estimated impact of 5G on manufacturing GDP (USD Billions) by use case
  • Figure 20: Advanced predictive maintenance enables many sensors to send data about machinery for monitoring and optimisation

MWC19: What really happened and what to do about it

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Mobile World Congress 2019

According to the GSMA, 100,000 people gathered in Barcelona last week for the 2019 Mobile World Congress. It is a remarkable testament to the growth and size of the industry that the show has kept growing. I’d like to add our sincere thanks to the GSMA for partnering with STL Partners again for the event.

It was a vibrant and busy show, but what was behind all the noise and action?

While at the Congress last week, I wrote a brief pastiche of the visceral impact of the show’s 5G frenzy in MWC2019: Beyond beyond on Linked-In. On a more serious note, we’ve previously researched 5G intensively in over ten reports, including:

The point of the pastiche and these references is that 5G is both a significant development, but also at the peak of its hype-cycle. It’s being touted as the next great hope for growth for the telecoms industry, but its impact will be more piecemeal for reasons we explained in 5G: ‘Just another G’ – yet a catalyst of change. To drive more rational decision-making, 5G and telco strategy overall need to be understood within a broader context.

The question that last week’s article didn’t answer was “what were the deep and important signals that lay behind the 5G hype at MWC?”. That is what this report covers, along with recommendations for actions by telcos, vendors and indeed the GSMA.

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The Coordination Age: A fundamental change in the world economy

We’ve outlined in our previous reports The Coordination Age: A third age of telecoms and How the Coordination Age changes the game that there is a massive change underway in the way economies work.

The ongoing transition to the Coordination Age presents an opportunity for telcos to redefine their roles and create new sources of value. It may also present a possible (albeit partial) swing of advantage back towards the nationally and locally organised telcos from the centralised, global scale technology players.

The Coordination Age is a result of the combination of the changing needs and demands of the world’s people, businesses, and governments, evolving technological solutions and possibilities, and  the need to preserve the most habitable possible future environment for the world’s population.

The underlying systemic world need is to improve the efficiency of the use of its many resources, which include food, materials, fuel, land, and water. It is also necessary and important to make the use of human resources (people, time, health, money, employment, etc,) productive and rewarding.

Its principle difference from the Information Age is the need to enable the better co-ordination of ‘real-world’ resources (e.g. people, time and other assets) and digital resources (i.e. information, computing power, etc.).

Overall, there are both changes in:

  • Demand, as individuals and organisations seek to improve their resource effectiveness
  • Supply, as a confluence of technological advances including AI, automation, IoT, NFV, 5G, edge, cloud, digital twins and the broad concept of ‘digitisation’ fundamentally change the operation and business models of industry production processes.

Figure 1: Global demand and supply trends are driving the Coordination Age

supply and demand are driving need for efficiency MWC theme

Source: STL Partners

Dr Che’s triangle of needs

We had many conversations at MWC19 about the Coordination Age. One fellow traveller that we met was Dr Haiping Che, the eminent SVP and Chief Digital Transformation Officer at Huawei.

Dr Che summarised one aspect of future success for the industry in with a rather neat triangle in his notebook, which I reproduce in the following chart.

Figure 2: Dr Che’s triangle – successful strategies will serve three goals

Huawei MWC19 customer, economy, environment

Source: Dr Haiping Che, SVP Chief Digital Transformation Officer, Huawei

Dr Che also made the insightful comment that a further major change will be that collaboration needs to increase in production networks to deliver increased coordination. While collaboration is increasingly common in the sharing economy on the demand side, it is not yet as strong a feature in production.

Accelerated evolution: Technologies versus problems solved

A further trend we’ve identified is that there is a general progression in the way that the increased combination of physical and digital assets produces benefits in the supply-side of the economy.

It broadly follows the steps laid out in Figure 3, taken from work in progress on a soon to be published STL Partners report on “Why we need an Internet for Things (I4T)”.

Figure 3: How production is changing in the Coordination Age

better data visualisation, models interact with the real world internally and then externally mwc19

Source: STL Partners

The rest of this report summarises where telcos and vendors are on all this, and what should they do next.

Contents

  • Executive Summary
  • Introduction
  • Mobile World Congress 2019
  • The Coordination Age: A fundamental change in the world economy
  • Dr Che’s triangle of needs
  • Accelerated evolution: Technologies versus problems solved
  • What’s happening now?
  • Signs of change at MWC 2019
  • Where are the telcos?
  • Vendors: Going any which way to enterprise
  • What should operators do?
  • Change the mindset
  • Make 5G pay
  • Get smarter in enterprise
  • How the GSMA should evolve MWC2020
  • Next steps for STL Partners

Figures

  1. Global demand and supply trends are driving the Coordination Age
  2. Dr Che’s triangle – successful future strategies will serve three goals
  3. How production is changing in the Coordination Age
  4. Every picture tells a story – growing transport industry presence at MWC 2019
  5. Elisa Automate at MWC 2019
  6. Deutsche Telekom CEO Tim Höttges at MWC 2019
  7. Increasing telecoms capital investment is yielding lower and lower returns
  8. Three new telecoms industry business models

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VEON – Transition from telco to consumer IP communications platform

Introduction to Veon

Geographical footprint and brands

Veon came into being at the start of 2017, a rebrand of VimpelCom. The Amsterdam-based telco was founded in its current form in 2009 when shareholders Telenor and Alfa agreed to merge their assets in VimpelCom and Ukraine’s Kyivstar to create VimpelCom Ltd.

Veon is among the world’s 10 largest communications network operators by subscription, with around 235 million customers in 13 countries (see Figure 1).

Figure 1: Veon’s geographical footprint (September 2017)

Source: Veon, STL Partners

The telco operates a number of brands across its geographical footprint (see Figure 2).

Figure 2: Veon’s brands (September 2017)

Source: Veon, STL Partners

Veon’s largest market is Russia, where it has over 58 million mobile subscribers, making up 24% of its global total. Pakistan and Bangladesh comprise its second-largest markets by subscribers, while it has over 30 million customers in Italy under its Wind Tre brand, a joint venture with CK Hutchison (see Figure 3).

Figure 3: Veon mobile customers by region, H2 2017 (millions)

Source: Veon, STL Partners

A brief history of Veon

  • 1992: Veon began life as Russian operator PJSC VimpelCom in 1992.
  • 2009: VimpelCom Ltd. founded as Telenor and Alfa Group (Altimo) agree to merge their assets in VimpelCom (Russia and CIS) and Ukraine (Kyivstar).
  • 2010: VimpelCom acquires Orascom Telecom Holding (operating in Pakistan, Bangladesh, Algeria) and Wind Italy from Egypt’s Naguib Sawiris.
  • 2017: VimpelCom Ltd. rebrands as Veon.

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The somewhat unusual development of both Veon’s shareholder structure and geographical footprint means the telco faces some unique challenges, but has also enabled a degree of flexibility in the company’s path to transformation.

Veon’s shareholder structure – an enabler of transformation

At the time of writing, Veon is 47.9%-owned (common and voting shares) by Alfa (via investment vehicle LetterOne), and 19.7% by Norway’s Telenor (with the remaining 32.4% split between free float and minority shareholders).

This structure means that the company is less beholden to dividend-hungry shareholders, allowing the telco more ease of alignment than many of its contemporaries. This extra “breathing space” also allows change to occur faster with fewer levels of managerial approval required, whilst the board of directors has given its backing to Veon’s transformation journey, offering full “top-down support”. Nevertheless there is some doubt about how the transformation plans will be greeted at local OpCo level, and the group faces some serious cultural challenges in this area.

Faced with lacklustre organic growth and in the face of headwinds of currency devaluations in its former Soviet markets, Veon has chosen to, in the words of CEO Jean-Yves Charlier, “disrupt itself from within”.

Reversing the revenue decline

Speaking at Veon’s rebrand in February 2017, CEO Charlier spoke of how the telco sector has been backed into a corner by aggressive disruptive start-ups like Skype and WhatsApp, meaning the industry now needs to reinvent itself and find new paths to growth.

The company began by improving its capital structure, in part through the consolidation of operations in two of its largest markets, with the mergers of Mobilink and Warid to form Jazz in Pakistan, and the formation of joint venture Wind Tre from Wind Italy and CK Hutchison’s Tre (3).

Veon states it has realigned its corporate culture and values, introduced a robust control and compliance framework, and significantly cut its cost base, and the operator returned to positive revenue and EBITDA growth in the second quarter of 2017.

Contents:

  • Executive Summary 
  • Introduction to Veon
  • Veon’s digital strategy
  • What are the strengths of Veon’s offering?
  • What must Veon do to succeed?
  • Will Veon make it work?
  • Introduction
  • Introduction to Veon
  • The path to total transformation
  • Veon’s digital strategy
  • Reinvent customer experience
  • Network virtualisation
  • The product
  • An omni-channel platform
  • The strengths of the holistic platform
  • Can Veon’s consumer IP communications proposition succeed? 
  • Can Veon beat the GAFA and Chinese giants to the market?
  • What must Veon do to succeed?
  • Conclusions

Figures:

  • Figure 1: Veon’s geographical footprint (September 2017)
  • Figure 2: Veon’s brands (September 2017)
  • Figure 3: Veon mobile customers by region, H2 2017 (millions)
  • Figure 4: Veon revenue and EBITDA, Q4 2015-Q2 2017 ($ billion)
  • Figure 5: Veon’s transformation from telco to tech company
  • Figure 6: Penetration of leading social networks in Russia (2016)
  • Figure 7: Veon IT stack scope of responsibilities
  • Figure 8: VEON app screenshots – a IP communication platform
  • Figure 9: Veon app access requirements
  • Figure 10: Comparison of consumer IP communications plays
  • Figure 11: Veon – a SWOT analysis

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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

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:

  1. What should telcos be aiming for?
  2. 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

chart on global customer experience survey

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

Transformation: Are telcos investing enough?

Introduction

Why are we doing non-telco case studies?

Digital transformation is a phenomenon that is not just affecting the telco sector. Many industries have been through a transformation process far more severe than we have seen in telecoms, while others began the process much earlier in time. We believe that there are valuable lessons telcos can learn from these sectors, so we have decided to find and examine the most interesting/useful case studies.

In this report, we look at German publisher Axel Springer, which has successfully transformed itself from a print-based publisher to an online multimedia platform.

While the focus of this report will be on Axel Springer’s transformation, the key takeaways will be the lessons for telcos to help them make their own transformation process run more smoothly.

STL Partners has done extensive research into the challenge of telco transformation and how to implement effective business model change, most recently in our reports Five telcos changing culture: Lessons from neuroscience, Changing Culture: The Great Barrier and Which operator growth strategies will remain viable in 2017 and beyond?

General outline of STL Partners’ case study transformation index

We intend to complete similar case studies in the future from other industry verticals, with the goal of creating a ‘case study transformation index’, illustrating how selected companies have overcome the challenge of digital disruption. In these case studies we will examine five key areas of transformation, identifying which have been the most challenging, which have generated the most innovative solutions, and which can be considered successes or failures. These five areas are:

  • Market
  • Proposition
  • Value Network
  • Technology
  • Finances

For each section, supporting evidence of good or bad practice will be graded as a positive (tick) or a negative (cross). These ticks and crosses will then be evaluated to create a “traffic light” rating for each section, which will then be tallied to provide an overall transformation rating for each case study.

We anticipate that some of these five sections will overlap, and some will be more pertinent to certain case studies than others. But central to the case studies will be analysis of how the transformation process is relevant to the telco industry and the lessons that can be learned to help operators on the path to change.

Axel Springer’s transformation – a success story

German publishing house Axel Springer began to suffer from declining revenues in the mid-2000’s as changes in consumer behaviour and disruption from new digital rivals such as Google and Yahoo! led to falling readership. Axel Springer identified this threat immediately and reacted swiftly, making the bold move to cannibalise its core printed newspaper and magazine business by repositioning most of its existing content onto online and digital platforms. The company has continued this transformation with an aggressive acquisition strategy, enabling it to expand its footprint into new geographies and content areas.

Even though Axel Springer’s transformation required sweeping technological, strategic and cultural change, it has been a success. Since the disposal of several non-core regional publications in 2012, both revenues and EBITDA have grown on average nearly 5% per year, while the percentage of revenues from digital streams grew to 67% in 2016 from just 42% in 2012.

Why is the Axel Springer case study relevant for telcos?

Much of Axel Springer’s transformation has consisted of (and been driven by) the change from traditional (print) to digital (online) publishing. While telcos have grown up in the digital era, with much of their transformation being driven by changes in consumer behaviour, there are many parallels between Axel Springer and the telco sector. We will look at the key lessons that can be learnt in the following areas:

  • Advances in technology
  • Changes in consumption and customer habits
  • The risk of cannibalisation
  • New opportunities in content
  • Working with social media
  • Platform and partnership opportunities
  • Culture change
  • The importance of data

Content:

  • Executive Summary
  • Axel Springer’s transformation success – a summary of key lessons
  • Axel Springer in STL Partners case study transformation index
  • Introduction
  • Why are we doing non-telco case studies?
  • Axel Springer – background to transformation
  • What was Axel Springer’s business model pre-transformation?
  • Drivers of change – how the market developed and Axel Springer’s reaction
  • Conclusions
  • Axel Springer in STL Partners transformation index
  • Appendices
  • Appendix 1: Axel Springer – company timeline
  • Appendix 2: Axel Springer – recent acquisitions
  • Appendix 3: Axel Springer – recent investments

Figures:

  • Figure 1: Total global internet users
  • Figure 2: Traditional publishing company business model
  • Figure 3: Post-digital publishing company business model
  • Figure 4: Axel Springer total revenues 2003-2016
  • Figure 5: Axel Springer total EBITDA and EBITDA margin 2003-2016
  • Figure 6: The development of news and media consumption
  • Figure 7: Axel Springer 2016 revenues by sector (€ million)
  • Figure 8: Axel Springer percentage of revenues from digital streams
  • Figure 9: Axel Springer revenues by sector 2012-2016
  • Figure 9: Axel Springer investment in acquisitions 2012-H1 2016 in comparison to selected telcos

NTT DoCoMo: The Digital Pathfinder

The need for telco transformation

Shrinking revenues in voice and data mean telcos need to change

Telcos are facing difficult times; as we wrote in a recent report – Which operator growth strategies will remain viable in 2017 and beyond? – the days of meteoric growth are in the past, and telcos need to find a new approach to prevent a dramatic decline in their revenues. This is not a new story; STL Partners has been writing about this phenomenon and the need for business model change since 2006. In the afore-mentioned report we discussed seven different growth strategies used by telcos between 2009 and mid-2016, and came to the conclusion that only one, which involves developing or acquiring new businesses and services, is viable for 2017 and beyond if the industry is to reignite sustainable growth.

Digital services are an important part of this growth strategy. In fact, as Figure 1 shows, STL Partners estimates that digital business should represent 25+% of Telco revenue by 2020 to avoid long-term industry decline.

Figure 1 – Transformation priorities are different for every operator

However, the move to digital is difficult for telcos, who have traditionally relied on an infrastructure-based business model. Digital businesses are very different, and to be successful here telcos will need to make a fundamental shift from their traditional infrastructure-based business model to a complex amalgam of infrastructure, platform, and product innovation businesses.

One of STL Partners’ global observations is that all operators have different goals in the pursuit of transformation. This was also true with the group in Singapore, as shown by the following chart of a vote on the priorities assigned to different transformation objectives.

NTT DoCoMo – an example for other operators

With this in mind, telcos need to think about how they will develop new businesses and services. NTT DoCoMo provides a useful example for other telcos because it has done more than any other operator globally to develop digital services.

However, some people claim that the Japanese mobile market is so unique that it does not provide a useful role model for telcos in other markets. STL Partners disagrees with this point of view. Although the Japanese mobile market does have some unique characteristics, in some cases what was originally thought of as “unique” has just been proved to be “advanced.” An example of this is the popularity of apps and the iPhone – before this it was claimed that Japanese consumers were more engaged than those in other markets with mobile games and gadgets – however, the worldwide popularity of the iPhone and smartphones has disproved this.

In fact, although not advanced in every area, the Japanese mobile market has experienced several key phenomena earlier than other countries, such as an early peak in revenues and market disruption from non-telcos. Therefore, STL Partners thinks telcos should be examining the Japanese market to help them prepare for the future challenges of their own. Examples of this can be found in NTT DoCoMo’s annual reports – as early as 1999 the company was talking about the need to develop new sources of revenue (such as digital services and machine-to-machine communications) because of the inevitable decline in voice.

We therefore think that, although telcos in different markets cannot replicate NTT DoCoMo’s strategy in Japan like-for-like, they can certainly adopt similar practices to help them succeed in the digital telco world.

 

  • Executive Summary
  • Introduction
  • Objectives
  • Methodology
  • The need for telco transformation
  • Shrinking revenues in voice and data mean telcos need to change
  • NTT DoCoMo – an example for other operators
  • A snapshot of the Japanese mobile market
  • NTT DoCoMo’s history
  • A mature home market…
  • Softbank disrupts the market
  • NTT DoCoMo’s digital journey
  • Early recognition of the telco challenge, but regulation dictates the direction of evolution
  • An incremental journey to digital success
  • Adapting to the post-iPhone world
  • Can NTT DoCoMo’s digital success work overseas?
  • What was i-mode and why did it fail outside Japan?
  • What can other operators learn from NTT DoCoMo’s digital journey?

 

  • Figure 1: Traditional telco revenues forecast to continue declining
  • Figure 2: NTT Corporation, NTT DoCoMo’s parent company
  • Figure 3: Japanese mobile subscriber data, 1999-2015
  • Figure 4: Japanese mobile operators’ annual revenues, 1994-2014
  • Figure 5: NTT DoCoMo quarterly revenue – by business segment
  • Figure 6: NTT DoCoMo’s digital innovation milestones
  • Figure 7: Before and after DoCoMo ID
  • Figure 8: +d’s social value in health, education and agriculture
  • Figure 8: i-mode subscriptions – a runaway success in Japan