Telecoms priorities: Ready for the crunch?

The goal of this research is to understand how telecoms operators’ investment priorities and investments are likely to change as the COVID-19 crisis recedes.  To do this, we collected 144 survey responses from participants in telecoms operators, telecoms vendors, and analysts and consultants and other groups. All responses are treated in strict personal and company confidence. Take the survey here.

This research builds on our previous content on the impact of the pandemic to the telecoms industry: COVID-19: Now, next and after (March 2020), COVID-19: Impact on telco priorities (May 2020), based on a survey undertaken in April and early May 2020 and Recovering from COVID: 5G to stimulate growth and drive productivity (August 2020).  STL Partners has also hosted three webinar on the topic (March to July 2020).

This deck summarises the findings of our industry research on telecoms priorities at the start of 2021.

We explored the research in our webinar,  State of the Industry: 2021 Priorities (click on the link to view the recording).

Background to the telecoms priorities survey – January 2021

The respondents were fairly evenly split between telcos, vendors, and ‘others’ (mainly analysts and consultants). This sample contained a higher proportion of European and American respondents than industry average, so is not fully globally representative. The split of company types and geography was broadly similar to the May 2020 survey, with the exception of the MENA region, where there were less than half the prior respondents – a total of 7. However those respondents were senior and well known to STL.

Who took the survey?

telco industry breakdown

Source: STL telecoms priorities survey, 144 respondents, 31st January 2021

48% of respondents were C-Level/VP/SVP/Director level. Functionally, most respondents work in senior HQ and operational management areas. Compared to May 2020, there were proportionally slightly more senior respondents, and slightly less in product and strategy roles.

What are their roles?

Senior participants

Source: STL telecoms priorities survey, 144 respondents, 31st January 2021

How respondents perceive priorities, as the COVID threat recedes

There were increases in respondent confidence in almost every category we surveyed from May 2020 to Jan 2021.

  • Telecoms automation and agility remain top priorities across the industry – and transformation has moved up the agenda.
  • Appetite for 5G investments increased the most of all areas surveyed in the last 8 months.
  • The ‘consumerisation’ of enterprise continues, although security and work from home (WFH) services have overtaken conferencing and VPNs in priority.
  • Healthcare remains the most accelerated vertical / application opportunity of all those impacted in the current crisis.
  • The priority of consumer services has significantly increased yet confidence in making any additional money in the sector is low.
  • Leadership and transformation: COVID 19 has empowered an industry-wide belief that change is possible.
  • Transformation and innovation are high priorities, and appetite for sustainability and recruitment has returned, but there are doubts about some telco leaders’ commitment and ability to grasp and invest in new opportunities.

STL Partners assesses the telecoms industry to be at a crunch point: COVID has injected further pace to the rapid evolution of the world economy. Telcos that have been focused on responding to immediate pandemic-induced challenges, will emerge from the crisis faced with an urgency to respond to this evolution – key choices that telcos might have had 5-10 years to ponder are being crunched into the next 0-3 years.

Our findings suggest that most telcos are only partly ready for this disruptive opportunity.

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Notes on interpreting the research findings

  • The way research respondents perceive any given question is generally dependent on their current situation and knowledge. To get relevant answers, we asked all respondents if they were interested or involved in specific areas of interest (e.g. ‘consumer services’), and to not answer questions they couldn’t (e.g. for confidentiality reasons) or simply didn’t know or have a clear opinion.
  • We saw no evidence that respondents were ‘gaming’ the results to be favourable to their interests.
  • Results need to be seen in the context that telcos themselves vary widely in size, profitability and market outlook. For example, for some, 5G seems like a valid investment, whereas for others the conditions are currently much less promising. COVID-19 has clearly had some impact on these dynamics, and our analysis attempts to reflect this impact on the overall balance of opinions as well as some of the specific situations to bring greater nuance.
  • In December 2020 / January 2021, the worldwide impact of COVID-19 is increasingly well understood and less of a shock than was the case in May / June 2020. Vaccines are beginning to be rolled out but it is an early stage in the process, and new variants of COVID-19 have evolved in the UK, South Africa and Brazil (and possibly elsewhere). There are geo-political wrangles on vaccine distribution, and varying views on effectiveness and the most appropriate responses. Nonetheless, respondents appear overall more optimistic, although there is still considerable uncertainty.
  • We’ve interpreted the results as best we can given our knowledge of the respondents and what they told us, and added in our own insights where relevant.
  • Inevitably, this is a subjective exercise, albeit based on 144 industry respondents’ views.
  • Nonetheless, we hope that it brings you additional insights to the many that you already possess through your own experiences and access to data.
  • Finally, things continue to change fast. We will continue to track them.

Table of contents

  • Executive summary: Opportunities are in overdrive, but can telcos catch them?
  • High-level findings
  • Research background
  • Technology impacts: Automation, cloud and edge come of age
  • Network impacts: 5G is back
  • Enterprise sector impacts: Healthcare still leads
  • Consumer sector impacts: Mojo aplenty, money – not so much
  • Leadership impacts: good talking, but enough walking?

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The state of the art on work from home propositions

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WFH: From survival to strategy

The imposed shift to homeworking has divided many businesses. Some (including Facebook, Twitter, Slack, Microsoft, Indeed, AMEX, Mastercard) say they will never require office work again, whereas others are eager to bring back the personal element and re-introduce the “office dynamic”. The concept of ‘Zoom Fatigue’ has left some people pining for the office, and many companies find themselves on standby, aiming to reopen the offices to all staff during 2021.

A survey by Ipsos MORI found that the majority of people expect normality to return somewhere between six months to two years. One thing is apparent – the ability and timing to even consider a full return to work is uncertain.

Figure 1: Ipsos MORI survey of homeworkers in the UK

Ipsos Mori WFH survey

Source: Ipsos MORI

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When the lockdowns started, uncertainty caused paralysis to strategic initiatives as budgets diverted towards creating a Work From Home (WFH) culture. Survival became the priority for businesses, delaying planned spend on corporate connectivity and networking. That same survival instinct saw telcos and suppliers react and reposition products and services toward remote work.

As WFH continued throughout the pandemic various advantages came to the fore, such as reduction in pollution from travel and the ability to hire great talent which may not be located near a corporate office. Businesses started or accelerated a journey of massive (and sometimes painful) transformation but, from that, have either accelerated or embarked on a digital transformation journey. The gains in efficiency and business opportunity have the potential to be significant. WFH is no longer an approach to survival but instead, part of a broader strategy to optimise operations across a

increasingly complex physical and digital worlds. This growing need across all enterprises and consumers is one of the key elements within STL’s vision of the Coordination Age.

A hybrid approach is here to stay

Homeworking must continue for some time to come as we wait for the pandemic to subside. As we have adopted a homeworking culture, albeit forced upon us, the investments in people, technologies and processes have already been committed. Although there is much conflicting opinion about the long-term outcomes, there is no looking back. The workplace has transformed, and the connectivity and business enablement products to support it have become commonplace.

There are three considerations which will continue to drive the support and growth of WFH.

  1. Covid-19 does not have a defined end. The uncertainty and unfortunate lengthy road to fully managing the virus means that businesses will need to continue efforts towards supporting a large amount of remote work.
  2. Remaining relevant. Many businesses will embrace a no-office, online-only culture (including typical storefronts) in response to changing customer and employee preferences. To do business in such an environment will require the adoption of the latest online tools and practices.
  3. Investment in digital transformation. Before Covid-19 and independent to any prior appetite for home working, digital transformation has already led many businesses to adopt cloud services, online collaboration tools and uCaaS solutions for voice and video. It is now generally accepted that Covid-19 has accelerated and rapidly matured the integration of these solutions into many businesses. According to BT, the “technology/digital transformation journey” in the UK has been sped up by almost 5.5 years.

The support of WFH, fully or hybrid, is therefore strategic and something likely to feature in business plans for the foreseeable future. Even when offices do eventually begin to fill up again, work from home will transition and merge into the “work from anywhere” culture.

Telcos are in a unique position to provide all the connectivity and services required to assist in these projects, but to do that they need to offer appropriately positioned solutions. As consumer and business connectivity become intertwined, it creates a large area of uncertainty for businesses. As both consumer and business connectivity are core competencies for telcos, bringing the two together is the next natural step.

The telco role: An opportunity or obligation?

The adaptation of businesses towards increased homeworking is, of course, complex and touches nearly every part of the business, from people to processes and technology. Almost every business function will have invested considerable time and effort towards establishing new ways of working. In many cases, this would result in a change to the supporting technologies.

Underpinning all of this is a large assumption that each employee will be able to reliably connect to the new virtual business environment from wherever they want, and the technology will just work. To all but the most technically advanced businesses, the homeworker’s personal connectivity is just that – personal – and not an area that many businesses can currently manage.

The telco is in a unique position when it comes to WFH as it can touch every part of the service delivery chain. With many businesses unable to address the broad spectrum of WFH needs, the opportunity for telcos is to offer the enabling services. Telco solutions must now support businesses by providing the right mix of physical connectivity and enablement services.

Figure 2: The telco touchpoints in WFH service delivery

The touch points in telco WFH service delivery

Source: STL Partners

Telcos have had an obligation to provide continued service to businesses and homes, throughout the pandemic. Universal service obligations needed to be maintained while national charters to keep the country connected were agreed. When the pandemic started, the demand for connectivity within the business segment shifted to the consumer segment and telcos had to respond.

Businesses initially froze all internal connectivity projects and focused on the remote workforce — this impacted Q2 revenues in telcos’ business segments. At the same time telcos did everything they could to make the transition as easy as possible, removing data limits and speed caps and providing free trials of collaboration and communications tools. More detail is provided in STL Partners review of the initial telco responses.

Figure 3: Liberty Global Q3 2020 results illustrate the impact to the business segment

Liberty Global Q320 results

Source: Liberty Global

Eventually IT infrastructure projects re-started. Businesses with significant office-based operations (as opposed to, e.g. manufacturing) applied new focus on creating more flexible and agile networks which can support mass WFH. The dependency on digital collaboration and ensuring that homeworkers can work without disruption has now become a high priority. A Q3 improvement in business spending is partly down to collaboration enabling technologies creating new opportunities for telcos – to address the shifts from legacy business spend on connecting large sites towards a more distributed concept where households connectivity is both personal and business focused.

Consumer connectivity products must now simply articulate the support for all household needs, including WFH. Business products must enable the agility a business needs to adapt to any future changes, while easily embracing their employees’ consumer connectivity.

 

Table of Contents

  • Executive Summary
    • A six point plan for embracing WFH opportunities
    • How telcos responded to ‘work going home’ in 2020
    • Two essential areas in need of development
    • What next: Considerations for different types of telco
  • Introduction
    • WFH: From survival to strategy
    • A hybrid approach is here to stay
    • The telco role: An opportunity or obligation?
    • Embracing the consumer architecture
  • The WFH journey: From initial responses to strategic opportunities
    • Uncoordinated connectivity: The initial stakeholder responses
    • Intelligent networking for WFH
    • Long term WFH: The telco opportunity
  • Telco WFH propositions today
    • How telcos are positioning WFH services
    • Consumer broadband: Overlay services for the household
    • Dedicated WFH: Made-to-measure
    • WFH as part of wider transformation efforts
  • Conclusion and recommendations
    • The innovation opportunity

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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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Full Article: 7 Strategic Priority Areas for new Telecoms Business Models

This 30+ page article can be downloaded in PDF format here.  The Executive Summary is reproduced below.

Executive Summary

Following the brainstorming sessions in Nice, we have set out below what we consider to be the most important takeaways on high-level telco strategy and each of the seven hot topics in business model innovation covered in dedicated sessions at the event:

Telco Strategy – New Revenue from New Business Models

  • There is almost universal agreement among telco executives that their industry needs to find new sources of revenue.
  • Despite the current gloomy economic climate, 93% of the delegates in Nice agreed that exploring new business models that generate new revenue is just as important in the near term as achieving operational efficiency and retaining customers
  • Three-quarters of the delegates characterised existing business and technical transformation efforts by their company or industry as either “not very effective” or “very poor”.
  • The delegates voted top 3 strategic actions for the industry as “Creating new levels of collaboration between service providers”, “Understanding the needs of upstream industries much better” and “Understanding the needs of end users much better”.  

Open APIs – Where’s the joined-up commercial strategy?

  • There is a great deal of work being done on APIs by the operator and vendor community, but there is a real risk of this activity being derailed by the emergence of numerous independent “islands” of APIs and developer programmes.
  • It is still early days for the commercial model for APIs, but it is already becoming apparent that a one-size-fits-all solution will be difficult to achieve. It is important for operators to ensure that API platforms (and the associated revenue mechanisms) can service two distinct classes of customer:
  • Broad adoption by thousands, perhaps millions, of developers via automated web interfaces (similar to signing up for Google Adwords or Amazon’s cloud storage & computing services);
  • Large-scale one-off projects and collaborations, which may require custom or bespoke capabilities, such as being linked to subscriber data management systems or “semi-closed” or “private” APIs, for example with governments or major media companies.

Retail Services 2.0 – ‘Supermarket strategy’ not enough

  • The most attractive options around retail services involve turning the operator’s network (and possibly devices) into a platform of “enablers” for third party services and applications. These assets and capabilities may not be easy to deliver, but once in place, should provide a defensible source of value.
  • Whether a telco should also sell “enabled” services at retail depends upon their existing customer relationships, portfolio of existing in-house services and ease of developing retail partnerships.

  • Some applications simply cannot be “sold” through an operator’s retail store, as they will be integral parts of much larger services. Although Amazon can enable the sale of a huge variety of products, delivering fresh food or fuels, for example, would not fit with its logistics business. But suppliers of such goods might still exploit Amazon’s various online commerce enablers.

Devices 2.0 – Still no consistent industry strategy

  • Few fixed or mobile operators have successfully created new types of devices on their own. Few consumers, for example, would view their broadband “box” as a central hub of a home network – despite more than 10 years of discussion of interconnection with consumer electronics, utility meters and home automation.
  • In the mobile space, probably the most important customisation has been the configuration of the telco’s own portal as the default browser home page. If anything, the shift towards smartphones and PC-based mobile broadband has further weakened telcos’ role – the majority of 3G data traffic goes straight to and from the Internet from “vanilla” devices.
  • The future possibly holds some more hope. Delegates were strongly in favour of pushing for telco “control points” in otherwise open devices, which fits well with the heritage of SIM cards (which are expanding in capability) as well as standardisation in areas like the browser and widget frameworks (e.g. OMTP BONDI). Software pre-loaded with PC dongles or embedded 3G modems is another option.
  • In the converged triple/quadplay space, femtocells offer another point of control and service delivery, close to the customer, but delegates viewed the notion of a separate “gateway” product with less enthusiasm. New classes of devices such as mobile Internet devices (MIDs), operator-enabled consumer electronics (Internet TVs, 3G music players, in-car systems etc.) also hold promise, but are seen more as low-risk experiments at this point.

Online Video Distribution – Time to sort out the “Net Neutrality” Issue

  • Those pushing the ‘network neutrality’ issue are (deliberately or otherwise) causing confusion over differential pricing which creates public relations and regulatory risks for operators that need to be addressed.
  • Operators need to develop a suite of value-added products and services for third-parties sending digital goods over their networks so they can generate incremental revenues that will enable continued network investment.
  • Sending-party pays models may or may not work – this is an area where more experiments need to be tried. Distributors need to be working on disentangling bits that are able to be free from those that have to pay, not letting anyone get a free ride.

Enterprise Services 2.0 – A broader suite of platform services needed

  • Telcos need to learn how to develop, sell and support services which are customised, as well as mass-market “basic” applications and APIs. Ideally, the technical platform will be made up of underlying components (e.g. the API interface “machinery” and the associated back-office support systems) designed to cope with both ‘off the shelf’ and ‘bespoke’ go-to-market models for new services.
  • Especially in the two-sided model, there are very few opportunities to gain millions – or even tens of thousands – of B2B customers buying the same basic “product”. Google has managed it for advertising, while Amazon has large numbers of hosting and “cloud computing” customers – but these are the exceptions.
  • Perhaps the easiest and most universal horizontal markets will be enhancements to voice and messaging capabilities – after all, these are the ubiquitous cross-sector services today.
  • To really exploit unique assets and take friction out of business processes, there is a need to understand specific companies’ (or sectors’) processes in detail – and offer customised or integrated solutions. Despite the lower scale, the aggregated value may be even higher.

Technical Architecture 2.0 – Good Start, but Significant Gaps

  • Operators are in a unique position in that they have a fuller picture of customers than any single website or retailer or service provider. Several have already recognised this, and a number of vendors are offering scalable platforms which claim to be in line with the current EU legislation on data protection.
  • But as well as user profile data, the 2-sided business model requires on-demand response from the network infrastructure. Both the network and IT elements must work together to deliver this, implementing new control & monitoring systems such as Resource & Service Control Systems (RSC).
  • Most new applications are centred around apps stores, mash-up environments, XaaS environments, and smartphone Web browsers, etc. which do not demand a traditional service delivery platform (SDP). In addition, enabling services are becoming an essential element in operators’ core products.
  • These enabling services need a framework, which is highly flexible, agile and responsive, and integrated with the features defined by the Next Generation Mobile Networks (NGMN) alliance.

Telco 2.0 Pilots – How to trial Telco 2.0 business models

  • There is insufficient time to pursue the usual protracted telco timescales for research and deliberation. Moreover, projects with long lead times – such as those involving governments – are typically unsuitable. Some target industries are also experiencing lengthening sales/decision cycles in the recession, which are also not optimal conditions for pilots.
  • Web-based companies are often the most flexible, as are some academic institutions. There may also be a geographic dimension to this – countries with low regulatory burdens, or where it is unusual to have projects stuck for months with lawyers, are attractive for pilots.
  • Working alone may be fastest, but collaborating with other operators is likely to be more effective in demonstrating the validity of the Telco 2.0 concept. 

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STL Partners published this content for the sole use of STL Partners’ customers and Telco 2.0™ subscribers. It may not be duplicated, reproduced or retransmitted in whole or in part without the express permission of STL Partners, Elmwood Road, London SE24 9NU (UK). Phone: +44 (0) 20 3239 7530. E-mail: contact@telco2.net. All rights reserved. All opinions and estimates herein constitute our judgment as of this date and are subject to change without notice.