Telco 2030: New purpose, strategy and business models for the Coordination Age

New age, new needs, new approaches

As the calendar turns to the second decade of the 21st century we outline a new purpose, strategy and business models for the telecoms industry. We first described The Coordination Age’, our vision of the market context, in our report The Coordination Age: A third age of telecoms in 2018.

The Coordination Age arises from the convergence of:

  • Global and near universal demands from businesses, governments and consumers for greater resource efficiency, availability and conservation, and
  • Technological advances that will allow near their real-time management.

Figure 1: Needs for efficient use of resources are driving economic and digital transformation

Resource availability, Resource efficiency, Resource conservation: Issues for governments, enterprises and consumers. Solutions must come from all constituents.

Source: STL Partners

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A new purpose for a new age

This new report outlines how telcos can succeed in the Coordination Age, including what their new purpose should be, the strategies, business models and investment approaches needed to deliver it.

It argues that faster networks which can connect tens of billions of sensors coupled with advances in analytics and process digitisation and automation means that there are opportunities for telecoms players to offer more than connectivity.

It also shows how a successful telecoms operator in the Coordination Age will profitably contribute to improving society by enabling governments, enterprises and consumers to collaborate in such a way that precious resources – labour, knowledge, energy, power, products, housing, and so forth – are managed and allocated more efficiently and effectively than ever before. This should have major positive economic and social benefits.

Moreover, we believe that the new purpose and strategies will help all stakeholders, including investors and employees, realign to deliver a motivating and rewarding new model. This is a critical role – and challenge – for all leaders in telecoms, on which the CEO and C-suite must align.

To do this, telecoms operators will need to move beyond providing core communications services. If they don’t choose this path, they are likely to be left fighting for a share of a shrinking ‘telecoms pie’.

A little history 2.0

Back in 2006, STL Partners came up with a first bold new vision for the telecoms industry to use its communications, connectivity, and other capabilities (such as billing, identity, authentication, security, analytics) to build a two-sided platform that enables enterprises to interact with each other and consumers more effectively.

We dubbed this Telco 2.0 and the last version of the Telco 2.0 manifesto we published can be found here – we feel it was prescient and that many of the points we made still resonate today. Indeed, many telecoms operators have embraced the Telco 2.0 two-sided business model over the last ten years.

This latest report builds on much of what we have learned in the previous fourteen years. We hope it will help carry the industry forwards into the next decade with renewed energy and success.

Other recent reports on the Coordination Age:

Table of contents

  • Executive Summary
  • Introduction
  • Industry context: End of the last cycle
    • The telecoms industry is seeking growth
    • Society is facing some major social and economic challenges
    • Addressing society’s (and the telecoms industry’s) challenges
  • The Coordination Age
    • Right here, right now
    • How would the Coordination Age work in healthcare, for example?
  • New opportunities for telcos?
    • The telecoms industry’s new role in the Coordination Age
    • Telcos need an updated purpose
    • This will help to realign stakeholders
    • A new purpose can be the foundation of new strategy too
    • Investment priorities need to reflect the purpose
    • New operational models will also follow
  • Conclusions: What will Telco 2030 look like?

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Personal data: Treasure or trash?

Introduction

This report analyses how the Telefónica Group is looking to reshape the digital services market so that both telcos and individuals play a greater role in the management of personal data. Today, most Internet users share large amounts of personal information with the major online platforms: Google, Facebook, Amazon, Apple, Tencent and Alibaba. In many cases, this process is implicit and somewhat opaque – the subject of the personal data isn’t fully aware of what information they have shared or how it is being used. For example, Facebook users may not be aware that the social network tracks their location and can, in some cases, trace a link between offline purchases and its online advertising.

Beyond the tactical deployment of personal data to personalise their services and advertising, the major Internet players increasingly use behavioural data captured by their services to train machine learning systems how to perform specific tasks, such as identify the subject of an image or the best response to an incoming message. Over time, the development of this kind of artificial intelligence will enable much greater levels of automation saving both consumers and companies time and money.

Like many players in the digital economy and some policymakers, Telefónica is concerned that artificial intelligence will be subject to a winner-takes-all dynamic, ultimately stifling competition and innovation. The danger is that the leading Internet platforms’ unparalleled access to behavioural data will enable them to develop the best artificial intelligence systems, giving them an unassailable advantage over newcomers to the digital economy.

This report analyses Telefónica’s response to this strategic threat, as well as examining the actions of NTT DOCOMO, another telco that has sought to break the stranglehold of the Internet platforms on personal data. Finally, it considers whether Mint, a web service that has succeeded in persuading millions of Americans to share very detailed financial information, could be a model for telco’s personal data propositions.

As well as revisiting some of the strategic themes raised in STL Partners’ 2013 digital commerce strategy report, this report builds on the analysis in three recent STL Partners’ executive briefings that explore the role of telcos in digital commerce:

In pursuit of personal cloud services

For the best part of a decade, STL Partners has been calling for telcos to give customers greater control over their personal data. In doing so, telcos could differentiate themselves from most of the major Internet players in the eyes of both consumers and regulators. But now, the entire digital economy is moving in this direction, partly because the new General Data Protection Regulation (GDPR) requires companies operating in the EU to give consumers more control and partly because of the outcry over the cavalier data management practices of some Internet players, particularly Facebook.

In a world in which everyone is talking about protecting personal data and privacy, is there still scope for telcos to differentiate themselves and strengthen their relationships with consumers?

In a strategy report published in October 2013, STL Partners argued that there were two major strategic opportunities for telcos in the digital commerce space:

  1. Real-time commerce enablement: The use of mobile technologies and services to optimise all aspects of commerce. For example, mobile networks can deliver precisely targeted and timely marketing and advertising to consumer’s smartphones, tablets, computers and televisions.
  2. Personal cloud: Act as a trusted custodian for individuals’ data and an intermediary between individuals and organisations, providing authentication services, digital lockers and other services that reduce the risk and friction in every day interactions. An early example of this kind of service is financial services web site Mint.com (profiled in this report). As personal cloud services provide personalised recommendations based on individuals’ authorised data, they could potentially engage much more deeply with consumers than the generalised decision-support services, such as Google, TripAdvisor, moneysavingexpert.com and comparethemarket.com, in widespread use today.

Back in October 2013, STL Partners saw those two opportunities as inter-related — they could be combined in a single platform. The report argued that telcos should start with mobile commerce, where they have the strongest strategic position, and then use the resulting data, customer relationships and trusted brand to expand into personal cloud services, which will require high levels of investment.

Today, telcos’ traction in mobile commerce remains limited — only a handful of telcos, such as Safaricom, Turkcell, KDDI and NTT Docomo, have really carved out a significant position in this space. Although most telcos haven’t been able or willing to follow suit, they could still pursue the personal cloud value proposition outlined in the 2013 report. For consumers, effective personal cloud services will save time and money. The ongoing popularity of web comparison and review services, such as comparethemarket.com, moneysavingexpert.com and TripAdvisor, suggests that consumers continue to turn to intermediaries to help through them cut through the “marketing noise” on the Internet. But these existing services provide limited personalisation and can’t necessarily join the dots across different aspects of an individual’s lives. For example, TripAdvisor isn’t necessarily aware that a user is a teacher and can only take a vacation during a school holiday.

STL Partners believes there is latent demand for trusted and secure online services that act primarily on behalf of individuals, providing tailored advice, information and offers. This kind of personal cloud could evolve into a kind of vendor relationship management service, using information supplied by the individual to go and source the most appropriate products and services.

The broker could analyse a combination of declared, observed and inferred data in a way that is completely transparent to the individual. This data should be used primarily to save consumers time and give them relevant information that will enrich their lives. Instead of just putting the spotlight on the best price, as comparison web sites do, personal cloud services should put the spotlight on the ‘right’ product or service for the individual.

Ideally, a mature personal cloud service will enrich consumers’ lives by enabling them to quickly discover products, services and places that are near perfect or perfect for them. Rather than having to conduct hours of research or settle for second-best, the individual should be able to use the service to find exactly the right product or service in a few minutes. For example, an entertainment service might alert you to a concert by an upcoming band that fits closely with your taste in music, while a travel site will know you like quiet, peaceful hotels with sea views and recommend places that meet that criteria.

As a personal cloud service will need to be as useful as possible to consumers, it will need to attract as many merchants and brands as possible. In 2013, STL Partners argued that telcos could do that by offering merchants and brands a low risk proposition: they will be able to register to have their products and services included in the personal cloud for free and they will only have to pay commission if the consumer actually purchases one of their products and services. In the first few years, in order to persuade merchants and brands to actually use the site the personal cloud will have to charge a very low commission and, in some cases, none at all.

Since October 2013, much has changed. But the personal cloud opportunity is still valid and some telcos continue to explore how they can get closer to consumers. One of the most prominent of these is Madrid-based Telefónica, which has operations in much of Europe and across Latin America. The next chapter outlines Telefónica’s strategy in the personal data domain.

Contents:

  • Executive Summary
  • Recommendations for telcos
  • Introduction
  • In pursuit of personal cloud services
  • Telefonica’s personal data strategy
  • Questioning the status quo
  • Backing blockchains
  • Takeaways
  • What is Telefónica actually doing?
  • The Aura personal assistant
  • Takeaways
  • Telefonica’s external bets
  • Investment in Wibson
  • Partnership with People.io
  • The Data Transparency Lab
  • Takeaways
  • Will Telefónica see financial benefits?
  • Takeaways
  • What can Telefónica learn from DOCOMO?
  • DOCOMO’s Evolving Strategy
  • Takeaways
  • Mint – a model for a telco personal data play?
  • Takeaways

Figures:

  • Figure 1: Telefónica’s tally of active users of the major apps
  • Figure 2: Telefónica’s view of digital market openness in Brazil
  • Figure 3: Investors’ valuation of Internet platforms implies long-term dominance
  • Figure 4: Key metrics for Telefónica’s four platforms
  • Figure 5: How Wibson intends to allow individuals to trade their data
  • Figure 6: Telefónica’s digital services business is growing steadily
  • Figure 7: Telefónica’s pay TV business continues to expand
  • Figure 8: DOCOMO’s Smart Life division has struggle to grow
  • Figure 9: NTT DOCOMO’s new strategy puts more emphasis on enablers
  • Figure 10: DOCOMO continues to pursue the concept of a personal assistant
  • Figure 11: DOCOMO is using personal data to enable new financial services
  • Figure 12: Mint provides users with advice on how to manage their money
  • Figure 13: Intuit sees Mint as a strategically important engagement tool

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

Changing Culture: The Great Barrier

Introduction

On Tuesday 6th December, STL Partners met with 17 executives from telecoms operators in SE Asia, including Singtel, Starhub, M1, Telekom Indonesia, Axiata, Bridge Alliance and Tata Communications. The group was a fairly even mix of C-Level, SVP/VP, and Strategy / ‘Heads of Digital’ roles.

The session was conducted under clear and explicit anti-trust guidelines, and had the objective to review and explore learnings in the strategic and operational transformation of telecoms business models.

Objectives of Transformation

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.

Figure 1 – Transformation priorities are different for every operator

Source: STL Partners

The subsequent discussion showed that behind these votes:

  • Improving customer engagement (and customer centricity) is a fundamental goal of almost all operators
  • Operators, like all businesses, want to manage costs, and this is generally a welcome benefit of change
  • Most operators wish to improve the fundamental agility of their businesses – to become faster to market
  • For some, creating new revenues from new services is the primary objective, while for others, it is seen as a welcome possibility once the core agility has been improved

What is the outlook for growth for telcos?

STL Partners shared findings from its recent research report Which operator growth strategies will remain viable in 2017 and beyond? that examined the growth performance of 68 operator groups globally over the last seven years.

Figure 2 – The growth performance of 68 global operator groups 2009-16

Source: STL Partners

The overall picture presented was that most telcos had enjoyed a period of good growth in this time, though latterly growth rates have slowed to an average of 2% globally. Many markets, especially in Europe, are now in decline. Voice and messaging revenues have been eroded by substitution from Internet based applications, and data competition has by and large brought strong growth in usage volumes, but not enough to make up for the declines in voice and messaging.

Can data growth ‘save the day’?

A question raised in Europe and discussed again in Asia when this analysis was presented, is whether broadband data sales can offset the declines in voice and messaging revenues. The arguments for and against this are summarised in Figure 3.

Figure 3 – The arguments for and against broadband producing long term growth

Source: STL Partners

 

  • Executive Summary
  • Introduction
  • Objectives of Transformation
  • What is the outlook for growth for telcos?
  • Can data growth ‘save the day’?
  • Why is transformation so difficult?
  • The challenge of achieving synergy with the core
  • So ‘going digital’ is becoming a necessity whatever your strategy
  • Opportunities for ‘Telco Cloud’ Centred Growth
  • Models for how to transform
  • The Publisher / Utility Model
  • 20 transformation metrics that matter
  • Digital Maturity Model
  • NFV/SDN Playbook
  • Case Studies of Transformation in Practice
  • Telkom Indonesia – Becoming the “King of Digital”
  • Celcom Axiata – Quick ‘HITx’ to Kick-start Transformation
  • Conclusion: how to change model and culture together?
  • 1. Establish transformational leadership and vision
  • 2. Empower and motivate people to unlock culture
  • 3. See success through a new lens (and new metrics)
  • 4. Re-engineer the guts of the business

 

  • Figure 1 – Transformation priorities are different for every operator
  • Figure 2 – The growth performance of 68 global operator groups 2009-16
  • Figure 3 – The arguments for and against broadband producing long term growth
  • Figure 4 – A clear majority in the group believed broadband will not sustain long-term growth
  • Figure 5 – Telco ‘digital’ plays have experienced varied success to date
  • Figure 6 – Telco Cloud services by type
  • Figure 7 – NTT Docomo is one leading benchmark for new revenue creation
  • Figure 8 – The ‘Utility’ and ‘Publisher’ Models
  • Figure 9 – A high level Digital Maturity Model
  • Figure 10 – The NFV/SDN ‘Playbook’ explained
  • Figure 11 – Telkom Indonesia’s ‘Digital Telco’ vision
  • Figure 12 – Telkom Indonesia’s Transformation Key Success Factors and Lessons
  • Figure 13 – How the HITx programme was delivered
  • Figure 14 – Which area of transformation has the greatest value, and what requires the greatest effort?
  • Figure 15 – A new business ‘stack’ for telcos?

Telco Transformation: The 20 Metrics That Matter

Introduction: Why do metrics matter?

Driving business model change

This report discusses the key metrics that telcos are using and developing to track the progress and success of their transformation initiatives. The report builds on a substantial body of work by STL Partners on the role that metrics can play in driving operators’ efforts to develop digital-service businesses. This previous work has taken the form of reports and case studies, as well as a number of bespoke consulting projects designed to support operators with their digital transformation strategies.[1]

In essence, our work and expertise in this area leads us to the conclusion that metrics and an associated governance process are an integral component of telcos’ digital and overall transformation. This is not just because metrics help to gauge the progress of operators’ initiatives throughout the period when the metrics are recorded, but because they define and embody the very purpose of telco transformation: to drive and manage activity on operator networks, and maximize the potential for that activity to be monetised, whether on- or off-net.

In this introduction, we outline how:

  • The focus of performance metrics is different between new and existing business models
  • Telcos need new measures to track organisational, operational, process and culture transformation in the face of a new focus on service innovation and flexibility, and a changing competitive landscape
  • The report addresses these issues

A shift from financial to customer enagement (and potential opportunity)

This essential function of Telco 2.0 metrics is markedly different from that of the financial and operational metrics that operators have traditionally employed which focus on revenues, costs, number of customers, and volume and price of megabytes and voice minutes carried and consumed. The business model these metrics correspond to is relatively simple and static: value is generated from monetising as much as possible the consumption of voice minutes and data packets, while reducing the cost to produce them. The metrics allow you to analyse past trends, and project future production capacity and earnings; but they are not a forward-looking tool enabling operators to respond dynamically to changing market conditions, to evolve the product offering, or transform the business model.

By contrast, digital services derive value from the specific content or application functionality they deliver to the user, and the ability to monetise that in a variety of ways: not always through direct, usage-based fees and billing.  And, although digital services can of course enhance existing products (as in the case of entertainment bundled with connectivity, for instance), they often treat network and connectivity services merely as the enabling infrastructure or asset, rather than the product itself. This means that for the digital telco, the emphasis of metrics changes to measuring usage of its digital services and the quality of the user experience, along with other indicators of future direct or indirect revenue growth.

Digital businesses often go through different stages of progress toward monetisation, and metrics are important in driving this development. The key idea is that if you drive usage and customer satisfaction, you create more opportunities to monetise the services involved. So you need a new, flexible set of metrics to capture the success, and inherent value, of the new business models as they evolve. The same is true of new telco services enabled by SDN and NFV (as discussed further below): there is not always an immediate direct revenue uptick; but the new capabilities and services are designed to attract new customers, and to generate usage and customer loyalty, which can be monetised in a variety of new ways at some future point. So it is critical to capture the revenue potential as well as revenue already achieved; and other metrics, which we discuss further below, should provide a measure of how fast or effectively a telco is evolving from the classic telco business model to the new state.

The contrast between the kind of metrics employed by the traditional and digital telco, along with those of digital start-ups and potential investors in digital services, is illustrated by the following table, taken from one of STL Partners’ previous studies on the question[2]:

We will discuss some of the Telco 2.0 metrics further below. However, what this table illustrates is how the focus in Telco 2.0 metrics shifts from usage-based revenues (as in the case of the Telco 1.0) to usage per se, and the impact of that usage on customer loyalty, brand, partners and revenue opportunity, as opposed to revenue already banked. The metrics – around usage and customer engagement – encapsulate the business model, which we could express in the form of an equation: number of users (or site visits, downloads, etc.) + frequency / length of use = revenue (opportunity). So driving the metrics in the right direction is tantamount to steering the business as a whole toward becoming a digital brand capable of generating customer enagagement in a crowded marketplace.

A new focus on service innovation and flexibility…

Presently, the focus of telco transformation efforts has shifted to the drive to virtualize networking functionality through Software Defined Networking (SDN: the centralization and virtualisation of control functionality previously provided by dedicated routers) and Network Functions Virtualisation (NFV: the virtualisation of a whole array of functionality in the edge and core networks hitherto provided by dedicated hardware appliances).

One of the primary aims of this transformation is to enable operators’ primary network and connectivity services to also be created, delivered and consumed in the manner of digital services: in and from the cloud / over the Internet; on demand; and as a software-based service. In the enterprise market, for example, leading SDN / NFV players are already rolling out Network as a Service (NaaS) and virtual CPE (vCPE) offerings that enable clients to customize their WAN connectivity and network features on demand via web portals, and pay for services on an ‘as-ordered’ basis as they scale bandwidth and networking parameters up or down.[3] In the consumer market, SDN / NFV similarly offers the prospect of enabling users to customize their connectivity and communications services more extensively and instantaneously than has hitherto been possible.

These characteristics of virtualised networks present a massive opportunity to telcos, as well as an enormous risk. On the one hand, SDN and NFV create the potential for operators to develop innovative, flexible combinations of communications and digital services in a more agile and cost-efficient manner, enabling them to compete more effectively with OTT players and accommodate massive growth in network usage generated by digital services.

…and new competition

On the other hand, as service and value creation is migrated away from dedicated physical facilities and hardware to software that can in theory be deployed over any physical network, this creates the possibility for third parties to develop OTT, virtual, on-demand network services from the cloud. This could result in telcos being disintermediated from their very core networking and connectivity services, as well as from the digital-service value chain. Software-Defined WAN (SD-WAN) is a practical example of this: third-party service providers install their own CPE and virtual network functions at enterprise sites, and connect them up to an SDN controller; they can then deliver flexible WAN connectivity services over networks of different types, and from different suppliers, relegating telcos potentially to the role of mere wholesale connectivity providers.[4]

In this way, virtualisation creates a dynamic whereby, as services are migrated to virtual functions, value creation will also increasingly depend on these, while the value of physical networking and connectivity services will decline as virtualised service providers and customers alike pick from a range of alternative connectivity providers. Consequently, telcos’ ownership and provision of the physical networks that support virtualised services may become equally if not more important as a means to own the customer relationship than as a revenue driver in their own right. Retaining the customer relationship means operators hold on to the opportunity to deliver increasingly more valuable virtualised services to those customers.

Increased emphasis on offensive and defensive moves

More service flexibility for both operators and for new competitors means that telcos find themselves in both an offensive and defensive position in relation to virtualisation. Offensively, virtualisation presents the opportunity to drive revenue growth and market share from new services, while also reducing the costs, resources and time required to deliver, manage and update both new and existing services. Defensively, virtualisation offers telcos a means to bolster revenues from core connectivity and communications services (including by managing more efficiently the incremental traffic generated by virtualised services over their networks), while defending their existing customer base from competitive players’ virtualised service offerings. This in turn protects the platform that ownership of the customer provides to up- and cross-sell further value-added (and value-adding) virtualised services.

In this context, metrics can play a vital role in helping to monitor progress with the different offensive and defensive components of telcos’ virtualisation strategies, in particular:

  • Offensive:
    • Tracking growth in revenues and number of customers attributable to new, virtualisation-enabled services.
    • Assessing the impact of virtualisation on costs and profitability.
  • Defensive:
    • Evaluating the impact of the new services on customer loyalty (particularly given the additional strategic importance of retaining the existing connectivity customer base)[5].
    • Measuring revenues and number of customers for the existing, core business (and so determining whether the new services are helping offset the decline in these).

In addition to these finance- and market-focused metrics, others around the production, performance and user experience of the new virtualised services become more important. This is in the light of the above remarks about the different operating model that applies to a digital services business, where the ability to quickly innovate and launch services that match changing and growing customer expectations and usage is key.

Organisational, operational, process and culture transformation

To achieve these gains, a considerable transformation of operators’ internal organisation, processes and indeed culture is required, and not merely a transformation of the network and the business model. To be successful, digital transformation – and transformation SDN, NFV and edge computing – requires the telco to become a different sort of organisation, more like that of other successful web and digital businesses.  Specifically, the telco must be founded on agile, DevOps principles, and cross-functional product and project teams.[6] Accordingly, new metrics are also required to monitor the progress of this overarching telco transformation.

In the remainder of this report, we will:

  1. Explain why operators seem so reluctant to talk about new metrics.
  2. Present and analyse the metrics we have uncovered through discussions with AT&T, Telstra and an European incumbent.
  3. Set out our view of the 20 most critical, top-level metrics for operators engaged in SDN / NFV-led transformation in its current phase.

[5] The drive to increase customer loyalty can also be part of an offensive strategy in that stickier services attract more usage and traffic, and hence have more long-term revenue potential

[6] This topic has been discussed in numerous previous STL discussions of telco transformation and will also form the focus of a forthcoming executive briefing on the topic of skills development and culture change. It is also discussed in further detail below.

 

  • Executive Summary
  • A reluctance to talk metrics
  • Why metrics matter for the virtualised telco
  • Conclusions and recommendations
  • Next Steps
  • Introduction: Why do metrics matter?
  • Driving business model change
  • A shift from financial to customer enagement (and potential opportunity)
  • A new focus on service innovation and flexibility…
  • …and new competition
  • Increased emphasis on offensive and defensive moves
  • Organisational, operational, process and culture transformation
  • Why most operators hate to talk metrics
  • Key transformation metrics of AT&T, Telstra and a major Western European incumbent
  • The transformation metrics explained
  • Evaluating the metrics used by European Incumbent (EI), AT&T & Telstra
  • Transformation: The 20 Metrics That Matter
  • Overview
  • The 20 Metrics that Matter: Description and analysis
  • Conclusion: New metrics define the new model

 

  • Figure 1: Different players’ metric requirements
  • Figure 2: Phasing of transformation metrics
  • Figure 3: Transformation metrics of AT&T, Telstra and a European incumbent (EI)
  • Figure 4: Instant pricing on Telstra’s PEN platform
  • Figure 5: The 20 types of metric that matter for successful telco transformation

How to be Agile: Agility by Design and Information Intensity

Background: The Telco 2.0 Agility Challenge

Agility is a highly desirable capability for telecoms operators seeking to compete and succeed in their core businesses and the digital economy in general. In our latest industry research, we found that most telco executives that responded rated their organisations as ‘moderately agile’, and identified a number of practical steps that telco management could and should take to improve agility.

The Definition and Value of Agility

In the Telco 2.0 Agility Challenge, STL Partners first researched with 29 senior telecoms operator executives a framework to define agility in the industry’s own terms, and then gathered quantitative input to benchmark the industry’s agility from 74 further executives via an online self-diagnosis tool. The analysis in this report examines the aggregate quantitative input of those executives.

The Telco 2.0 Agility framework comprises the five agility domains illustrated below.

Figure 4: The Telco 2.0 Agility Framework

Source: STL Partners, The ‘Agile Operator’: 5 Key Ways to Meet the Agility Challenge

  • Organisational Agility: Establish a more agile culture and mindset, allowing you to move at faster speeds and to innovate more effectively
  • Network Agility: Embrace new networking technologies/approaches to ensure that you provide the best experience for customers and manage your resources and investment more efficiently
  • Service Agility: Develop the capability to create products and services in a much more iterative manner, resulting in products that are developed faster, with less investment and better serve customer needs
  • Customer Agility: Provide customers with the tools to manage their service and use analytics to gain insight into customer behaviour to develop and refine services
  • Partnering Agility: Become a more effective partner by developing the right skills to understand and assess potential partnerships and ensure that the right processes/technologies are in place to make partnering as easy as possible

A key finding of the first stage was that all of the executives we spoke to considered achieving agility as very important or critical to their organisations’ success, as exemplified by this quote.

“It is fundamental to be agile. For me it is much more important than being lean – it is more than just efficiency.”

European Telco CTO

This research project was kindly sponsored by Ericsson. STL Partners independently created the methodology, questions, findings, analysis and conclusions.

Purpose of this report

This report details:

  • The headline findings of the Telco 2.0 Agility Challenge
  • The category winners
  • What are the lessons revealed about telco agility overall?
  • What do telcos need to address to improve their overall agility?
  • What can others do to help?

Key Findings

The Majority of Operators were ‘Moderately Agile’

Just over two thirds of respondents achieved a total score between 50%-75%. All of the twenty questions had 4 choices, so a score in this range means that for most of the questions these respondents were choosing the second or third option out of four choices increasing from the least to the most agile. The mean score achieved was 63% and the median 61%. This shows that most telcos believe they have some way to go before they would realistically consider themselves truly Agile by the definition set out in the benchmark.

Figure 5: Distribution of Total Agility Scores

Source: STL Partners Telco 2.0 Agility Challenge, n =74

Agility Champions

A further part of the Agility Challenge was to identify Agility Champions, who were recognised through Agility Domain Awards at TM Forum Live! in Nice in June. The winners of these prizes were additionally interviewed by STL Partners to check the evidence of their claims, and the winners were:

  • Telus, which won the Customer Agility Challenge Award. Telus adopted a Customer First initiative across the whole organization; this commitment to customers has led to both a significant increase in the ‘likelihood to recommend’ metric and a substantial reduction in customer complaints.
  • Zain Jordan, which won the Service Agility Challenge. Zain Jordan has achieved the speed and flexibility needed to differentiate itself in the marketplace through deployment of state-of-the-art, real time service enablement platforms and solutions. These are managed and operated by professional, specialized, and qualified teams, and are driving an increase in profitability and customer satisfaction.
  • Telecom Italia Digital Solutions, (TIDS) which won the Partnering Agility Challenge. TIDS have partnered effectively to deliver innovative digital services, including establishing and launching an IoT platform from scratch within 6 months. It is also developing and coordinating all the digital presence at the Expo Milan 2015.

Network Agility is hardest to achieve

Most respondents scored lower on Network Agility than the other domains, and we believe this is partly because the network criteria were harder to achieve (e.g. configuring networks in real time) but also that achieving meaningful agility in a network is as a rule harder than in the other areas.

Figure 6: Average Score by Agility Domain

Note: The maximum score was 4 and the minimum 1, with 4 = Strongly Agile, 3 = Mostly Agile, 2 = Somewhat Agile, and 1 = Not Agile.

Source: STL Partners, n = 74

Next Section: Looking Deeper

 

  • Executive Summary
  • Introduction
  • Background: The Telco 2.0 Agility Challenge
  • Purpose of this report
  • Key Findings
  • The Majority of Operators were ‘Moderately Agile’
  • Agility Champions
  • Network Agility is hardest to achieve
  • Looking Deeper
  • Organisational Agility: ‘Mindset’ is not enough
  • Information Agility is an important factor
  • If you had to choose One Metric that Matters (OMTM) it would be…
  • Conclusions

 

  • Figure 1: The Telco 2.0 Agility Framework
  • Figure 2: Respondents can be grouped into 3 types based on the level and nature of their organisational agility
  • Figure 3: Information Agility Sub-Segments
  • Figure 4: The Telco 2.0 Agility Framework
  • Figure 5: Distribution of Total Agility Scores
  • Figure 6: Average Score by Agility Domain
  • Figure 7: We were surprised that Organisational Agility was not a stronger indicator of Total Agility
  • Figure 8: Differences in Responses to Organisational Agility Questions
  • Figure 9: Organisational Agility a priori Segments and Scores
  • Figure 10: ‘Agile by Design’ Organisations Scored higher than others
  • Figure 11: Defining Information Agility Segments
  • Figure 12: The Information Agile Segment scored higher than the others

The Digital Dashboard: How new metrics drive success in telco digital initiatives

Introduction

As core services revenues, margins and cash generation decline quickly, Communications Service Providers (CSPs) are seeking to invest in and grow new (digital) services. STL Partners estimates that digital business should represent 25+% of Telco revenue by 2020 to avoid long-term industry decline. The move to digital is challenging for CSPs.  It will require large established organisations to define and implement new sustainable business models with new services delivered to existing and new customers via new channels and partners underpinned by new technology and supported by new operating, revenue and cost models. This requires a fundamental shift from a traditional infrastructure-based business to a complex amalgam of infrastructure, platform and product innovation businesses:

  • Historically, the telecoms industry has been an infrastructure business. It has invested large amounts of capital on things such as spectrum purchases, fibre and tower deployments. The result has been three largely undifferentiated services and revenue streams that have been ‘bundled in’ with the networks – voice, messaging and data. In the past, being a good communications service provider involved:
    • Making effective capital investment decisions, and then
    • Operating the network efficiently and affectively.
  • The Internet has changed everything by fracturing the integration between the network and services so that voice and messaging are no longer the sole domain of CSPs. CSPs now need to continue to hone their infrastructure business skills (in a world where every dollar of revenue is competed for hard by other operators and by ‘OTT’ players), and must also develop a range of new skills, assets, partnerships, customer relationships and operating and financial models if they are to compete in the new digital service areas.

In our recent survey (see Reality Check: Are operators’ lofty digital ambitions unrealistic given slow progress to date?), Telco practitioners were asked to comment on the importance of nine things that needed to be addressed to complete their digital business model transformation and the progress made to tackle them (see Figure 1).

Figure 1: Digital metrics should be driving change at CSPs but are themselves proving difficult to implement

Source: STL Partners/Telco 2.0 Operator Survey, November 2014

Measurement using new digital operational/financial metrics was highlighted in the global survey as one of the ‘big 6’ challenges that need to be addressed for CSPs to be successful in future. However, to date, it has often been neglected by CSPs (metrics are often an after-thought and not an integral part of the digital transformation process).

In this report, we argue that the reverse is true: effective metrics lie at the heart of change. Without measurement, it is impossible to make decisions and engender change: an organisation continues on its existing path even if that ultimately leads to decline. We will:

  1. Look at why it is important to capture, synthesise and act upon appropriate metrics.
  2. Examine traditional and new approaches to the use of performance metrics and identify the factors that contribute to success and failure.
  3. Highlight ‘telco best-practice’ via a case-study from a leading Asian CSP, Telkom Indonesia.

Why metrics matter

There is a common misconception that start-ups and digital companies do not – and do not need to – measure and report the performance of their businesses and initiatives. Digital start-ups are often portrayed as small creative teams working on ‘exciting stuff’ with no sense of business rigour or control. This could not be further from the truth. Most start-ups follow a LEAN & agile approach to product ideation and development are steered by one motto… “What you cannot measure, you cannot manage”.  This is even more true if they are VC-backed and therefore reliant on hitting specific targets to receive their next round of funding.

Start-ups rely on operational and actionable metrics to measure progress, identify when to pivot as an organisation and translate strategic objectives into daily activities. By applying the “Build – Measure – Learn” concept (see Figure 2), innovators create something (Build), evaluate how well it is received (Measure), and adjust it in response to the feedback they receive (Learn).

Figure 2: “Build – Measure – Learn” concept

Source: LEAN Analytics – Use Data to Build a Better Startup Faster

Metrics evolve over time. Start-ups are continuously searching for the ‘right’ metrics at any given stage of their development because their businesses are constantly evolving – either because they have just started on their journey or because they may have recently changed direction (or ‘pivoted’ from their original value proposition). Metrics are perceived as an operational toolset to quickly iterate to the right product and market before the money runs out. This ‘sword of Damocles’ hanging over entrepreneurs’ heads is a world away from the world inhabited by telcos’ employees.

Indeed, CSPs’ current approach to business targets & funding allocation is unlikely to create a sense of urgency that will drive and stimulate the success of digital initiatives. Based on extensive interviews with CSPs, digital start-ups and VCs, STL Partners concludes that CSPs should focus on:

  • Removing the Telco ‘safety net’. To succeed in creating truly compelling customer experiences CSPs need to mimic a VC-like environment and create a culture of higher-reward in return for higher risk by targeting employees more tightly on their digital initiative’s performance:

    • Reward success more heavily: this could be ‘shadow’ share options in the venture which yield value in the form of shares or cash bonus for hitting targets which would takes an employee’s overall package way beyond what could be earned in the core business.

    • Create risk for individuals: the quid pro quo of a big upside could be a reduced salary to, say, 60% of normal Telco pay (i.e. similar to what might be earned in a typical start-up) or offer contracts that only renew if an initiative hits its targets – if you fall short, you leave the business and are not simply moved elsewhere in the organisation.

  • Adopting ‘start-up culture’ and ways of thinking. For example, when negotiating for funds, employees should be negotiating for their survival, not for a budget or a budget increase. Also, Telcos should start using the vocabulary / parlance commonly used in the digital space as such burn rate, time before cash runs out, cash break-even date, etc.

  • Establishing new processes to manage KPIs and performance metrics. In the fast-paced digital environment, it usually does not make sense to use 18-24 month targets derived from a detailed business case backed by financial metrics (such as revenue, EBITDA, etc.) – particularly for early-stage start-ups.  Google actually identified a move away from this approach to one focused on a stable strategic foundation (make sure the initial proposition is viable by defining a clear problem we are trying to solve and how the solution will differentiate from alternative solutions) + fluid plans as one of the pillars of its success (see Figure 3)

Figure 3: Business plan and financial metrics are out-of-date in a digital world

Source: How Google works, Eric Schmidt, Jonathan Rosenberg and Alan Eagle

Metrics are a powerful tool that CSPs should use to foster sustainable commercial growth through validated learning. Unfortunately, metrics are often an “after-thought” and very few CSPs have implemented a consistent approach to metrics.  From a series of interviews, undertaken by STL for this research, it became apparent that most initiatives failed to develop regular reporting that engages (or is even understood by) other stakeholders. At best, operators are inconsistent in tracking digital innovation, at worst, negligent.

 

  • Executive Summary
  • Introduction
  • Why metrics matter
  • Metrics make a difference: 3 case studies from telecoms operators
  • 3 additional reasons why Telcos need digital metrics
  • Alternative approaches to digital metrics for telecoms operators
  • Introduction
  • The corporate approach – the Balanced Scorecard
  • The start-up approach – LEAN & AARRR methodology
  • Telkom Indonesia’s approach to digital metrics
  • Background
  • Telkom’s current digital strengths
  • Telkom Indonesia’s digital metrics system
  • Benefits of the digital metrics system to Telkom Indonesia
  • Conclusions
  • STL Partners and Telco 2.0: Change the Game

 

  • Figure 1: Digital metrics should be driving change at CSPs but are themselves proving difficult to implement

  • Figure 2: “Build – Measure – Learn” concept

  • Figure 3: Business plan and financial metrics are out-of-date in a digital world

  • Figure 4: Near perfect correlation between number of agents and number of M-Pesa subscribers, R2 = 0.96

  • Figure 5: Metrics reporting by M-Pesa, December 2012

  • Figure 6: Turkcell’s Mobile Marketing Platform Overview

  • Figure 7: Turkcell’s continuous development of it Mobile Marketing portfolio

  • Figure 8: Libon single roadmap enables rapid evolution and rich features

  • Figure 9: Libon – Cost per Monthly Active Users (M)

  • Figure 10: Illustrative Net Synergy Make up (Hypothetical case)

  • Figure 11: Facebook vs. Yield Businesses: Revenue and Enterprise Value (EV)

  • Figure 12: Facebook: Monthly Active Users vs. Valuation

  • Figure 13: Different players’ metrics requirements

  • Figure 14: Balance Scorecard concept

  • Figure 15: AARRR model

  • Figure 16: Pros & Cons – Summary table

  • Figure 17: Telkom Indonesia’s Metrics Approach – Characteristics

  • Figure 18: Telkom Indonesia’s digital strengths

  • Figure 19: Telcos – slow by design?

  • Figure 20: Telkom Indonesia’s TIMES service portfolio

  • Figure 21: LEAN start-up approach

  • Figure 22: Delivering Innovation – Telkom’s internal organisation

  • Figure 23: Telco 2.0 Domain Framework

  • Figure 24: Metrics Prioritisation & Outcomes Example

  • Figure 25: Governance process – Phase 1 & 2

  • Figure 26: Innovation Governance – Case studies examples

Reality Check: Are operators’ lofty digital ambitions unrealistic given slow progress to date?

Growing telco ambitions in new (digital) business models

Telco execs are bullish about long-term prospects for new digital business models

Respondents believe new business model revenues should reach nearly 25% of total telecom revenue by 2020

Despite recent evidence in Europe of material revenue decline from telecoms operators, the executives that STL Partners canvassed in its recent global survey  were relatively optimistic about the opportunities for revenue growth from new business models.  On average, executives felt that revenue from new digital business models  should reach 9% of total revenue in 2015 and this should rise to 24% by 2020 (see Figure 1).

In the case of 2015, 9% is way beyond what will be achieved by most players and probably represents respondents’ theoretical target that their organisation should have achieved by the end of this year if management had invested more effort in building new revenue sources earlier: it is where their organisation should be in an ideal world.   One of the few operators in the world that is at this level of digital revenues is NTT DoCoMo.  We explore its digital activities later in this report.

24% of telecoms revenue coming from new business models in 2020 is also ambitious but STL Partners considers this a realistic target and one which would probably result in the overall telecoms market being no bigger than it was in 2013 – see the forecast on page 15.

Two drivers of digital business model importance to operators: digital revenue growth and core business revenue decline

A key question for the industry is whether the 2020 target can be achieved by growing material new business model revenues in tandem with limited voice, messaging and connectivity decline or whether it could result from an implosion of these Telco 1.0 revenues.  In other words, modest new business model revenue could be 24% of a very much smaller overall telecoms market if voice, messaging and connectivity revenues suffer a precipitous decline.

Figure 2 charts the quarterly revenue for six European markets and illustrates a range of trajectories for telecoms revenues.  At one extreme is Denmark where telecoms revenue in Q3 2014 was nearly 40% lower than Q1 2008.  At the other extreme are the UK and French markets where the figure is 3% and 7% lower respectively.  Clearly, if most telecoms markets follow the Danish route then the opportunity for modest digital revenues to become important to operators grows substantially.  Interestingly, in most of the six markets, 2013 and 2014 has seen revenues stabilising (at least among operators that publish accounts which split out those markets over the time period) and in some cases, such as the UK and Netherlands, growth has been achieved from the lows of 2012.

STL Partners’ global forecast lies somewhere between the two extremes outlined in Figure 2: we believe that core telecoms revenues will decline by around 25% between 2013 and 2020.  If this is indeed the case then for digital revenues to represent 24% of telecoms revenue, they will need to be very material – around $250 billion for mobile telecoms alone!

Figure 1: Digital business model revenue ambition, 2015 and 2020

Source: STL Partners/Telco 2.0 Operator Survey, November 2014, n=55

Figure 2: Telecoms quarterly revenue in 6 European markets

Source: Telecoms company accounts, STL Partners analysis
Note: Revenue is for operators reporting quarterly figures for each market. As a result, not all market revenue is captured.

Belief in the importance of future telecoms business models varies greatly by business function and by geography

Respondents from Network functions were most bullish; IT respondents most pessimistic

Where there were 10 or more respondents in a functional or geographic group, we examined the responses for that group.  As Figure 3 shows, there were wide differences in ambition for digital services by functional area with respondents from Network being far more bullish than those in IT:  the former suggesting 30% of 2020 revenue should come from digital services compared with only 14% from IT.

North American respondents seem to anticipate unrealistic digital business growth

There was a consistency among functional groups in their ambitions for digital services: those that were more bullish for 2015 remained more so for 2020.  This contrasted with the regional split in which North American respondents believed the ‘correct’ proportion of revenue from digital services in 2015 is 7% (compared with 10% for Europe and Asia) rising to a formidable 26% in 2020.  This suggests that North American executives remain confident that their organisations can compete effectively in consumer and enterprise digital markets despite the US, in particular, being the home market of many formidable digital players: Google, Facebook, Amazon, Microsoft, Salesforce, Twitter, and so forth.

To put the North American perspective in perspective: if STL Partners’ global forecast for core telecoms services holds true in the US then a $120bn revenue telecoms company, such as Verizon, will lose around $30 billion in core service revenues by 2020.  In this scenario, for Verizon to end up the same size as it is now in 2020, it will have to replace this $30 billion with new digital business revenues (which would equate roughly to the 26% proposed by North American respondents).  In our deep-dive analysis of Verizon for the Telco 2.0 Transformation Index, STL Partners estimated that Verizon generated around $2.9 billion in Telco 2.0 digital business model revenues (around 2.4% of total revenue) in 2013.  For that $2.9 billion to grow to $30 billion by 2020 requires compound annual growth of a whopping 40% per year: a tall order indeed and one that is almost certainly unrealistic.

Middle Eastern respondents least ambitious: signs of complacency?

Unsurprisingly, the Middle Eastern respondents whose companies are enjoying continued growth in core telecoms services and, in many countries advantageous regulatory environments, were least bullish about digital services in the near and longer term.  The danger for this region is complacency: operators are in a similar position to those in Europe in 2007.  European operators failed to prepare early enough for core service decline – most digital activities were not kicked off until 2012 by which time aggregate revenue from voice, messaging and connectivity was either flat or in decline in most markets.

Figure 3: Average digital business model revenue ambition, 2015 and 2020 by function and geography

Source: STL Partners/Telco 2.0 Operator Survey, November 2014, n=55

 

  • Executive Summary
  • Growing telco ambitions in new (digital) business models
  • Telco execs are bullish about long-term prospects for new digital business models
  • Belief in the importance of future telecoms business models varies greatly by business function and by geography
  • Telco execs’ views on digital business Opex and Capex investment are closely correlated with their views on revenue growth
  • Calculating a telecoms digital business P&L:  Moving from investment in 2015 to (unrealistically?) strong returns in 2020
  • STL Partners’ forecast suggests that new digital business should be 25+% of revenue by 2020 to avoid long-term industry decline
  • The outlook for Telco 1.0 business models is not positive and Telco 2.0 business models are required to fill the gap
  • Investment in new business models is increasing but results from the Telco 2.0 Transformation Index suggest it is still inadequate to engender success
  • Scale of NTT DoCoMo’s ‘new digital business’ suggests bold vision is realistic for some players
  • Long-term downward trend in Telco 1.0 core services in Japan with digital services a ‘gap-filler’
  • Smart Life: A cloud-based (OTT) consumer-centric approach to digital services
  • A digital business has fundamentally different characteristics to a telecoms business
  • 9 challenges to overcome and all are important
  • Overall, operator progress on all 9 challenges remains slow
  • Too little progress on core challenges from most operators
  • What next?  Forthcoming STL Partners’ Telco 2.0 research supporting telecoms transformation
  • Appendix 1: Survey details
  • Appendix 2: Telco 2.0 Transformation Index overview

 

  • Figure 1: Digital business model revenue ambition, 2015 and 2020
  • Figure 2: Telecoms quarterly revenue in 6 European markets
  • Figure 3: Average digital business model revenue ambition, 2015 and 2020 by function and geography
  • Figure 4: Average required Digital Business Opex and Capex, 2015 & 2020
  • Figure 5: Digital Business P&L for a $100 billion revenue telecoms operator, 2015 vs 2020, $ Billions
  • Figure 6: STL Partners’ global mobile telecoms forecast by opportunity area
  • Figure 7: STL Partners Telco 2.0 Transformation Index summary results, December 2014
  • Figure 8: NTT DoCoMo quarterly voice, data and ‘other’ revenue, Mar 2007-Sep 2014
  • Figure 9: Smart Life – NTT DoCoMo’s customer-centric approach to transformation
  • Figure 10: Different companies…different business models – the change that telecoms operators are trying to make
  • Figure 11: 9 challenges scored by ‘importance for operator digital transformation and future success’
  • Figure 12: The degree to which operators have addressed the 9 challenges
  • Figure 13: Strategists are much more bullish than other functions about their organisation’s transformation progress
  • Figure 14: Lots to change…and its taking too long
  • Figure 15: Operators appear to be at very different stages of resolving the ‘Big 6’ challenges
  • Figure 16: Defining Digital Services