OSS/BSS Archives

Introduction

The second report in The European Telecoms market in 2020, this document uses the framework introduced in Report 1 to develop four discrete scenarios for the European telecoms market in 2020. Although this report can be read on its own, STL Partners suggests that more value will be derived from reading Report 1 first.

The role of this report

Strategists (and investors) are finding it very difficult to understand the many and varied forces affecting the telecoms industry (Report 1), and predict the structure of, and returns from, the European telecoms market in 2020 (the focus of this Report 2). This, in turn, makes it challenging to determine how operators should seek to compete in the future (the focus of a STL Partners report in July, Four strategic pathways to Telco 2.0).

In summary, The European Telecoms market in 2020 reports therefore seek to:

Identify the key forces of change in Europe and provide a useful means of classifying them within a simple and logical 2×2 framework (Report 1);
Help readers refine their thoughts on how Europe might develop by outlining four alternative ‘futures’ that are both sufficiently different from each other to be meaningful and internally consistent enough to be realistic (Report 2);
Provide a ‘prediction’ for the future European telecoms market based on our own insights plus two ‘wisdom of crowds’ votes conducted at a recent STL Partners event for senior managers from European telcos (Report 2).

Four European telecoms market scenarios for 2020

Overview

STL Partners has identified the following scenarios for the European market in 2020:

Back to the Future. This scenario is likely to be the result of a structurally attractive telecoms market and one where operators focus on infrastructure-led ‘piping’ ambition and skills.
Consolidated Utility. This might be the result of the same ‘piping’ ambition in a structurally unattractive market.
Digital Renaissance. A utopian world resulting from new digital ambitions and skills developed by operators coupled with an attractive market.
Telco Trainwreck. As the name suggests, a disaster stemming from lofty digital ambitions being pursued in the face of an unattractive telco market.

The four scenarios are shown on the framework in Figure 1 and are discussed in detail below.

Figure 1: Four European telecoms market scenarios for 2020

Source: STL Partners/Telco 2.0

How each scenario is described

In addition to a short overview, each scenario will be examined by exploring 8 key characteristics which seek to reflect the combined impact of the internal and external forces laid out in the previous section:

Market Structure. The absolute and relative size and overall number of operators in national markets and across the wider EU region.
Operator service pricing and profits. The price levels and profit performance of telecoms operators (and the overall industry) and the underlying direction (stable, moving up, moving down).
The role of content in operators’ service portfolios. The importance of IPTV, games and applications within operators’ consumer offering and the importance of content, software and applications within operators’ enterprise portfolio.
The degree to which operators can offer differentiated services. How able operators are to offer differentiated network services to end users and, most importantly, upstream service providers based on such things as network QoS, guaranteed maximum latency, speed, etc.
The relationships between operators and NEP/IT players. Whether NEP and IT players continue to predominantly sell their services to and through operators (to other enterprises) or whether they become ‘Under the Floor’ competitors offering network services directly to enterprises.
Where service innovation occurs – in the network/via the operator vs at the edge/via OTT players. The extent to which services continue to be created ‘at the edge’ – with little input from the network – or are ‘network-reliant’ or, even, integrated directly into the network. The former clearly suggests continued dominance by OTT players and the latter a swing towards operators and the telecoms industry.
The attitude of the capital markets (and the availability of capital). The willingness of investors to have their capital reinvested for growth by telecoms operators as opposed to returned to them in the form of dividends. Prospects of sustained growth from operators will lead to the former whereas profit stasis or contraction will result in higher yields.
Key industry statistics. Comparison between 2020 and 2015 for revenue and employees – tangible numbers that demonstrate how the industry has changed.

The European macro-economy – a key assumption

The health and structure of all industries in Europe is dependent, to a large degree, on the European macro-economy. Grexit or Brexit, for example, would have a material impact on growth throughout Europe over the next five years. Our assumption in these scenarios is that Europe experiences a stable period of low-growth and that the economic positions of the stretched Southern European markets, particularly Italy and Spain, improves steadily. If the European economic position deteriorates then opportunities for telecoms growth of any sort is likely to disappear.

Executive Summary
Introduction
The role of this report
Four European telecoms market scenarios for 2020
Overview
How each scenario is described
The European macro-economy – a key assumption
Back to the Future
Consolidated Utility
Digital Renaissance
Telco Trainwreck
Risk and returns in the scenarios
Making predictions
Wisdom of crowds: 2 approaches
Approach 1: Aggregating individual forces – ‘Sum-of-the-parts’
Approach 2: Picking a scenario
STL Partners’ prediction for the European telecoms market in 2020
STL Partners and Telco 2.0: Change the Game

Figure 1: Four European telecoms market scenarios for 2020
Figure 2: Back to the Future – key characteristics
Figure 3: Consolidated Utility – key characteristics
Figure 4: Digital Renaissance – key characteristics
Figure 5: Telco Trainwreck – key characteristics
Figure 6: Risk and returns in the four scenarios
Figure 7: Europe’s future based on aggregating individual forces – ‘Sum-of-the-parts’
Figure 8: Europe’s future – results of the two approaches compared

Understanding Agility

What does ‘Agility’ mean?

A number of business strategies and industries spring to mind when considering the term ‘agility’ but the telecoms industry is not front and centre…

Agility describes the ability to change direction and move at speed, whilst maintaining control and balance. This innate flexibility and adaptability aptly describes an athlete, a boxer or a cheetah, yet this description can be (and is) readily applied in a business context. Whilst the telecoms industry is not usually referenced as a model of agility (and is often described as the opposite), a number of business strategies and industries have adopted more ‘agile’ approaches, attempting to simultaneously reduce inefficiencies, maximise the deployment of resources, learn though testing and stimulate innovation. It is worthwhile recapping some of the key ‘agile’ approaches as they inform our and the interviewees’ vision of agility for the telecoms operator.

When introduced, these approaches have helped redefine their respective industries. One of the first business strategies that popularised a more ‘agile’ approach was the infamous ‘lean-production’ and related ‘just-in-time’ methodologies, principally developed by Toyota in the mid-1900s. Toyota placed their focus on reducing waste and streamlining the production process with the mindset of “only what is needed, when it is needed, and in the amount needed,” reshaping the manufacturing industry.

The methodology that perhaps springs to many people’s minds when they hear the word agility is ‘agile software development’. This methodology relies on iterative cycles of rapid prototyping followed by customer validation with increasing cross-functional involvement to develop software products that are tested, evolved and improved repeatedly throughout the development process. This iterative and continuous improvement directly contrasts the waterfall development model where a scripted user acceptance testing phase typically occurs towards the end of the process. The agile approach to development speeds up the process and results in software that meets the end users’ needs more effectively due to continual testing throughout the process.

Figure 5: Agile Software Development

Source: Marinertek.com

More recently the ‘lean startup’ methodology has become increasingly popular as an innovation strategy. Similarly to agile development, this methodology also focuses on iterative testing (replacing the testing of software with business-hypotheses and new products). Through iterative testing and learning a startup is able to better understand and meet the needs of its users or customers, reducing the inherent risk of failure whilst keeping the required investment to a minimum. The success of high-tech startups has popularised this approach; however the key principles and lessons are not solely applicable to startups but also to established companies.

Despite the fact that (most of) these methodologies or philosophies have existed for a long time, they have not been adopted consistently across all industries. The digital or internet industry was built on these ‘agile’ principles, whereas the telecoms industry has sought to emulate this by adopting agile models and methods. Of course these two industries differ in nature and there will inevitably be constraints that affect the ability to be agile across different industries (e.g. the long planning and investment cycles required to build network infrastructure) yet these principles can broadly be applied more universally, underwriting a more effective way of working.

This report highlights the benefits and challenges of becoming more ‘agile’ and sets out the operator’s perspective of ‘agility’ across a number of key domains. This vision of the ‘Agile Operator’ was captured through 29 interviews with senior telecoms executives and is supplemented by STL analysis and research.

Barriers to (telco) agility

…The telecoms industry is hindered by legacy systems, rigid organisational structures and cultural issues…

It is well known that the telecoms industry is hampered by legacy systems; systems that may have been originally deployed between 5-20 years ago are functionally limited. Coordinating across these legacy systems impedes a telco’s ability to innovate and customise product offerings or to obtain a complete view of customers. In addition to legacy system challenges, interview participants outlined a number of other key barriers to becoming more agile. Three principle barriers emerged:

Legacy systems
Mindset & Culture
Organisational Structure & Internal Processes

Legacy Systems

One of the main (and often voiced by interviewees) barriers to achieving greater agility are legacy systems. Dealing with legacy IT systems and technology can be very cumbersome and time-consuming as typically they are not built to be further developed in an agile way. Even seemingly simple change requests end in development queues that stretch out many months (often years). Therefore operators remain locked-in to the same, limited core capabilities and options, which in turn stymies innovation and agility.

The inability to modify a process, a pricing plan or to easily on/off-board a 3rd-party product has significant ramifications for how agile a company can be. It can directly limit innovation within the product development process and indirectly diminish employees’ appetite for innovation.

It is often the case that operators are forced to find ‘workarounds’ to launch new products and services. These workarounds can be practical and innovative, yet they are often crude manipulations of the existing capabilities. They are therefore limited in terms what they can do and in terms of the information that can be captured for reporting and learning for new product development. They may also create additional technical challenges when trying to migrate the ‘workaround’ product or service to a new system.

Figure 6: What’s Stopping Telco Agility?

Source: STL Partners

Mindset & Culture

The historic (incumbent) telco culture, born out of public sector ownership, is the opposite of an ‘agile’ mindset. It is one that put in place rigid controls and structure, repealed accountability and stymied enthusiasm for innovation – the model was built to maintain and scale the status quo. For a long time the industry invested in the technology and capabilities aligned to this approach, with notable success. As technology advanced (e.g. ever-improving feature phones and mobile data) this approach served telcos well, enhancing their offerings which in turn further entrenched this mindset and culture. However as technology has advanced even further (e.g. the internet, smartphones), this focus on proven development models has resulted in telcos becoming slow to address key opportunities in the digital and mobile internet ecosystems. They now face a marketplace of thriving competition, constant disruption and rapid technological advancement.

This classic telco mindset is also one that emphasized “technical” product development and specifications rather than the user experience. It was (and still is) commonplace for telcos to invest heavily upfront in the creation of relatively untested products and services and then to let the product run its course, rather than alter and improve the product throughout its life.

Whilst this mindset has changed or is changing across the industry, interviewees felt that the mindset and culture has still not moved far enough. Indeed many respondents indicated that this was still the main barrier to agility. Generally they felt that telcos did not operate with a mindset that was conducive to agile practices and this contributed to their inability to compete effectively against the internet players and to provide the levels of service that customers are beginning to expect.

Organisational Structure & Internal Processes

Organisational structure and internal processes are closely linked to the overall culture and mindset of an organisation and hence it is no surprise that interviewees also noted this aspect as a key barrier to agility. Interviewees felt that the typical (functionally-orientated) organisational structure hinders their companies’ ability to be agile: there is a team for sales, a team for marketing, a team for product development, a network team, a billing team, a provisioning team, an IT team, a customer care team, a legal team, a security team, a privacy team, several compliance teams etc.. This functional set-up, whilst useful for ramping-up and managing an established product, clearly hinders a more agile approach to developing new products and services through understanding customer needs and testing adoption/behaviour. With this set-up, no-one in particular has a full overview of the whole process and they are therefore not able to understand the different dimensions, constraints, usage and experience of the product/service.

Furthermore, having these discrete teams makes it hard to collaborate efficiently – each team’s focus is to complete their own tasks, not to work collaboratively. Indeed some of the interviewees blamed the organisational structure for creating a layer of ‘middle management’ that does not have a clear understanding of the commercial pressures facing the organisation, a route to address potential opportunities nor an incentive to work outside their teams. This leads to teams working in silos and to a lack of information sharing across the organisation.

A rigid mindset begets a rigid organisational structure which in turn leads to the entrenchment of inflexible internal processes. Interviewees saw internal processes as a key barrier, indicating that within their organisation and across the industry in general internal decision-making is too slow and bureaucratic.

Interviewees noted that there were too many checks and processes to go through when making decisions and often new ideas or opportunities fell outside the scope of priority activities. Interviewees highlighted project management planning as an example of the lack of agility; most telcos operate against 1-2 year project plans (with associated budgeting). Typically the budget is locked in for the year (or longer), preventing the re-allocation of financing towards an opportunity that arises during this period. This inflexibility prevents telcos from quickly capitalising on potential opportunities and from (re-)allocating resources more efficiently.

Executive Summary
Understanding Agility
What does ‘Agility’ mean?
Barriers to (telco) agility
“Agility” is an aspiration that resonates with operators
Where is it important to be agile?
The Telco Agility Framework
Organisational Agility
The Agile Organisation
Recommended Actions: Becoming the ‘Agile’ Organisation
Network Agility
A Flexible & Scalable Virtualised Network
Recommended Actions: The Journey to the ‘Agile Network’
Service Agility
Fast & Reactive New Service Creation & Modification
Recommended Actions: Developing More-relevant Services at Faster Timescales
Customer Agility
Understand and Make it Easy for your Customers
Recommended Actions: Understand your Customers and Empower them to Manage & Customise their Own Service
Partnering Agility
Open and Ready for Partnering
Recommended Actions: Become an Effective Partner
Conclusion

Figure 1: Regional & Functional Breakdown of Interviewees
Figure 2: The Barriers to Telco Agility
Figure 3: The Telco Agility Framework
Figure 4: The Agile Organisation
Figure 5: Agile Software Development
Figure 6: What’s Stopping Telco Agility?
Figure 7: The Importance of Agility
Figure 8: The Drivers & Barriers of Agility
Figure 9: The Telco Agility Framework
Figure 10: The Agile Organisation
Figure 11: Organisational Structure: Functional vs. Customer-Segmented
Figure 12: How Google Works – Small, Open Teams
Figure 13: How Google Works – Failing Well
Figure 14: NFV managed by SDN
Figure 15: Using Big Data Analytics to Predictively Cache Content
Figure 16: Three Steps to Network Agility
Figure 17: Launch with the Minimum Viable Proposition – Gmail
Figure 18: The Key Components of Customer Agility
Figure 19: Using Network Analytics to Prioritise High Value Applications
Figure 20: Knowing When to Partner
Figure 21: The Telco Agility Framework

Tag: OSS/BSS

The European Telecoms market in 2020, Report 2: 4 scenarios and 7 predictions