Telco to Techco: Six tenets for success

The stagnated telco growth

In recent years, the telco industry has seen growth stagnate as software companies infiltrate their markets and offer more innovative solutions at lower operating costs. The rapid consolidation of major internet players, such as Google and Amazon, is only increasing with time; threatening to not only undermine the telco position, but completely destabilise their revenue model and undermine their ability to operate profitably.

The top seven internet giants saw revenue growth of 72% between 2019 and 2022, pushing their total revenues above that of the telecoms industry as a whole (the figure below shows the revenues of all major telecoms operators and groups). As a result, telcos are urgently reassessing their business model, looking for key areas where they can cut costs and create new revenue streams, leveraging lessons learned from these internet giants to develop their proposition and ensure their long-term survival.

Telco revenues, 2019-2022, trillions of US dollars

Source: STL Partners

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The enterprise customer: Potential growth for techcos

Slowing of consumer profit growth has led telcos to explore the enterprise opportunity

Through the move to techco, telcos hope to increase profit margins. Heavy investment in 5G rollout, as well as an increasing focus on edge computing and distributed networking is providing telcos with a valuable footprint which can be leveraged for enterprise application services – a major new growth market for telcos which have been historically limited to providing connectivity. Our survey respondents felt that growing revenues was the key strategic objectives of 5G and edge, and that this would be achieved through horizontal connectivity products.

Question: What is the primary business objective for your 5G and edge strategy?

 

Source: STL Partners “Telco to Techco” survey, 2023

 

Question : Which areas do you think will drive this revenue growth?

Telco to techco

Source: STL Partners “Telco to Techco” survey, 2023

 

Telcos lack the prerequisite skills to properly target these customers

To develop products that truly deliver value to the end-customer, telcos must first develop strong relationships within specific, vertical ecosystems to ensure these products are able to provide real business value for enterprise customers. It is notable that surveyed telcos believed that vertical-specific solutions were the least likely approach to drive revenue growth through 5G and edge (14 respondents), suggesting telcos still believe that if they build the products, the customers will come to them.

Within our benchmarking index, we measured telcos on their development of B2B enterprise groups, with techcos much more likely to give autonomy to groups focusing on specific verticals. Unlike the consumer market, enterprise customers have specific characteristics that limit the effectiveness of a telco horizontal strategy:

  • Vertical-specific KPIs: When approaching the “enterprise market”, telcos are aware that each industry operates to a diverse range of KPIs, regulations and expectations. Each industry has unique KPIs reflecting its goals: for example, in manufacturing, annual plant output is a crucial metric, while the retail sector relies on other KPIs such as inventory turnover and customer conversion rate.
  • Siloed internal teams: Enterprise organisations often operate with siloed internal teams, particularly in the realms of IT and operational technology departments. These teams function with distinct decision-making processes, priorities and budgets. Techcos typically have strong exposure to all decision makers across the enterprise, ensuring comprehensive buy-in leading to commercial deployments.

Telcos possess valuable technological expertise and robust infrastructure due to their longstanding role as connectivity providers. They have established extensive relationships with enterprise customers, albeit primarily centred around connectivity procurement rather than an application collaborator.

 

Table of content

  • Foreword
  • Executive Summary
    • Six tenets telcos must consider to pursue a techco transformation
  • Introduction
  • The enterprise customer: Potential growth for techcos
    • Slowing of consumer profit growth has led telcos to explore the enterprise opportunity
    • Telcos lack the prerequisite skills to properly target these customers
  • Complex and expensive networks limit the profitability of consumer products
    • Revenue increases as a result of 5G penetration are not enough to drive growth of the telco as a whole
    • Techcos will develop effective customer feedback loops and build only what is demanded
  • Changing the organisational model of a telco
    • Becoming a techco requires a more horizontal structure with fluid roles
    • Cross-functional teams with software-first KPIs will lead telcos into the new world
  • Sustainability: No longer a nice to have?
    • To reach net-zero targets, telcos must embed sustainability across the organisation
    • Collaboration will be instrumental to accelerate sustainability across the industry
  • Cloud native: Technology or mindset?
    • Network-as-a-service will enable techcos to offer transformative products
    • Internal automation and industry collaboration are critical steps to true cloud native NaaS
  • Ecosystem participation to develop new expertise
    • Techcos will leverage the skills of others through diverse ecosystems of partners
    • ISVs will bring applications and expertise to telcos developing their sector-specific capabilities
    • Telcos can leverage their trusted local presence to provide value and assurance in an open ecosystem
  • Conclusions and recommendations
    • Enterprise customer recommendations
    • Consumer customer recommendations
    • Organisational recommendations
    • Sustainability recommendations
    • Cloud native recommendations
    • Ecosystem recommendations

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MWC 2023: You are now in a new industry

The birth of a new sector: “Connected Technologies”

Mobile World Congress (MWC) is the world’s biggest showcase for the mobile telecoms industry. MWC 2023 marked the second year back to full scale after COVID disruptions. With 88k visitors, 2,400 exhibitors and 1,000 speakers it did not quite reach pre-COVID heights, but remained an enormous scale event. Notably, 56% of visitors came from industries adjacent to the core mobile ecosystem, reflecting STL’s view that we are now in a new industry with a diverse range of players delivering connected technologies.

With such scale It can be difficult to find the significant messages through the noise. STL’s research team attended the event in full force, and we each focused on a specific topic. In this report we distil what we saw at MWC 2023 and what we think it means for telecoms operators, technology companies and new players entering the industry.

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STL Partners research team at MWC 2023

STL-Partners-MWC23-research-team

The diversity of companies attending and of applications demonstrated at MWC23 illustrated that the business being conducted is no longer the delivery of mobile communications. It is addressing a broader goal that we’ve described as the Coordination Age. This is the use of connected technologies to help a wide range of customers make better use of their resources.

The centrality of the GSMA Open Gateway announcement in discussions was one harbinger of the new model. The point of the APIs is to enable other players to access and use telecoms resources more automatically and rapidly, rather than through lengthy and complex bespoke processes. It starts to open many new business model opportunities across the economy. To steal the words of John Antanaitis, VP Global Portfolio Marketing at Vonage, APIs are “a small key to a big door”.

Other examples from MWC 2023 underlining the transition of “telecommunications” to a sector with new boundaries and new functions include:

  • The centrality of ecosystems and partnerships, which fundamentally serve to connect different parts of the technology value chain.
  • The importance of sustainability to the industry’s agenda. This is about careful and efficient use of resources within the industry and enabling customers to connect their own technologies to optimise energy consumption and their uses of other scarce resources such as land, water and carbon.
  • An increasing interest and experimentation with the metaverse, which uses connected technologies (AR/VR, high speed data, sometimes edge resources) to deliver a newly visceral experience to its users, in turn delivering other benefits, such as more engaging entertainment (better use of leisure time and attention), and more compelling training experiences (e.g. delivering more realistic and lifelike emergency training scenarios).
  • A primary purpose of telco cloud is to break out the functions and technologies within the operators and network domains. It makes individual processes, assets and functions programmable – again, linking them with signals from other parts of the ecosystem – whether an external customer or partner or internal users.
  • The growing dialogues around edge computing and private networks –evolving ways for enterprise customers to take control of all or part of their connected technologies.
  • The importance of AI and automation, both within operators and across the market. The nature of automation is to connect one technology or data source to another. An action in one place is triggered by a signal from another.

Many of these connecting technologies are still relatively nascent and incomplete at this stage. They do not yet deliver the experiences or economics that will ultimately make them successful. However, what they collectively reveal is that the underlying drive to connect technologies to make better use of resources is like a form of economic gravity. In the same way that water will always run downhill, so will the market evolve towards optimising the use of resources through connecting technologies.

Table of contents

  • Executive Summary
    • The birth of a new sector: ‘Connected technologies’
    • Old gripes remain
    • So what if you are in a new industry?
    • You might like it
    • How to go from telco to connected techco
    • Next steps
  • Introduction
  • Strategy: Does the industry know where it’s going?
    • Where will the money come from?
    • Telcos still demanding their “fair share”, but what’s fair, or constructive?
    • Hope for the future
  • Transformation leadership: Ecosystem practices
    • Current drivers for ecosystem thinking
    • Barriers to wider and less linear ecosystem practices
    • Conclusion
  • Energy crisis sparks efficiency drive
    • Innovation is happening around energy
    • Orange looks to change consumer behaviour
    • Moves on measuring enablement effects
    • Key takeaways
  • Telco Cloud: Open RAN is important
    • Brownfield open RAN deployments at scale in 2024-25
    • Acceleration is key for vRAN workloads on COTS hardware
    • Energy efficiency is a key use case of open RAN and vRAN
    • Other business
    • Conclusion
  • Consumer: Where are telcos currently focused?
    • Staying relevant: Metaverse returns
    • Consumer revenue opportunities: Commerce and finance
    • Customer engagement: Utilising AI
  • Enterprise: Are telcos really ready for new business models?
    • Metaverse for enterprise: Pure hype?
    • Network APIs: The tech is progressing
    • …But commercial value is still unclear
    • Final takeaways:
  • Private networks: Coming over the hype curve
    • A fragmented but dynamic ecosystem
    • A push for mid-market adoption
    • Finding the right sector and the right business case
  • Edge computing: Entering the next phase
    • Telcos are looking for ways to monetise edge
    • Edge computing and private networks – a winning combination?
    • Network APIs take centre stage
    • Final thoughts
  • AI and automation: Opening up access to operational data
    • Gathering up of end-to-end data across multiple-domains
    • Support for network automations
    • Data for external use
    • Key takeaways

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