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The Digital Dilemma: Telecoms Firms Prepare for the Future

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The Digital Dilemma: Telecoms Firms Prepare for the Future The digital dilemma: Telecoms firms prepare for the future An Economist Intelligence Unit report Commissioned by The digital dilemma: Telecoms fi rms prepare for the future Contents About the report 2 Executive summary 3 Introduction 6 1. Digital transformation needs bold helmsmen 8 Case study: The confident CTO 10 Case study: TU Go: Telefonica’s global communications app with a local twist 12 2. Making customers pay 14 Case study: Helpful regulatory environment? 17 3. Smart telcos build digital ecosystems 19 Case study: Smart pricing gives Bangladesh a mobile data boost 22 4. Untapped opportunities: from big data to M2M and IoT 23 Case study: Shopping in South Korea transformed by mobile and big data 26 5. The promise of network virtualisation 28 6. Beware of digital transformation banana skins 31 7. The road ahead 34 © The Economist Intelligence Unit Limited 2015 1 The digital dilemma: Telecoms fi rms prepare for the future About the report The digital dilemma: Telecoms fi rms prepare for Neal Milsom, CFO, EE the future is an Economist Intelligence Unit Ulf Ewaldsson , CTO, Ericsson (EIU) report commissioned by WIPRO. The report strives to identify the key issues that companies Chakrapani Perangur, CIO, Indus Towers within the telecoms sector are facing as they Riku Salminen, CEO, Jongla attempt to reshape their businesses to compete in a more digitised world. Eddie Moyce, Chief Customer Experience Management Offi cer, MTN This report draws on two main sources for its Peter Glock, Director of Enterprise Solutions, research fi ndings. Orange Business Services In 2014 the EIU undertook a global survey of Sebastian Schumann, Senior Designer, Slovak more than 200 C-level and senior executives from Telecom telecoms fi rms, including 48 CEOs and 43 CIO/ CTOs. More than half of the companies involved Eduardo Navarro, Chief Commercial Digital in the survey reported annual revenues of more Offi cer, Telefonica than US$500 million. Frode Stoldal, CTO, Telenor Alongside the survey, the EIU conducted a series Mikhail Gerchuk, Chief Commercial Offi cer, of in-depth interviews with the following senior CEO (CIS Business areas), VimpelCom executives and experts (listed alphabetically by Tom Mockridge, CEO, Virgin Media organisation): Marten Pieters, CEO, Vodafone India Mobeen Khan, VP/ Enterprise IoT, AT&T The report was written by Ken Wieland and Marcus Weldon, CTO/President, Alcatel- edited by Charles Ross. We would like to thank all Lucent, Bell Labs interviewees and survey respondents for their Bruce Churchill, CEO (LatAM), DirecTV time and insight. 2 © The Economist Intelligence Unit Limited 2015 The digital dilemma: Telecoms fi rms prepare for the future Executive summary Battered by increased competition, technological Digital growing pains: Survey respondents disruption and regulatory constraints, the are confi dent digital technologies can create telecoms industry is at a crossroads. One road new products and services, but they are less leads to reinvention as a diversifi ed telco with convinced about overall revenue growth. As a multiple offerings and new revenue streams; the CEO of one major operator puts it, “There are other descends into a valley of falling revenues, new opportunities in digital, but it’s extremely thinner margins and commoditisation. Our diffi cult to compensate for losses that result from research indicates that telcos are approaching those opportunities.” He draws a parallel with this challenge in varying ways, with varying levels the challenges faced by traditional newspaper of success and confi dence. Anxiety exists at the print publishers in adjusting to online news and top of the organisation with CEOs in particular social media. Digital transformation, for most uncertain about the right strategy to take, while established telcos, will not be painless. CTOs are generally more confi dent about having the skills and resources to reinvent themselves. Internet players are not going away, so it’s better to work with them: Network operators This report is based on extensive desk research, a have little to gain by complaining about so-called survey of 209 senior executives from the telecoms ‘over-the-top’ (OTT) players, such as WhatsApp sector and interviews with 15 senior industry and Skype, ‘stealing’ core revenue. A more executives. Among the key fi ndings: constructive approach is to take advantage of OTT innovation. By making it easier for internet The telecoms industry at a crossroads: EIU players to access their network and IT assets, survey respondents expect dramatic falls in voice operators can develop a broader (and more revenue over the next fi ve years. Only a small attractive) service portfolio which they can then minority representing fi xed-line and mobile package and promote. Operator interviewees for operators think voice calls—once the business this report happily concede that internet fi rms mainstay of these fi rms—will generate more are much better at designing digital consumer than half of their organisation’s turnover by the products than they are. close of the decade. Operators wishing to remain service providers (and be relevant to customers) More spadework needed on OTT will need new revenue streams if they are to collaboration and partnerships: Survey secure a long-term future. responses reveal an industry in the early stages © The Economist Intelligence Unit Limited 2015 3 The digital dilemma: Telecoms fi rms prepare for the future of putting structures in place that will make their enterprise customers are better placed collaboration with others easier. Less than a fi fth for growth. They become less reliant on basic of survey respondents views greater cooperation connectivity services which are under constant with app developers and content providers as price pressure. An M2M solution, for example, a big transformative industry initiative today. could transform the business model of a copier Look to the future, however, and more than 85% manufacturer from products (one-off charges of C-level executives think most new digital for equipment) to services (charging per page products and services will either originate from copied, better customer support) by remotely external parties or be developed in partnership monitoring usage. While there’s little survey with them. Realising this vision will require laying optimism that value-added and managed services the groundwork for better collaboration. will drive much revenue growth in the near term, views will no doubt change if more digital Smart telcos build digital ecosystems: success stories emerge. This may happen soon. Operators can play a central role in building Among the survey group which think it vital to platforms for innovation, bringing together be technology fi rst movers, more than 40% see the likes of application developers, device M2M (and Internet of Things) as being critical manufacturers, distributors and systems initiatives over the next fi ve years. integrators to develop digital solutions. “By developing digital ecosystems we’re in a better Network virtualisation promises much, but position to collaborate on innovation and get operator chief executives wary: SDN (software- products to market quicker,” says one operator defi ned networking) and NFV (network functions CTO. Laying claim to a central role is easier if virtualisation) promise a new era of quicker operators have large network footprints and service provisioning, easier collaboration with plenty of customers. Digital partners can be lured application developers, new revenue streams by the carrot of scale. and greater cost effi ciencies. CTOs canvassed in the survey are brimming with enthusiasm. CMOs, CTOs and CIOs need to talk more: More than 70% see SDN and NFV as being critical Survey respondents see the importance of over the next fi ve years, but only a third of CEO superfast broadband and speedier mobile respondents agree. One explanation is CTOs are networks (it makes digital services easier to too focused on cost effi ciencies when telling the use) but they fret about getting a return on their SDN/NFV story. “It’s incredibly rare you get a investment. One way to alleviate that concern CEO excited without the promise of both revenue is to direct network investment fi rmly towards growth and cost savings,” says the president of commercial opportunities (rather than simply Bell Laboratories, the world-renowned industrial achieving wider coverage, which has long been the research specialist, insisting operator CEOs do industry habit). While CMO and CTO interviewees become enthusiastic once the ‘full’ story on acknowledge a need for closer collaboration to network virtualisation is told. Suppliers and CTOs make this happen, a worrying survey fi nding is need to present a more rounded business case on that only 8% of CEOs canvassed think the way emerging technologies if they are to quicken the their organisations are structured might seriously pulse of chief executives. inhibit internal (and external) cooperation. Anxiety at the top: Chief executives are not as Unlock enterprise growth with value- confi dent about digital change as more technical- added digital services: Operators armed with minded colleagues. While over half of CTO survey solutions to improve the business prospects of 4 © The Economist Intelligence Unit Limited 2015 The digital dilemma: Telecoms fi rms prepare for the future respondents say management awareness about revenue can stifl e innovation. Remaining digital transformation is much stronger than relevant to customers, he argues, might mean their closest competitors, only a quarter of investing in areas where revenue generation CEOs feel the same. Feelings of insecurity are is not immediately obvious. Many C-level perhaps understandable as innovation tends to executives canvassed in the survey appear to be be technology-led. A surprise survey fi nding is wrestling with the same dilemma. Nearly 60% how widespread those feelings of inadequacy see a fi nancial return as a signifi cant infl uence are. Nearly 40% of CEOs think they are the same when evaluating which emerging technologies or weaker on digital management awareness to invest in, but as many as 45% say consumer compared to their rivals.
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