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To Be Or Not to Be the Future of the Telco Business Model

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To Be Or Not to Be the Future of the Telco Business Model To be or not to be The future of the telco business model To be or not to be | The future of the telco business model Introduction 04 Thinking in scenarios 06 Relevant scenarios based on identified key drivers 10 Critical uncertainties and how they shape our four scenarios 12 Generic key drivers – the same but different 14 Journey into our four scenarios 20 Taking the long view 34 Sources 36 Methodology 37 Contacts 38 03 Introduction The pace of change in the tele- There were incorrect predictions about the communications industry is accelerating: development of computers, too: the boom years are either over or coming to an end very fast for most telcos. The tech • In 1949, Popular Mechanics magazine sector has seen enormous disruptive chang- forecast that the computers of the future es affect social life, politics and business. would weigh no more than 1.5 tons.4 Throughout history, both society and indus- try insiders have been colossally wrong or • Even Steve Jobs, who was well known for totally underestimated markets and gadgets his sense of customer needs, was totally that we couldn’t live without today. wrong when he prophesied no hope for mobile computers: “For the average In the beginning, the telephone was not person, they're really not that useful, and expected to be a success story: there's not all that much software for them either”.5 • Western Union, who dominated the telegraph industry at the end of the 19th Another major part of the communications Century, noted in an internal memo: “This industry, the Internet, is a hotbed for wrong 'telephone' has too many shortcomings predictions: to be seriously considered as a means of communication. The device is inherently • Microsoft founder Bill Gates thought the of no value to us”.1 Internet was just hype.6 • In Germany, the first telephone directory • Ron Sommer, then CEO of Deutsche was popularly called “the book of 99 Telekom, said in 1990 that the Internet fools”, as the general public believed the was a gimmick for computer nerds and telephone had no future.2 he didn’t see any future in it.7 • In the 1980s, when the first cell phones The accelerating pace of this change makes were introduced, AT&T forecasted that predictions hard, so we adopted a more there will be less than 1 million subscrib- holistic approach – and we now invite you ers in the USA by the year 2000.3 to travel with us into four scenarios for the telecommunications industry in 2030. Our scenario approach does not aim to predict the most likely outcome, but to illustrate what could plausibly happen in the telco world and how market players might deal with many uncertainties along the way. 1 Cairncross, F. (2001) 2 Winkelhage, J. (2006) 3 Lozano, A. (n.d.) 4 Meigs, J. (2012) 5 Erdmann, C. (2011) 6 Handelsblatt (2014) 04 7 Pillkahn, U. (2013) To be or not to be | The future of the telco business model 05 Thinking in scenarios 06 To be or not to be | The future of the telco business model 07 Most of the trends that telcos are exposed In this uncertain environment, industry to display a high level of uncertainty – they stakeholders such as telco companies, ven- could turn out to be disruptive, lead to dors, and other investors are asked to con- exponential change over the next decade, sider long-term assets, and the decisions or sink without trace. Shifting customer they make today will have a major impact behavior, with ever-increasing expectations on users, companies, and the economy and pressure from both existing and new in the future. As we have seen, traditional players in the game, affects their business, analyses struggle with forecasting, since while more and more revenue streams ei- no amount of research can remove all the ther face strong decline or are being taken uncertainties affecting the successful out- over by other players such as over-the-top come of a decision over decades. (OTT) players and tech giants, challenging the telcos’ traditional business model. Yet Nevertheless, telco players need to make the transformation of their core business, these decisions, and scenario design is one coming sooner and faster than foreseen, way to deal with the lack of certainty and is pushing telcos to step outside of their look beyond the conventional planning ho- traditional thinking and become innovation rizon. While predicting the future is usually drivers. impossible, scenario design helps to devel- op robust strategies that will work in dif- ferent potential futures by highlighting the risks and opportunities of certain strategic issues. Scenarios are stories, narratives about alternative future environments in which today’s decisions could play out: they are neither predictions nor strategies. Each scenario models a specific, plausible world of the future which differs considerably from the others. Scenario design emphasiz- es large-scale forces that might move the future in different directions. 08 To be or not to be | The future of the telco business model Each scenario models a specific, plausible world of the future which differs considerably from the others. Scenario design emphasizes large-scale forces that might move the future in different directions. 09 Relevant scenarios based on identified key drivers Extensive research based on Natural Examples are the ownership of network Language Processing algorithms, desk innovation, which is an important success The best research, and expert insights generated factor in the telco ecosystem. Network a long list of drivers that could shape the innovation could either be driven by the future of the telecommunications industry. telcos themselves or outsourced to other way to predict These were then analyzed and clustered players in the value chain, such as hard- into five categories: social, technological, ware vendors, while telcos merely use the the future is to economic, environmental, and political. The network. drivers were then rated for their degree of uncertainty and their impact on the tele- Another example of a high impact and high create it. communications industry. uncertainty driver is the role of OTT players, Peter Drucker who could become a significant threat for telcos as their power in the market increases. OTTs could take over customer relations if users perceive connec tivity as a necessary but basic utility. It is also imaginable that the telcos own the user data, analyze their needs, and use this knowledge and insight to monetize the relationship. 10 To be or not to be | The future of the telco business model Fig. 1 – Driver evaluation according to degree of impact and degree of uncertainty one o nteret et bre eon en ore b netor High earton netrt reton wifi nn netor ee r reton Tre ret nt ret rbnton te rn eono reton trtre ert ntr ono onton e neent n oton nterton te beor ne eto nne to or obton Demand for flexibility obot torn o teo ere ere o rot 6G r nt on nternton o t e LiFi nnnbnn oetton or tbt e tenoo o ere tent ntr robn onoton nn oette ner nrtrtre obe oT TT er orore eeoent oetton ttonr e onton etne o - ente ret Bant n ete tton n o e ten SDN/NFV ee 5G/Netor e nne reonton t ert Artificial netor ert e trtre nteene oor rt o onton otn ton tt ret oton tenoo ontent ent nt e retrton or ro orn Medium b er oete nteene Degree of Imact CO eon toer nterton onetton o 2 toer ot toer t on eton on eot reton lock-in effect tenoo reerre ent oe o erbe tenoo VPN obot tentton (3D/4D) eo rntn ob rn Low Low Medium High Degree of Uncertainty Social Technological Environmental Economic Political 11 Critical uncertainties and how they shape our four scenarios All high impact and uncertain drivers in the The “Ownership of the (network) tech- users and network, or device producers zone of interest were clustered into critical nology layer” axis can tip in one of two might equip their devices with virtual SIM uncertainties based on feedback from in- directions. At one end, telcos own the cards that choose the best provider in a dustry clients and expert knowledge from network layer, at the other they are fully dynamic process. This cluster contains var- the Deloitte EMEA TMT Community. These separated from the network layer, which is ious drivers such as customer service and critical uncertainties were then enriched dominated by vendors as the main source contact, competitive development, willing- with other drivers which are less uncertain of innovation, while telcos outsource most ness to pay for telco services, the number and have less impact, in order to enhance tasks. This cluster is driven by network of personal devices used, (un)bundling of our understanding of the concepts the clus- innovation, bandwidth, and latency devel- services, the role of OTT players, and data ters represent. These critical uncertainties opments, the mobile communication cell protection and privacy. With the help of our were then tested for inter-dependence network structure in the form of 5G/6G, scientific scenario development approach, and the relevance of their combination. the Internet of Things, and also Software these critical uncertainties shaped four This process led to a scenario matrix with Defined Networks. possible scenarios. two axes, “Ownership of the (network) technology layer” and “Dominance of the The second critical uncertainty, “Domi- In “The engineer strikes back”, telco oper- traditional customer relationship”, as criti- nance of the traditional customer relation- ators master both customer relationships cal uncertainties. ship”, can logically also tip in one of two and the technology layer.
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