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May 16, 2022
Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Angus Ward, CEO of Beyond Now, analyses the megatrend of telcos attempting to transform themselves into ‘techcos’.
In the last two years, most businesses regardless of the industry have experienced seismic change. Telecoms is no different. It has since seen its fair share of changes with many telcos spinning off either network towers or fibre infrastructure, usually to reduce debt. Likewise, 2021 saw many broadening into technology communications or “techcos”, to prepare for 5G and add new high growth revenue streams that bring value to their core connectivity offering in the burgeoning B2B market.
For example, Vodafone said it would be splitting its IT and networks to focus on its techco vision while BT brought in new leadership to spearhead its new digital business unit, which recently celebrated its first anniversary. So, what does this mean for Communication Service Providers (CSP)? Unfortunately, it is too early to tell whether they will be successful, despite nearly 70% of CEOs viewing B2B as an incremental opportunity fundamental to them being able to monetize their 5G investments.
This is McKinsey’s third horizon – breakthrough innovation. It’s difficult stuff. It takes long-term leadership commitment to drive the required organizational change and financial commitment that means shareholder patience will be challenged. Not least of all, it requires a very different business model, one that is more ecosystem partner and platform driven to bring the level of customer focus and breadth of capabilities for partners to jointly co-create and co-innovate solutions that will drive B2B customers’ own digital transformations. This is not about selling mass market and standardized communication products, but offering secure connectivity for solutions to bring phenomenal value add to customers.
The techco model shift will close the gap with what B2B customers are demanding to enable them to harness all the latest technology shifts to drive their own digital transformations. Techcos are becoming the ‘one-stop-shop’ that offers solutions for the B2B market, as well as the B2B2x market.
Closing the gap
CSPs have long experienced poor share price performance with flatlining revenues and profits. They have looked enviously at the growth and valuations achieved by technology companies. The B2B market is the best opportunity CSPs have to reignite telco growth given their customer relationships and their pivotal position within the 5G value chain. But while many CSPs have talked a good game thus far, very few have demonstrated the ability to back that up.
The challenge is that the heart and soul of many CSPs is too tied up in their B2C market, and their traditional business model that demands centralizing control and ways of working that are not agile nor responsive enough to meet the needs of B2B. This is reflected in their limited success so far. In a recent Beyond Now report, it was revealed that CSPs market share of the 5G solutions market dropped by 5%, from 21% in 2020 to 16% in 2021. In contrast, alternative solutions providers (ASP) like systems integrators jumped from 7% to 27% in a market that doubled in size in a 12-month period. Interestingly, the market share of enterprises doing it DIY fell, reflecting how difficult it is (except for the very largest) to create digital transformation solutions without the economies of scale or technical skill.
CSPs need to close the gap by restructuring their business models and stepping out as a “techco” which follows the classic playbook for implementing a McKinsey Horizon 3 strategy. This enables them to incubate the deeper organizational and cultural changes needed to be responsive to customer needs. It brings about the right relationships with customers and partners, and also puts in place the business and operating models aligned with IT to enable a far more agile response than possible in their legacy organization.
The vision for techcos should focus on a transformation that will enable CSPs to build and deliver their future businesses. With a greater level of openness between partners and customers, CSPs can capitalise on the opportunity to orchestrate ecosystem partners to directly addresses their business problems with outcome-based technology solutions, all at scale.
Competition from other Service Providers
The intense competition from ASPs, is putting real pressure on CSPs to act fast. ASPs are often creating their own innovation labs with private LTE or 5G networks at their core and whose strength resides in their deep technology skills and expertise aligned with industry knowledge and strong customer bases.
As the ‘cloudification’ of the network accelerates, greater collaboration between CSPs and hyperscalers is inevitable – and the hyperscalers certainly have their eyes on the telecoms vertical. To form the right partnerships, including with hyperscalers, CSPs still need to define how they can grow the value they bring in creating digital transformation solutions. Getting closer to their customers, and being better at understanding and adapting to their needs, whilst forming the right partnerships will bolster their chances of success. Companies like AT&T have already begun to acknowledge the strength of hyperscalers, proven by its latest collaboration with Microsoft. AT&T is looking to deploy private wireless networks rapidly across radio spectrums via its new ‘Private 5G Edge’ platform. But first, it’s working closely with customers to understand their needs, challenges and aspirations of combining connectivity with edge computing capabilities.
An internal battle for resources
To create a solid B2B value proposition and start building a product portfolio, CSPs must also overcome an internal battle for resources, particularly financial. Separating from the very short-term time horizons needed within their traditional business helps set expectations that this is investing for the long term.
CSPs forming techcos will attract new investors, but they will never achieve their full potential in terms of market valuations unless they can decouple further from the mass consumer business which dominates the think space at executive level. These techco units need the space and freedom to establish a B2B value proposition that sees them rapidly roll-out repeatable, scalable B2B solutions without incurring bureaucracy or red tape.
Creating a dedicated techco could see CSPs improve PE ratios and stock market valuations as they capitalize upon a rapidly growing enterprise market that is demanding advanced technology solutions, with minimal complexity in deployment and implementation, to facilitate their transformation ambitions.
B2B – the next spin off
CSPs have previously been too slow to adapt. Knowing that the competition is fierce and ever-growing, CSPs need to reinvigorate their dedication to the enterprise market – a key opportunity that will enable them to monetize 5G investments.
Spinning out as a techco will demonstrate CSPs’ ambitions in this market and in turn, will allow them to capture the right investments and position themselves as the preferred solution provider. Measuring up against the other telcos of the world is redundant. Instead CSPs should be mirroring the actions of the fast-moving hyperscalers.
CSPs possess the essential commercial knowledge and by operating with a new level of openness and flexibility, they can level up their business and secure their share of the lucrative enterprise market.
Angus is CEO of Beyond Now, a fast-growing ecosystem orchestration and digital platform provider, powering organizations to launch new services at speed and grow revenue by utilizing our digital platform, digital marketplace and SaaS BSS. Angus brings 30 years of consulting and solutions experience to his role, supporting organizations across multiple industries in shaping strategies and adopting platform-based business and operating models with differentiating partner ecosystems. Working closely and collaborating with industry bodies such as TM Forum, analysts, research firms and academic organizations such as MIT and Wharton, he regularly presents on the key trends and issues affecting telecoms and technology. Angus Ward is also a Chartered Accountant and has published research within the BearingPoint Institute.
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