Digital Transformation (DX) in Telecoms

Part 1 - The telco industry is struggling - how to get out of the hole

For all the talk about the benefits of a “digital transformed” business, the years since the last financial crisis of 2008 haven’t been an overly smooth ride for many telco players. Being at the forefront of technology the term “digital” hasn’t translated into success for them, or so it seems.

This may sound a bit surprising, given the telecommunication industry is probably a sector that is as digital as it gets. Telecom is in fact at the centre of enabling a wider digitalisation of our economies. It provides the connectivity, the platforms for services, the channels to utilise a myriad of applications. Or, in short, it is the nerve system on which our world is built. 

Yet, the hard financial facts paint a distinctively different picture of an industry that is - at best - in stagnation. As we are looking into the mobile network operator (MNO) landscape, share prices of Vodafone and Deutsche Telekom in Europe, Etisalat in the Middle East or China Telecom - some proxies for the health of the sector - are all down on even their post-crisis levels. Pretty much around the globe, the vast majority of investments in pure-play telecoms have decreased in value despite a general market upturn since 2009.

Development of share price of Google, Vodafone, Deutsche Telekom, Etisalat

Of course, a decline in share prices does not convert easily into a measure of digital maturity. For the financial and valuation success of a company there are many other factors at work. But the share price is a poignant reminder that something is going wrong here that the FAANGs (i.e. the Facebooks, Apple, Amazons, Netflix, Googles) are doing so much better.

And this something has to do with trust in telecom companies to generate sustainable growth, keep cost at bay and lead innovations that translate into real value. That trust in them to create sustaining value has long disappeared, relegating them into organisations that resemble commodity plays or utilities rather than roaring pacemakers. 

Time to look into ways to get out of the hole.

Notwithstanding other aspects that impact a company’s value, this series of articles will shed some light on where MNOs are lacking when it comes to moving from “being digital” to becoming “digitally transformed”. After all, the problem of being stuck on this journey is an important one at the root cause for their relative under-performance.

Not all is wrong in the MNO camp

Looking from outside in, most spectators believe that telco players are well-oiled digital machines. And in all fairness, most MNOs have done a tremendous job in bringing unit cost i.e. "cost-to-serve-a-bit" down at a rate that even beats Moore’s Law. Whilst at the turn of the century bit pipes realistically were running no faster than 14kbps, with 5G - a mere 18 years later - we are looking at speeds north of 150…200Mbps. 

This translates into annual growth rates for the data speed of around 75%. And, it also comes with a dramatically decreased (unit) cost for us consumers. All the while, networks have become more pervasive for everyday use and certainly more stable. Metrics that few other industries can match.

Also, from a socio-economic perspective MNOs have mostly proven to be worthy custodians of the airwaves that they have been entrusted with. The spectrum which MNOs usually obtain on long-term “leases” has been put to good use to better the lives of many.

But beyond being custodians and keeping unit cost in check MNOs do rather terribly. Unfortunately, the reasons for these misfiring engines are as diverse as the industry itself.

Take a somewhat more holistic view

In some cases it is the management that is not up for the task of properly transforming the company into a brand that is valued beyond “connectivity”. Thereby MNOs miss the opportunity of tapping into additional revenue sources and growing into something bigger. And, where they do tap into markets outside their core competencies, initiatives are often poorly executed.

Whilst there have been undoubtedly attempts to occupy larger chunks of their respective “surrounding” market segments, MNOs more generally seem to be not good at it. There are more corpses on the wayside then there are shiny success stories.

In other cases, MNOs have become nothing more than hollow management shells. They have outsourced pretty much the majority of their in-house expertise. As a consequence, but not surprisingly, many can be seen struggling to come up with even the most basic innovative break-through products. The tell tale: have a conscious look at the billboards in major cities around the world. What do you see? MNOs advertising “their” latest products: an iPhone.

A low degree of flexibility in implementing business models that are different from the traditional approach, perhaps requiring more federated ecosystems, also quite often plays a role here. 

Have you ever done business with an MNO? If not, then don’t try, unless you are an entity of similar size and market power in a complementary field. Because despite their forays and assurances, MNOs are still the most unlikely of business partners. They simply won’t dance with you on equal terms.

And whilst true collaboration appears to be alien to many of these “big players” all the while the industry engages in complaining about the evil Googles of this world that eat the operators’ lunch and won’t pay for an expensive infrastructure. 

That behaviour often even reflects on the end customers. Where customers want to choose their preferred solutions, their MNO may restrict or simply block services. The shut-down of Skype in many parts of the Middle East, for example, is a stark reminder of MNOs misusing their market powers and monopolies.

It is not uncommon that customers in fact are becoming rather frustrated with their MNOs. For example, a running joke in Germany is that one of the most industrialised countries only holds the second-to-last place in the European mobile coverage and network quality league table. Just a notch higher than Albania.

As a separate issue, I am also flabbergasted to see how internally misaligned MNOs often are. How little grip of their own destiny they have. How they keep themselves in a dependency with key suppliers. How much they rely on regulators and their quasi-monopolies to brave the market forces.

These are a few data points that illustrate the challenges faced by MNOs who have largely been stuck with pretty much the same approaches they have taken in their business over the past decades. Old habits don’t die easily. 5G might just be that last ring of the bell that causes the industry to fundamentally rethink their course.

Start understanding how to become truly digitally transformed

So, the rot goes potentially very deep. And, this is exactly what the share prices are telling us. Of course, we have nothing more but scratched the surface here, though even then this has developed a good appreciation that changing the situation requires some potentially bold steps. It is not just a case of setting up yet another programme that tinkers with the usual people-processes-technology triangle.

Where MNOs are serious about their digital transformation in light of 5G, they will look across their shop at strategic, partnering and implementation issues. They will open their minds to doing future business in different ways. With different organisational structures and responsibilities. Through adopting more of an “internet mindset” whilst avoiding to throw over board the practices that have provided them with a sound commercial basis.

Aiding a more joint-up thinking we have - over the years - developed our refined Digital Transformation Framework, which helps to ensure a customer centric approach. If nothing else, it can be used a a compass to navigate through transformative initiatives.

So, where do you stand in your digital transformation journey? 

We are interested to hear about your plans.

#digitaltransformation #dx #5g #telcoindustry #telco #telecoms #mobileservice #performanceexcellence

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Coming up:

Part 2 - Value web: the new customer centricity in the advent of 5G

Part 3 - Technology foundation of 5G: a distributed cloud with intelligent antennas

Part 4 - Innovating and automating: the way to please the shareholders

Part 5 - Mindset and organisational shifts brought upon by 5G

Part 6 - Ditching the wheeler-dealer management in a 5G era

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unleash.digital is a no nonsense boutique consultancy, specialising in helping organisations in telecom, utilities and high-tech industries transform their business towards the digital age. With tens of years of track record we can help across management, technology, operations and customer facing areas. Hands-on. No fluff.