Evolving Role of Telcos: The Dominoes are Falling!

Is it true that the telecom operator is losing its relevance and value as a service provider, and becoming merely a conduit for data packets?

Let’s look at what was said by key leaders in the space over last year:

• “The big problem in Europe is really that our customers (i.e. telecom operators) can simply not afford to build out the networks and I think that is going to hurt European competitiveness long term,” Ericsson CEO B?rje Ekholm .
• "A revision of spectrum policy, accepting the need for scale to avoid market fragmentation, and a fair and proportionate contribution from the largest traffic generators towards the costs of network infrastructure should form the basis of a new approach,” reads the letter signed by signed by 20 CEOs from most of Europe’s largest telecoms companies .
• The GSMA Europe says , “The EU estimated that at least €174bn of new investment will be needed by 2030 to deliver the connectivity targets. The telecoms sector is currently not strong enough to meet that demand, with many operators barely earning their cost of capital. ….. retail prices for telecommunications services have been generally falling over the past ten years at the same time as costs have increased. New technologies will raise demands on the underlying network infrastructure, further increasing costs.”
• "The best solution is for an equitable share of these (infrastructure) costs to be borne by the 4-5 LTGs responsible for the disproportionate traffic growth," the finding, commissioned by the Cellular Operators Association of India (COAI) said , and added that putting the entire burden on telecom service providers is neither sustainable, nor prudent.
• “Telecoms must make heavy investments in the cost of infrastructure that enables them to serve customers across all of these networks,” said John Simcoe, partner and national media and telecom leader for PwC Canada . While at the same time, “Bell Canada … announcing it would cut network investment plans by more than $1 billion in 2024-25, including a minimum of $500 million next year.”

The predictions are not that favourable either:

• Maarten Ectors says in a LinkedIn Post , “4.5 years ago I predicted that 5G would not be a big money fountain for the telecom industry, quite the opposite. Now its biggest infrastructure provider, i.e. Ericsson, has gone from profitable to loss making. Here are my telecom predictions for the future: 2024 will be the year many small telecom operators merge or go bankrupt. Vodafone will go bankrupt within 5 years. Neither Ericsson, nor Nokia will deploy 6G, ever, because telecom operators will not be able to afford proprietary technology. ….. Telecom has not structurally innovated.”
• PWC report says that , “One of the most striking data points in PwC’s 2023 Global CEO Survey is that ….46% telecom CEOs think their companies won’t make it another decade. A big reason is that telecoms don’t have the strongest track record in terms of monetising new technology. They invest heavily in each new generation of mobile infrastructure, and customers—especially retail customers—expect to pay less and get more.”

Seems like an open and shut case of unsustainable businesses. But what could be the reason? How could these giants be losing the battle of their own survival? Especially when the demand for data is growing at a breakneck speed.

Not everything is bad though! We have some good news too!

• Bharti Airtel reported 6% increase in revenue and 54% increase in profits!
• SK Telecom is reaping the rewards of its strategy to become a leading AI company, as each of its AI-focused divisions helped the South Korean network operator and digital service provider (DSP) to deliver revenue and operating profit gains (8% YOY) in 2023.

What could be the cause for the general issues faced by the sector? Read through the three potential causes below and leave your thoughts!

1. Failure to adapt: Telecom operators could continue to focus on connectivity , but they run the risk of becoming trivialised. To avoid this, they may need to play a more active role in the edge data center ecosystem, competing with big cloud/content players for control over applications and user experiences. The telecom operator who owns the user experience will likely become the dominant player in the industry. But looks like many will miss the bus. According to James Crawshaw - ”Brian Washburn (Omdia Analyst) estimates that while 82% of AI traffic was processed in public cloud providers' bit barns in 2023, by 2030 this will have fallen to 30% while over 50% will be processed in edge sites. However, these edge sites may also be owned and operated by the same hyperscalers that control centralized cloud. Again, no clear opportunity for telcos.”
2. Delaying the tariff restructuring: Telecommunications providers are grappling with the challenge of having to invest heavily in network upgrades for 5G and Edge capabilities, while their tariffs remain stagnant. The introduction of 5G will be a costly upgrade that is likely to see providers making less money per gig than with 4G. It is really strange that the telcos should ask the OTTs to pay for the network infrastructure. When the CPP (calling party pays) regime started in the voice dominated scenarios only one person was supposed to pay for the service. In the data driven domain, telco's are charging both the parties already- The consumer who downloads the data as well as content provider who connects to the network, in fact it is now BJP (both jointly pay) and even after all the money that the telco's make they still claim to be struggling to find the money to transform the network. The telecom providers need to learn from the parallels from transport and realize that they need to figure out their own plans to get more value for the infrastructure that they are providing.
3. Lack of support for “Platform Economy”: The Greek philosopher, Archimedes, said, “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” I believe telecom operators have this lever as well as the fulcrum, but they are yet to focus on them! The “Open” ecosystems are almost all dominated by the OTTs or cloud players. Few attempts by some telcos are rarely supported by others. MobiledgeX (an initiative by DT) did not receive much support from global telcos and was bought by Google. The only big ecosystem is the one built by Rakuten; Rakuten Symphony and with Tareq Amin making a move, I am afraid that this ecosystem will not be able to survive next 5 years. The telecom operators need to come together to build a platform that can help them become more than connectivity providers.

There is still time to change, and I strongly believe that many may work together to find a path forwards! In the current scenario, there is a risk that telecom will become an essential infrastructure owned by the national governments because they cannot fund themselves!

Note: The opinions expressed in this article are my personal opinions and have no connection to my present or previous employments.