Mobile operators path towards profitability B2C

In our last article, we discussed the struggle’s mobile operators and telcos endured in the previous decade and the rise of platform giants like Facebook, Amazon, Apple, Netflix, and Google known as “FAANGs.” Furthermore, we provided our view on the solutions’ mobile operators, and telcos can implement to create value for their customers and shareholders.

In this second article, we dive deeper into new paths for profitability and new business models. Breaking those out into three sections:

1. Mobile operators' and telcos' natural strengths or pivot points
2. Mobile operators' and telcos' underperformance Vs. the platform giants & listed public companies
3. Cross-industry collaboration and cooperation as a value creation tool for the B2C market

1) Mobile operators' and telcos' natural strengths or pivot points

Mobile operators and telcos must rethink new ways to create value and monetize their pivot points effectively. These pivot points are the customers, the infrastructure, and the data generated by the users.

Customers

We live in a hyper-connected world where not having connectivity, and mobile services put you in a disadvantageous position. Mobile operators and telcos have a few clear advantages over large companies from other industries as every citizen wants to be connected either to communicate with his/her loved ones or to perform business activities. As a consequence, Telcos have a vast number of customers. And in today’s world, having a large number of customers is vital to achieving economies of scale and the right company valuation.

On the flip side, telcos must differentiate themselves from their competitors as technology has become a commodity. The coverage between mobile operators and the reach of telcos is practically the same. Moreover, the majority of citizens have access to the same technology. Thus, the one-million-dollar question for mobile operators and telcos is how to differentiate from their competitors.

In the previous article, we shared that USA mobile carriers experienced a decrease in ARPU of 21% the same decade the platform giants’ owners Apple and Alphabet, experienced a combined market capitalization increase of 1.4 trillion dollars! Therefore, rethinking new ways for value creation is inevitable.

Infrastructure

Mobile operators and telcos spent billions of dollars deploying infrastructure. This infrastructure includes submarine cables, hundreds of buildings in urban areas spread out like a spider net to provide connectivity, and cellular networks with thousands of antennas that unfortunately are part of our landscape.

The good news is that part of that fixed infrastructure can be optimized, allowing telcos to get into new businesses like logistics and energy. The former needs to reduce the last mile cost, representing about 30 to 35% of any logistic player delivery cost; the latter needs a vast network of buildings where the new fleets of electric vehicles “EV” can charge their batteries.

A practical example is the hundreds of buildings owned by AT&T USA called IP central offices. The roof of these IP central offices shown in the below picture can be adapted for drones hubs allowing logistics companies to save millions in last-mile costs by reducing their truck fleets and oil consumption bills. At the same time, the surrounding areas of these IP central offices can be accommodated for EV charging stations supporting the rise of EV and reducing C02 emissions. In other words, telcos can optimize and monetize their assets in ways that ten years ago were unthinkable.

Data

The third and most crucial pivot point for mobile operators is the data. As all readers know, data is the new gold. Smartphone users spend 3+ hours per day on their devices. These 3+ hours does not include the time spent on PC, laptops, or watching over the top "OTT" video platform like Netflix. This large amount of time spent interacting with devices creates lots of data that, with the right technology, can be turned into valuable insights.

Among other things, mobile operators know our location within a few meters' accuracy. Furthermore, mobile operators and telcos understand who are our most valuable vendors, like our favorite retailer or preferred airlines, and the places we love to visit. In a nutshell, mobile operators learn more about us than we know about ourselves.

This new gold makes mobile operators so strong. However, applying an analogy, being powerful does not always mean you win a war. The USA's never-ending wars in Vietnam and Afghanistan validate this point. Although, with the increase in computer power, the adoption of cloud technologies, and investment in artificial intelligence, mobile operators and telcos are in a much better position than one decade ago to monetize such data.

A clear example of data monetization from a mobile operator happened in Spain last year. ORANGE Spain sold to the Ministerio de Fomento, the counterpart of the Secretary of Transportation in the USA, data from 16 million mobile users for $150,000. This data service was sold in the form of a report. The report contains data gathered for two months to understand better inter-provincial/regional preferred travel destinations within Spain and the chosen method of transportation. The report did not include any confidential information about the users. Therefore, it did not violate any privacy rules.

The insights provided by this report can predict future transportation habits, locate emergency services like police and rescue officers on the congested roads, as well as the ability to allocate government funds to pave roads, fix railways, and improve traffic conditions during peak seasons. The potential for tackling this lake of data to untapped new revenue streams is enormous.

2) Mobile operators' and telcos' underperformance Vs. the platform giants & listed public companies

The following link provides you access to a McKinsey's report showing how telecom operators clearly under-performed if compared with listed public companies in North America and Europe in terms of revenue and absolute change in earnings before interest, taxes, depreciation, and amortization "EBITDA" margin for the period 2007 to 2018.

European telcos delivered worst results than their North American counterparts losing 24% of their revenue during the 2007 – 2018 period, while listed companies increased 18%, and 6% of their EBITDA margin in absolute terms Vs. 1% loss for public traded companies. Please refer to below picture enclosed.

These conditions resulted in European telco's return on investment capital "ROIC" being below the weighted average cost of capital "WACC". In other words, the return on the money the European telcos borrowed to invest in heavy capex projects was lowered than the cost of the interest of that money!

If you add these results to the drop in average revenue per unit "ARPU" and the remarkable hyper increase of market capitalization experienced by the platform giants known as "FAANGs." It is not an overstatement that mobile operators and telcos have underperformed in the last decade.

So, mobile operators and telcos need to reinvent their business. How? They must consider partnering with peers from other industries to create value for their B2C and B2B2C customer segments before it is too late. Creating such added value would allow them to survive the next recession, while ignoring these signs will push them towards a cliff.

Even though the FAANGS and public listed companies outsmarted mobile operators, Telcos have an advantage. They own millions or hundreds of millions of customers in some countries like China, India, and the USA. 

These customers are more tech-savvy and dislike spending time on tasks that can be performed in a fraction of the time if using the right technology. Therefore, the answer to the million-dollar question is to make the customer experience flawless.

How? Including Natural language processing "NLP" in their customer-facing applications. NLP is a subset of artificial intelligence "AI." NLP is revolutionizing how customers communicate with brands to purchase products and services.

The problem is that mobile operators and telcos are one or two steps behind the platform giants regarding NLP services. Nevertheless, it is never too late to step up against Amazon Alexa, Microsoft Cortana, or Google Assistant for a piece of the B2C market.

Mobile operators are just 1 click away , as discussed in the 1st article of this series, for opening new sources of revenue. They need to realize that, as my mentor in digital transformation well said, technology does not create a competitive advantage, the strategy does!

In other words, they should not be complacent, offering communication services, and think beyond connectivity, building strategic alliances with well-known companies from high revenue industries that are part of our daily lives.

3) Cross-industry collaboration and cooperation as a value creation tool for the B2C market

It is a fact that we consume utility services to have drinkable water, heat, and light up our houses. We hire insurance services to provide health/life coverage and asset protection. We eat and drink consumable products daily and use a variety of transportation methods to commute everywhere. We entertain ourselves by reading, watching content, attending events, and exercising. Lastly, the cited transactions are possible because of financial services companies and banks that allow us to process, and purchase these products and services.

That said, the mobile operators of this decade should act as consolidators of our monthly basket spent rather than just being a telecommunications company focused on providing connectivity. They should become the preferred channel of communications for lead companies, from the utilities, insurance, consumable products, transportation, entertainment, and financial services sectors, to communicate with their customers and win new ones.

If you take a close look at the annual income of these industries, the revenue opportunity mobile operators and telcos can obtain is extremely large. To give you a better idea, the annual revenue of car insurance in the USA for 2018 was $282 billion. Being the combined revenue of the six industries listed above in the trillions of dollars!

How will mobile operators become consolidators of our monthly basket spent?

First, they must understand how value is created for each industry, its entry barriers, the strengths and weaknesses of each potential partner, and their digital business strategy.

Secondly, mobile operators must identify the areas where they can create value for these partnerships. This added value mobile operators can bring to the table varies per industry. The cost of customer acquisition “CAC” per sector is the best indicator of the value mobile operators can bring to the table. On the one hand, mobile operators should target the industries with the highest CAC, like the financial, banking, and insurance sectors, whose switching costs vary from $175 to $300 per customer. On the other hand, they should also build strategic alliances with vendors from the consumer goods industry, like a supermarket that delivers high recurrent weekly revenue even though its CAC is less than $30.

So, what are the benefits mobile users can obtain using the mobile operator NLP service?

As Warren Buffet said, time is the only thing he cannot buy. We cannot agree more with Mr. Buffet. In the form of minutes saved, time is an essential benefit that mobile users can perceive if the mobile operators craft the right strategy creating a cross-industry platform empowered by cutting-edge technologies like NLP and computer vision. 

Below, you can read about the additional benefits your mobile operator could deliver to you by smartly collaborating with peers from other industries.

You would ask mobile operators for your water, gas, or electricity consumption to avoid surprises at the end of the month, monitor the daily use, get statistics, and forecast. In exchange, your utility company would receive daily or weekly payments rather than monthly if your mobile operator partner with your financial institution of preference, improving cash flow of your utilities vendor and financial partner. Besides, you would manage the temperature of your house as you see fit, and if you own an electric vehicle "EV" you would be able to remotely charge the battery at the time of the day when electricity is cheaper supported by automation technologies and application interfaces "APIs."

You would be able to pay your car insurance per mile driven rather than per month as your mobile operator partner with your insurance company offering "As a service" business model. You would connect your smartwatch to your smartphone providing life stats about your health if the mobile operator provides the data gathered by your device to the life insurance company. Consequently, you would pay less costly life insurance. The mobile operator can either sell/lease its smartwatches or partner with a smartwatch vendor to provide you the device. In addition, you would be able to order your groceries while driving the car.

You would purchase a bus, train, and airfare tickets, plus consult the schedule of your favorite ways of transportation. Moreover, you would be able to locate where is the closest electric scooter or car via geolocation services and even find out the battery level of the vehicle and its autonomy.

You would be able to purchase theater, concert, and events tickets or inquire about the level of occupancy per machine at your favorite gym to avoid wasting your time. Lastly, you would be able to lend, transfer or request money and other advance financial services merely using your voice from the comfort of any place you decide to be as far as mobile coverage or wifi services.

These are some of the new sources of revenue a mobile operator may be able to offer you if the right strategic alliances are built.

Our next article will provide our view about the tremendous potential that mobile operators and telcos have to win market share in the B2B2C market. Lastly, we encourage you to drop a note and like the article if you find it valuable.   

Javier Macineiras

Chief Strategy & Digital officer

https://digitalimpact.cloud/