5 reasons why telcos won’t exist in 5 years (and 3 solutions)

There are 5 reasons why telcos won’t exist in 5 years: 1. nothing left in-house, 2. communication goes digital, 3. dwindling mobile usage, ubiquitous wifi, 4. towers will compete with things with wings, and 5. at a regulatory inherited disadvantage. And then there are 3 elements needed to transform and instead become a ‘digital service provider’: thinking big, agility and risk.
Let’s see:

Reason 1: nothing left in-house

Over the years telcos have been very effective at outsourcing functions. These days, barely any of the critical areas to deliver communication services are owned or controlled by the telco. Towers and their maintenance, both physically and operationally, are handled by towercos and managed services. Hardware, equipment and middleware are provided by external providers (usually a handful of the usual big Chinese, Swedish or Finish providers plus a whole lot smaller ones for the middleware). Software is not developed in-house either. Standards are shaped and defined by associations and research bodies. Apps and digital services: depends — with many examples of R&D failures, very few shining stars, and plenty of ‘we-are-still-figuring-things-out’.

Big Data! How much of a product or process can you define, shape or control if it is not yours? The risk may not lie in the loss of control of the asset at hand, but the data that comes with those assets. Of course there are areas that remain in tight control: sales and marketing sometimes. Core subscribers’ data being another — a massive wealth of time- and location-specific usage patterns of calling, and using any mobile services.

Really? Albeit how much of that data will remain relevant when all usage will become digital and data-only, delivered purely by external providers (apps that won’t reveal their insights, because what’s in it for them)? Let us look at the next 4 reasons that will challenge this potential wealth and power of data.

Reason 2: communication goes digital

By that I don’t mean VoIP challenges traditional circuit switched voice revenues. Not only. We are all aware of how SMS lost its relevance with the massive growth of messaging through WhatsApp, LINE, FB messenger and other chat apps.

In-app calls! But communications in its most natural form (as much as that is currently possible, without holographic technology at-the-ready just yet) is increasingly embedded in our everyday apps. Video calling is becoming the norm, and we see a growing number of apps that add communication tools into their feature set. Perhaps the next time you order food online, you will be able to have a quick video chat with the chef while he cuts your Sushi.

Caveats? Arguably, SMS is making a small but sizeable comeback through two-factor authentication and A2P offerings (and yet, telcos may yet again miss the boat here). Some go so far to even say people are getting tired of apps and want good old SMS instead (example 1, 2, 3, 4) — though that is temporary. Perhaps, VoLTE can have a chance here too. The key to that is speed (of launch).

Reason 3: dwindling mobile usage, ubiquitous wifi

For all that’s left on mobile usage, and provided telco gets to see the data insight — strategic partnerships may go a long way there — it will only be a small share of what’s really going on on mobile devices. WiFi usage will by and large outweigh mobile data usage (see for example here, here, or here), with as much as 80% of data usage carried over WiFi, and telcos will tap in the dark guessing what’s going on. Operator-owned WiFi spots may of course be a solution. Though in 2014, only 2.1% of traffic was generated on those hotspots.

Reason 4: towers will compete with things with wings

The little that’s left under control — managing managed services on towers — may soon be largely irrelevant. To be fair, not all alternatives have actual wings, but they all float in the sky somehow (Google Loon & Titan, Elon Musk’s satellites, FB Aquila), are led by innovation titans, and seek to connect all of us. The first of them have already successfully piloted, both literally and figuratively. The sky is the limit.

Reason 5: at a regulatory inherited disadvantage

Governments think they can do whatever they want with telcos, particularly in many of the emerging markets. Comparably, telco is at a disadvantage compared to both startups — think mobile money and fintech in particular — and the Internet giants. Of course this may change as governments eventually draw up laws and policies to regulate Google and the like. In the medium term, however, hampering regulation and arbitrary tax rules will not help the telco industry to compete effectively.

Spectrum auctions don’t help either. Recent spectrum auctions are at an all-time high in terms of cost, much outweighing the originally expected sums. The Nov ’15 Thai 4G auction is a case in point, resulting in a per-person20Baht/MHz cost compared to an average of 11Baht/MHz/p. Yet, at the same time regulation is such that the operators are obliged to offer their 4G tariffs at a lower price than current 3G charges, limiting room to manoeuvre dramatically. At the very least, it’s not a level playing field with digital players that also offer communication services.

So what about becoming digital service providers?

All of the five reasons above can be addressed. Telcos have all embraced the ‘digital lifestyle’ agenda. Yet, above all, three elements will define who wins this game and who loses. Those that win will no longer be telcos. Those that lose will be telcos that are no more.

1. Thinking big — actually big. In order to excel in any service proposition out there, the goal needs to be ‘the next big thing’. The thing that doesn’t compete with the market leader but transcends it with a more ingenious business model, a more efficient process, a smarter interface, a simpler logic. Be the next digital service provider? compete with Google and Facebook combined, not with telco #1 in the big market. This language needs to come from the top, combined with the right support from entrepreneurial and visionary strategic thinking on operational level. One of the two only, and it’s bound to produce misalignment.

2. Agility and speed. Competing in the digital space means speed. An apt statement I recently read, paraphrased: “a guy in his underwear might be developing your service a hundred times better in his basement in the middle of the night right now, while you sleep”. He launches tomorrow, but you still fight for management approval. To have a working entrepreneurial set-up within a corporate function — ie., intrapreneurship — is a debatable topic in itself, but it’s also not magic, it’s possible.

A second dimension of agility and speed is needed. And that is ‘content agility’, or the one to recognise the customer and their needs. Real-time, contextual, tailored content is the only content that will survive.

3. Risk with the financial means to mean it. Thinking big and agility also means accepting a level of risk. That is primarily a financial risk. However, looking at the venture capital industry and understanding how insurance works certainly helps. One success will outweigh many, many small failures.

To sum up, telcos will be gone in 5 years. Largely, they will be an amalgamation of infrastructure remnants struggling to survive. Just a few will make the transition to offer true innovation, deliver exciting new services and will be at the forefront of launching better infrastructure.

The latter is why I want to remain close to telco. Because I see that vision to be possible, with many strong assets that ‘current telco’ can utilise and transform into future digital assets if used right. And then we will begin to talk and plan for smart data, holographic conference calls, virtual reality holidays, interactive immersive movies, augmented reality games, learning from robots, and the list goes on… — into an exciting future in the communications and digital space.

What do you think?

I welcome your comments and feedback.

Disclaimer: all of the above are my personal views and may in no way represent the views of my current, former or future employers. Many examples are drawn from emerging markets due to personal experience and do not intend to be of scientific nature. Some statements are exaggerated statements so you can complain to me. The list of reasons why telcos will no longer exist in 5 years, as well as the list of elements important as a digital service provider may not be exhaustive and I welcome any additions, challenges, comments, questions, concerns, criticisms and so on.

You may also email me directly at mail@denniskeller.net and check out my LinkedIn or website at www.denniskeller.net