Data: A Case for Telecom Digital Transformation
The technology conference season is upon us. A common theme over the past years at these events has been “Digital Transformation.” This term generally yields a yawn or at least a roll of the eyes, but make no mistake, the carriers will be listening carefully. But what does “Digital Transformation” really mean?
There is a definite need to “transform” as the traditional telco business is on the decline. Most developed economies have hit mobile saturation, and worst yet, ARPU (Average Revenue per User) continues its steady decline. According to a report by Oliver Wyman, in Europe, data traffic has increased over 36%, yet revenues have decreased by 22% during the same period. Moreover, carriers have left no stone unturned as far as cost take-out is concerned. However, the EBITDA impact has been minimal. Employing all kinds of consultants (you know who you are), the carriers have tried all kinds of digital transformation initiatives, only to find themselves with false-starts or flat out hitting the wall of operational efficiency.
Rather than focus on cost, the focus of transformation should be developing new business models. There is no better place to start than with Data. After all, carriers sit on a potential treasure trove of data. And given all the issues around data protection and data rights, the carriers are best positioned to help solve this global challenge. Every major app, from Amazon to Zillow leverages the mobile platform. The carriers may not have the app data but they have customer location, usage patterns, segmentation and other data available to them. Yet carriers are seemingly hamstrung in taking control of this challenge because there is no clear mechanism to obtain consent and protect the data owners (subscribers)
What if.
What if a carrier launched a service plan that protected consumers’ data? What if the subscribers knew exactly where their data was going and how it was being used? What if subscribers were compensated for allowing their consented data to be used? What if the subscribers had full control to turn off access to their data at any time? (See Figure 1)
Let’s suppose there is a service plan offered by a carrier called the “DATA REWARD”plan. First, subscribers would download data reward app and enroll. The underlying technology is blockchain-based, so it’s a distributed app (dApp) enabled by the data marketplace such as the EQITII platform. Each month, the carrier would give a service credit to the subscriber in return for sharing their data. Consumers may turn off this feature and their consent anytime they want. They can even create customized rules such as “Location data ON between 0900–1100” or “Location data OFF Google only”. See Figure 2.
You can imagine the wide variety of permutations one can create. Empowering users to create their own policies and how their data (e.g. location) is used by carriers or by third-party aggregators either inadvertently or by consent, is immensely critical. With this framework, we would have avoided the recently documented problems of customer’s location being sold to third parties without their consent.
Behind the scenes, the carrier negotiates with “buyers” of this data. The buyers could range from ad brokers to retail companies. Today Google and Facebook own 77% of the gross ad spending in this area. Both make money by showing users advertisements — sponsored ads, videos from all kinds of brands, mostly from our browser history. Other companies pay for that space and ads bring big money. According to eMarketer, 43% of 2020 Ad Spending is forecasted to be via Mobile.
Clearly with this command of the market, an individual mobile user is not in a favorable position to negotiate with Google or FB. But a carrier with 100M subscribers can represent the subscribers best interest. What would you prefer as a mobile subscriber — current status quo where your data is being monetized by a third-party with no compensation or control?
There’s a strong business case for offering Data as a service. Although do you need a business case to protect consumer data? (You can wait for regulators to weigh in or do something about it e.g. The impact of GDPR on consumer privacy is yet to be seen. By making businesses offer privacy by default and making them only collect what they need, is not exactly aligned to internet business models.)
At the risk of oversimplifying the economics, Figure 3 illustrates the various levers involved in driving the ARPU. In this example, let’s assume the ARPU is $40 and the consumer receives a conservative $10 in return for sharing their consented data — the credit is dependent on how much data they make available. (The credit could also be in the form of “Reward Points” that many carriers already offer today similar to credit card and airline plans.) Through Ad revenue, the carrier makes an additional $12, which is conservative relative to Facebook’s actual ARPU of $27 in US/Canada.
Lastly, enterprises such as retailers, banks and media companies might want to buy consented data directly from the carrier rather than going through a large internet company. For simplicity, we can estimate a conservative $10 per user (the market value of enterprise data will vary by industry and type). Moreover, the data marketplace enabled by a carrier is just not about advertising. The carrier can be the data broker for all types of businesses exchanging data between each other including OTT players. According to IDC, by 2020 100 percent of large organizations will buy some type of external data sets to augment their internal data to help them remain competitive.
At the end, with a “DATA REWARD” offer, we are talking about a 30% uplift in potential ARPU for carrier supporting consumers and equally large enterprises.
This is not unchartered territory. The insurance industry has been executing this model for years. The automobile insurance industry started it first, where drivers receive credit in exchange for their driving data. And now, the life insurance companies are getting in the game. The John Hancock Insurance Company has adopted this business model completely. In exchange for their health related data, customers get up to a 15% credit on their premiums. The product was so successful that John Hancock made this requirement mandatory for all its insurance products. For them, it wasn’t the business case that was compelling, but how users used the offering to improve their lifestyle. The use of software by the consumers increased 700% in just 3 years.
This results in a win-win for everyone. Carriers have a new avenue for securely monetizing data, while addressing the data rights and protection challenge. At the same time, consumers and enterprises are compensated and have control of how their data is being used.
Please monetize my IoT data.
We can extend the same business model to IoT. The number of connected devices is exploding. In 2017, the number of IoT devices on the planet officially surpassed the number of people, and according to Gartner, we’re set to have 20.4 billion deployed by 2020. These devices are constantly creating and gathering data about economic activity around the world. That said, monetization of IoT currently faces strong headwinds, mainly because IoT data is not readily available to buyers and sellers.
For IoT to work, achieving a business outcome is the key; however, most companies do not have access to the multiple sources of data needed to generate the insights that they need. AI and Machine Learning for IoT will simply not work without diverse data sets. Predictive maintenance, for example, needs a robust data set that correlates with a failure event. It’s hard to build a predictive algorithm without all the necessary IT and OT data elements (e.g., speed, temperature, vibration, etc.). More importantly, there needs to be enough data over time that leads to a failure event. In addition, security and trust is a huge inhibitor for IoT. However, with blockchain DLT and a tokenized marketplace architecture, we get transparency, security and control unlocking the intrinsic value of IoT data.
What if, enterprise customers (and equally individuals) shared their consented IoT data? Carriers sit in the perfect position in the value chain to build this data marketplace for IoT. They already own the network, so being the middleman could actually be a good thing in this case (See Figure 4).
Carriers can then become a data ‘broker’ for IoT by brokering all the various sources of data that stream across their network. In this scenario, carriers can monetize IoT beyond just connectivity. According to Accenture and Western Digital, by 2030, blockchain-enabled IoT data marketplaces revenue could reach $4.4 billion. For a carrier, this is a significantly more attractive business opportunity in IoT than a pure connectivity play that only generates in the range of $1–10 per sensor per year.
In the end, this creates a much more efficient marketplace and addresses the fundamental problem of who owns and has the right to use the data. Carriers have toyed with monetizing data before, especially leveraging its network data. But mostly to improve its own operations and products. Never in the manner that directly impacts the subscribers.
Telefonica comes close to what a Digital Transformation powered by Data should look like. It runs over 600 digital transformation initiatives, with about 30% focusing on sales empowerment, 30% on improved customer care, 18% in top-ups, and 10% on efficient field operations. Luca from Telefonica, an AI and Data Unit, is the best example in the industry. It distills data from 350M subscribers across 17 countries from CDRs, CRM, Call Centers etc. However, it lacks a robust data marketplace that is needed to allow buyers and sellers of data to come together and more importantly, enable data rights and protections for the consumers. But definitely a huge step in the right direction making Telefonica a leader in a category of one.
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About Author
Shahid Ahmed has led multiple practices as a Managing Director with Accenture and as a Partner with PricewaterhouseCoopers. At PwC where Shahid was a Partner, he was responsible for multiple digital practices, including Emerging Technologies, IoT and Data & Analytics. Prior to joining PwC, Shahid was Managing Director with Accenture, responsible for Accenture’s North American Telecommunications business. During the 20 years that Shahid was with Accenture he serviced some of the largest companies in the world. Prior to Accenture, Shahid held several management positions at Sprint where he spent four years expanding Sprint’s wireless services in North America. During this time Shahid was responsible for the launch of the first cellular digital packet data (CDPD) network in the US.
He is presently co-founder and Chief Operating Officer at EQITII. The EQITII Marketplace is an independent non-profit foundation. EQITII will function as a globally distributed marketplace for data, secured through a blockchain distributed ledger that will empower data owners to control, protect their data, and be compensated. Shahid is also an appointee to the United States FCC Technological Advisory Council and also is an Associate Professor at Northwestern University. Shahid also serves on the Board of multiple start-ups and standards bodies.