Telcos Foray into Entertainment Business: A perspective on long term and short-term strategies.

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Communications & Media Industry —A Futuristic Outlook

9 min readNov 2, 2023

The Quest for Higher profitability and growth

It’s a well-known fact that Telecom companies have grown tremendously in the previous decades but are suffering from very sluggish growth since the past 5 years. There are several reasons to the low revenue growth, high operational costs and CAPEX remaining higher. The advent of new technologies, heavy competition, and consolidation among the big Telcos (Telecommunications companies) and the very transformation of customer needs have changed the business dynamic in the favor of Techcos (Technology companies). Personally, I feel curious and intrigued looking at the change in what kinds and forms of services are delivered by Telcos and are being sought by the customers/subscribers.

It would have been hard for a lay person a couple of decades back to think that banking services would be provided by Telcos. Similarly there are numerous such services which usually are enabled by connectivity but were not directly provided by the Telecom companies. While the talk-time & messaging were the major services being sold by the telcos a decade earlier, very recently the focus shifted to the amount of data and speed of data became the core of their value offering. While the talk-time and messaging services are still relevant, almost every telco is giving unlimited offering of both, and data became the major differentiator of the service provided by these Telcos. And yet even the data provisioning has been commoditized and was left with little scope for differentiation resulting in no possible prospects of garnering higher margins on this. So it’s natural for Telcos to look at high value adding, differentiable and lucrative services that can be added to their connectivity business to improve the overall revenue, gross margins and hence profitability.

The next step for Telcos is to identify these profitable ventures of the future and start establish a footing in those areas. Value added services are not new to Telcos, to the likes of dialer-tone customization, SMS based banking services, and etc., have caught up even a decade earlier. But what changed is the scale, variety, and nuances of the services centrally focused at improving the overall customer value and customer experience. It is important in such context to look at where the customers are seeking more value across the value chain where Telcos are still relevant.

One could easily point out that the there are several such areas such as mobile banking, mobile gaming, streaming services, and etc. And telcos are now trying to tap into these potential areas with different kinds of approaches for each of these services. Accordingly, we wanted to focus on how telco’s can play their hand at disrupting the media and entertainment space and pave a way forward for future.

Entertainment as a potential value offering

Media & Entertainment sector has grown tremendously in the recent decades. With rise in access to mobile phones and high speed internets, the content makers and platforms are now provided with means to cater to various segments of entertainment consumers across the globe. Parallelly we have seen the rise of several streaming services with varied offerings. The revenues in 2022 are estimated to be $2.5 Trillions and are estimated to reach $ 3.34 Trillion by 2027. And interestingly Ericson estimates that ~70% global data consumed is in the form of video content. Numerous reports only suggest that it will grow even rapidly with more penetration of mobile internet and affordable data and streaming services offerings. Mobile companies have already understood the importance of video streaming platforms in increasing data consumption and have started offering bundled services partnering with the OTT platforms and other streaming services. While it is beneficial in terms of improved customer retention, data consumption and subscriber growth, the question of profitability still looms large.

If we delve one level deeper into the entertainment industry, the value chain largely consists, including content creation, production, distribution, and consumption. In the content creation stage, the content is researched, conceptualized, scripted, and developed. In the production stage, the content is filmed or recorded. In the distribution stage, the content is made available to the audience through various channels such as theatres, television, and streaming platforms. Finally, in the consumption stage, the audience consumes the content via the silver screens, TV, Laptops, mobiles and etc. Telecom providers (providing internet) play a crucial role across the value chain but they have become most prominent for the distribution and consumption stages of the entertainment industry value chain. They provide internet connectivity to consumers and enable them to access various entertainment services such as streaming platforms.

Advantages and Challenges

Since the telecom operators already serve a huge customer base, it is very easier to introduce new service and scale up rapidly. We have seen large telcos like Jio applying the strategy quite effectively and efficiently. But it can also ring true for other operators that have customer base of similar scale. A home grown OTT platform is definitely a prospective way for large Telcos to foray into entertainment Space. Nevertheless, it will require a huge shift from the conventional ways of Telco business to a Tech business that has capabilities to support the OTT operations. An OTT platform requires content research, rights acquisition, aggregation, etc., UI/UX management, customer analytics and recommendations which are all quite different from how Telco service is managed. While the enterprise functions like Finance, HR, Legal etc, are quite common across any company and can be fulfilled leveraging the existing capabilities, the core business capabilities for being an entertainment company can make it quite challenging for a Telco.

Looking at the top players in the entertainment industry today, it took them several decades to develop the cutting-edge technologies, craft niche position for themselves and be at the forefront of business. Similarly, it’s inconceivable to expect a Telco to imbibe all the intricacies of being a entertainment provider in a short period. But the opportunity in entertainment industry is too lucrative to lose out on and hence must be tapped into. It requires a long-term strategy to capture a viable position in the industry and the value chain. The strategy must be cohesive with the long-term vision of the firm and must not be trifled with in the short term.

But the business learnings must be organic and must start immediately. This can be achieved in the short-term using several ways. The most prominent ones are to let the new age entertainment providers use Telcos’ network as a platform to offer their services. Or even acquiring an established yet minor Ott player could prove beneficial as well if it can be integrated with the long-term strategy. In both cases, the short-term success will only depend upon how well the Telco is able to leverage their existing network of customers. But at the same time, it should be value adding to the customers and hence faces a key dilemma of value proposition being created now. Again looking at how Jio is able to get the customers try it’s entertainment platform with almost zero introductory pricing, is quite effective in the short run. And yet the question of financial viability is answered only when there is a long term strategy in place.

Similarly, gaming is another prospective area where Telcos can play the role of a platform provider and be the gateway for access to new age games, be the custodian an arbiter for the in-game purchases etc. Such an endeavor is not new for Telcos where similar services have been offered as part of VAS bouquet. Especially when the gaming sector is poised to grow tremendously and is actively in the pursuit of gaining more users, Telcos can be the magic wand they need. Gaming has its own value chain very akin to that of video streaming, but still telcos already have a crucial role to play and can only improve their position in the value chain. This can prove beneficial to everyone, including value add to the customers as well. Since we are seeing phenomenon such as Gaming as a Service, mobile subscriptions bundled with such offerings are quite lucrative to be offered.

Focus for Long Term & Short Term

Telcos must choose their long-term strategy immediately. Whether to become a platform provider, or a digital services champion or a connectivity provider. Especially when either of these choices require huge capex in achieving it, it’s imperative that they focus their resources and decide their long-term positioning. But if Telcos choose to move from being solely a connectivity provider, they must race to find the prospective partners to give them a jumpstart in the short run. parallelly start revamping their existing business priorities and re-align their operations accordingly. Such a shift is often entangled with huge changes in the existing technology landscape and architecture.

Several telcos have already identified the need to shift away from the legacy systems to a more flexible and agile architecture that let’s them deploy the services faster into the market and without much hassle. At an age where the pace of innovation is inconceivably quick, it is rather prudent to have a nimble business process and systems that lets you adapt quickly and easily. Without playing catch-up with the tech companies, Telcos should focus on revamping their current state to make sure that they survive the next 2 decades by being able to amalgamate the new innovations into their value offering.

Conclusion

In their foray into the entertainment industry, thus the Telcos should start looking at prospective partnerships and start to revamp their current technology stack to make sure that they can get their bundled services deployed readily. The future positioning might allow them to move across the value chain and garner higher profit margins, but it’s of sheer importance that they do not lose out on their biggest asset which is their existing customer base. Tech companies like google are getting into telecom companies and threatening the traditional telecom business completely. Hence the age-old telcos should stay vigil in protecting their existing customer base and staying relevant catering to their changing requirements. The focus should be on retaining the customers by improving the value delivered and improving the ARPU rather than increasing the customer base by playing price-wars.

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