Digital Innovation: Is it killing or saving the Telecom World?

Author

Fabio Moioli

December 24, 2014

In the 1990’s Mobile Innovation – with the advent of mobile phones and SMS – made telecom operators (telcos) incredibly profitable. Today Digital Innovation – with the widespread adoption of Internet-based services like Whatsapp, Skype, and similar – is instead killing them. To get the idea, it is estimated that telcos will have lost more than $50 billion in SMS revenues alone by 2016 due to the growing popularity of new Internet-based messaging.
 
In addition, in the next few years telcos will need to sustain huge investment to support the explosive growth in data traffic. Yet, while most of the costs will be sustained by telcos, users and advertisers are more willing to provide their money to the “Whatsapps”, than to traditional telcos. Already today, the total cost structure of a global Whatsapp is 2% of the cost structure of a typical local telecom operator, which poses dramatic profitability challenges for telcos.
 
Considering this scenario, either telcos reinvent their business, or… well, they really need to reinvent their business!
 
Hopefully for them, Digital Innovation may be itself the savior of telcos, substituting or strongly complementing traditional telecom communication services, i.e. voice, messaging, and data. However, to achieve this result, telcos need to completely reinvent their role and their businesses. In this context, Internet of Things, Mobile Money transactions, Over-the-Top services, and new Big Data –based services become the new business battlefields.
 
Internet of Things (IoT) is set to disrupt the industrial structures and known value chains, ranging from automotive, to retail, to utilities and home-automation, and to all other sectors. Already today there are more things connected to the Internet than the number of human beings, and this is only the small beginning of what is arriving. For more details on IoT advancements, including wireless, cheaper robotics, and data, see this Linkedin blog! Yet, to deal with this new ecosystem, telcos need to develop completely new partnerships with technology providers in the e2e IoT value chain.
 
Mobile Money Transactions encompasses mobile payments, mobile banking and mobile commerce. Today, the majority of telcos offer simple money transfer services based on wider availability and lower costs vs traditional banks. However, in the future telcos should contemplate more advanced transactions services, with the global market expected to grow from US$235 billion today to US$721 billion by 2017. Nevertheless, the ecosystem is here the main challenge, opposing telecom-driven, banking-driven, and third-party-driven competing operating models.
 
Over-the-Top services (OTT) refers to a wide variety of communication services, which go beyond traditional voice and messaging services provided by telcos. After several attempts to thwart OTT provision of content and communication services, telcos are finally moving to embrace OTT as a key digital service of the future. To achieve this, they need however to radically change their strategic positioning and to profoundly modify their current business models.
 
New Big Data –based services include methods and technologies for collecting, managing and analyzing vast amounts of structured and unstructured data. This is becoming more and more important for telcos as it enables them to increase revenues through new services, including marketing and sales, product developments, customer retention, and customer servicing. In addition, with global mobile advertising expected to reach $41.9 billion by 2017, telcos can take a significant portion of the advertising revenue pie, by owning delivery networks and serving targeted ads.
 
 
So, in the end, will Digital Innovation either Kill or Save the telecom world? Difficult to predict, and it will likely depend on how every single telco reinvents their role in this new world. Please feel free to share your thoughts about this!
 

 
For more details on Digital Innovation and its impact on Telcos, including drivers and strategic options, please refer to “Digital Services: An Opportunity for Telcos to Reinvent” 

Great ! Thanks for your subscription !

You will soon receive the first Content Loop Newsletter