Some operators have identified the opportunities that will drive future growth, from content and services to data engineering and venture capitalism, but others risk being left exposed in the new world
5G will be the end of the line for many telecoms operators.
You wouldn’t think so, given the hype around the next generation of mobile technology from the operator community, but the fact is that 5G will change the landscape of the industry so much that telcos will be caught with their pants down, if they don’t act soon to evolve their businesses.
5G represents "a new hope," for telcos who gave away their competitive advantage in the HSPA world and failed to capitalise on the promise of 4G, opening the way for competing providers, Veon’s forward-thinking group CTO Yogesh Malik said during a panel session at Total Telecom Congress this week.
But Malik cautioned that operators must make sure they get the most out of 5G, rather than merely focusing on data bundle pricing, a position many telcos find themselves in at present.
The nature of 5G means network-sharing is now front of mind for many operators, which shifts the focus of differentiation to services from infrastructure.
5G will bring significant network densification, although opinion on how many small cells any one area will require still varies wildly. One operator predicts the London area will need half a million, while others estimate somewhere around 40,000-50,000, explained Bryn Jones, CTO at 3UK, sitting on the same panel.
"We need to work together," Jones said, because it is not possible for all the mobile networks in operation today to densify.
Indeed, 5G could lead us much closer to a world in which one wholesale player operates the network and the retail telcos rent capacity on it. That frees up telcos to focus on services, but for many, such a world would leave them hugely exposed, since the advantage in services is for the most part with the over-the-top (OTT) players.
All telcos talk a good game. The vast majority insist they are transforming into digital service providers and putting themselves at the centre of customers’ digital lives.
To digress only slightly, use of the word ‘digital’ is "lazy…[since] networks have been digital for 30-40 years," and ‘OTT’ is an "ignorant" choice of terminology, given that the so-called OTT players have rolled out "more proper technology than most telcos," said Dean Bubley, founder of Disruptive Analysis. That’s a story for another day, but telcos would do well to take heed of Bubley’s insistence on the importance of choosing one’s words carefully, because to my mind, many of today’s operators talk a good game, but haven’t the substance to back up their claims.
It’s much like the fact that you would be hard pressed to find a telco that doesn’t claim to put its customers at the centre of everything it does. Yet for many, this means little more than the appointment of a handful of new customer service staff or investment in a customer-centric ad campaign. They are just telling us what we want to hear.
I’m disinclined to get into a customer service rant at this juncture, but the point is that many telcos do not have the types of services that are so compelling as to attract paying customers, once you decouple them from the network. They are still selling data bundles so that customers can stream music from Spotify, engage in group messaging on WhatsApp, and while away the afternoon watching box sets on Netflix.
They are hiding behind the network and once you take that away, there’s not a lot left.
There are, of course, notable exceptions.
Turkcell is right up there. The Turkish operator’s chief executive Kaan Terzioglu made quite an impression at Total Telecom Congress when he shared his company’s approach to capturing the service opportunity. Amongst other things, the telco has launched messaging platform BiP, a direct competitor to WhatsApp that has signed up 16 million users, and a music platform that is three times bigger than Spotify in Turkey. Most interestingly, it considers these offerings its core services, and bundles voice and data in with them, rather than the other way round.
There are clearly some local market characteristics at play there that would not necessarily apply elsewhere, but it’s certainly food for thought.
"The most important thing is 5G now," said Turkcell’s director of digital media services Baris Zavaroglu. 5G is a highway and the "vehicles are your tools to sell more data and make more profit," he said. That seems a straightforward enough statement, but it encapsulates an innovative approach: Turkcell is pushing content-based services to encourage data usage, when most operators sell customers a data bundle for a lower price than they would like, then complain when the customers use that data to access competing OTT (sorry, Dean!) services.
For some operators, it is the customer data generated by the network that will be key to future growth.
Veon’s Malik notes that telcos have neglected technology, and relied instead on innovation from elsewhere. CTOs in general "have done OK, but not good," he admitted.
Telcos now need to identify their key areas of focus, he advised, "To own everything is impossible," he said. "Data engineering is one of the technologies we want to own at Veon."
Telcos might have taken their eyes off the ball in recent years, but some are now looking to foster innovation as a way to future-proof their own businesses.
Zain Jordan is one of a number to have launched a scheme to back start-up companies with a view to getting in on the ground floor with the next big thing. In 2014 Zain launched ZINC, or the Zain Innovation Campus, which enables it to work with start-ups in a way that traditional telcos cannot.
"Survival is only for those who are the most adaptive," declared Zain Jordan chief executive Ahmad Hanandeh.
Japan’s Softbank has a similar vision. While market-watchers obsess over whether it will agree to merge its U.S. mobile operation Sprint with T-Mobile US (you can find all the latest on that story on Total Telecom) the telco is building up a sizeable venture capital fund to invest in tech firms worldwide. It launched the Softbank Vision Fund a year ago with a view to raising US$100 billion and has to date reached $93 billion.
The VC route is not for everyone. Another tack telcos can take is to move into adjacent industries, using the strength of their brand and customer base to tap new revenue streams.
Orange Bank opened for business this week. Orange has extensive experience in mobile financial services in Africa that it hopes to lean on in Europe. It will face an uphill challenge – "being a bank is actually tough," said Arnaud Burger, managing director, global co-head of TMT finance at Societe Generale – but it brings with it an opportunity. "It could possibly be differentiating," said Laurence Hainault, managing director, head of EMEA telecoms at Credit Suisse.
Content is perhaps a more natural fit for telcos though, but that can be an expensive business.
U.K. incumbent BT has made a big play for sports rights for its TV service in recent years and has established itself as a credible player in that market, but at a price. BT published its fiscal Q2 numbers on Thursday which showed a 4% decline in earnings in no small part due to its investment in sports rights.
BT’s Italian peer TIM is in the process of being transformed into a media company by major shareholder Vivendi, and has agreed to form a joint venture with sister company Canal+ with the goal of creating compelling content that will stimulate demand for fibre. The Italian government is not best pleased with Vivendi’s influence at TIM – to simplify a rather complex story – and has exercised its golden power to protect national interests, something TIM agreed to comply with on Thursday. For now, TIM gets to keep its network, but Rome has imposed a number of controls on it.
But for every BT and TIM, there are numerous other operators blowing hot air about their "digital services" that amount to little more than me-too TV offerings or bundling something like Spotify in with a monthly data subscription.
These operators will be caught swimming naked when the tide goes out, to borrow an expression from someone who knows a thing or two about spotting opportunities and turning them into dollars.
Friday Review 3 November 2017