July 14, 2014
The other day, I met with the strategy director of a European telco. Let’s call him Art. We shared an informal discussion about the future of telcos. Personally, I am fairly skeptical about the prospects of telcos to recover ground – in particular in Europe.
Consumers are more concerned about the apps they use and the devices that they have than what connectivity they use, as I outline in the report The Future Of Over-The-Top Services. Forrester’s Customer Experience Index, which measures consumer perceptions of telco services, shows telcos near the bottom of all sector readings.
On the business side, data from Forrester’s Business Technographics® Global Networks And Telecommunications Survey, 2014 shows that business users trust systems integrators and independent solution specialists more than telcos with almost all voice and data service, because they feel that telcos don’t understand their specific business requirements as well.
Add an unfavorable regulatory environment — which, under the umbrella of the net neutrality debate, is about to close the door on commercial relationships regarding quality connectivity between content and network providers — and it becomes difficult to be wildly optimistic about the future of telcos. Yet, this is not where our discussion ended. Art pointed to three major issues where telcos will need shock therapy:
- “Telcos must rediscover connectivity as their most valuable asset.” I share his opinion and believe that telcos should actually consider running network operations as a separate entity. The network remains the only true cash cow for telcos and must be not only preserved but pampered as well. Investments in broadband infrastructure are key to underpin this high-value network. Part of the funding could be funneled off from dividend payments — the telco sector has the highest dividend yield in the FTSE Global Equity Index at 4.2%.
- “Customer service improvement efforts must become a top board-level priority.” Again, I agree with Art. The poor showing of telcos in Forrester’s customer experience rankings is shameful, given the profit customers still deliver to their telco providers. Many telcos, in particular the incumbents, remain very cash generative with a cash margin of roughly 20%. Customers deserve better. Amazon-style customer service remains a consumer benchmark. Telcos need to embrace customer experience management from a customer-interface perspective — not from a network management angle as they always do. Vendors like Amdocs are heading in this direction. And customer experience does not end once the customer starts roaming on somebody else’s network when traveling. A network-agnostic customer service approach requires a massive cultural change for telcos, while on the other hand, it offers large rewards in the form of lower churn and higher net present value per client.
- “Telcos need to open up the channels to act as partners of choice for digital solutions.” And yes, once again, I agree with Art. On the consumer side, I see great opportunities for telcos to engage with over-the-top players as well as content and app providers to engage as partners regarding embedded connectivity, i.e., devices or content and software that come with “connectivity included”. This would ring in a necessary revolution of the telco wholesale model. And on the business side, I see the Internet of Things as a once-in-a-generation opportunity for telcos.
Where I am less optimistic than Art is the ability of telcos to execute on the last two ambitions. Over the past 15 years, the vast majority of telcos have stumbled through an ever-faster-changing ICT environment. The mix of arrogance, complacency, incompetence to react to emerging threats from non-telcos, as well as political unwillingness to support a radical new approach to managing telcos has put telcos on the back foot. Telcos, regulators, and politicians must wake up to the risk of the telcos’ survival if telcos continue business as usual. I am concerned that politics will block meaningful efforts by telcos to undergo shock treatment. But not to shock the telcos into action will cost many more jobs than pushing through a radical agenda. In this I fully agree with Art.
I discuss these themes in a report on the future of telcos.