Summary: The last few years have seen attempts by many leading telecoms operators to refresh their business model and generate new sources of growth and value. Now many digital initiatives are being scaled back. Telefonica and Telenor, two companies in the vanguard of the ‘drive to digital’ have both disbanded their digital organisations. In the first of two reports, STL Partners explores why efforts to yoke platform and product innovation businesses to a traditional infrastructure business have proved so difficult. The financial and operational constraints associated with traditional telecoms – particularly the need for long investment cycles in ‘one-function’ infrastructure – have made achieving the switch to ‘agile digital innovation’ all but impossible. But all that may be about to change and the future could be a little brighter. (Executive Briefing Service, January 2016)
Below is an extract from this 10 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Executive Briefing Service here. To find out more about how to join or access this report please see here or call +44 (0) 207 247 5003.
‘I just can’t seem to get anything done, it is like running through treacle.’
‘We gave up trying to partner with operators – they are too slow.'
‘Why are telcos unable to make the most basic improvements in their service offerings?’
‘They are called operators for a reason: they operate networks. But they can’t innovate and don’t know the first thing about marketing or customer service.’
Anyone within the telecoms industry will have heard these or similar expressions of dissatisfaction from colleagues, partners and customers. It seems that despite providing the connectivity and communications services that have truly changed the world in the last 20 years, operators are unloved. Everyone, and I think we are all guilty of this, feels that operators could do so much better. There is a feeling that these huge organisations are almost wilfully seeking to be slow and inflexible – as if there is malice in the way they do business.
But the telecoms industry employs millions of people globally. It pays quite well and so attracts talent. Many, for example, have already enjoyed success in other industries. But nobody has yet, it seems, been able to make a telco, let alone the industry, fast, agile, and innovative.
In this report, we argue that nobody is at fault for the perceived woes of telecoms operators. Indeed, the difficulty the industry is facing in changing its business model is a result of financial and operational processes that have been adopted and refined over years in response to investor requirements and regulation. In turn, investors and regulators have created such requirements as a result of technological constraints that have applied, even with ongoing improvements, to fixed and mobile telecommunications for decades. In essence, operators are constrained by the very structures that were put in place to ensure their success.
If the limitations of telecoms operators is structural then it is easy to assume that change and development is impossible. Certainly sceptics have plenty of empirical evidence for this view. But as we outline in this report and will cover in more detail in a follow up to be published in early February 2016 (Answer: How 5G + Cloud + NFV can create the ‘agile telco’), changes in technology should have a profound impact on telecoms operators ability to become more flexible and innovative and so thrive in the fast-paced digital world.
Improving customer experience has become something of a mantra within telecoms in the last few years. Many operators use Net Promoter Scores (NPS) as a way of measuring their performance, and the concept of ‘putting the customer first’ has gained in popularity as the industry has matured and new customers have become harder to find. Yet customer satisfaction remains low.
The American Customer Satisfaction Index (ACSI) publishes annual figures for customer satisfaction based on extensive consumer surveys. Telecommunications companies consistently come out towards the bottom of the range (scoring 65-70 out of 100). By contrasts internet and content players such as Amazon, Google, Apple and Netflix have much more satisfied customers and score 80+ - see Figure 1.
Source: American Customer Satisfaction index (http://www.theacsi.org/the-american-customer-satisfaction-index); STL Partners analysis
The story in the UK is similar. The UK Customer Satisfaction Index, using a similar methodology to its US counterpart, places the Telecommunications and Media industry as the second-worst performer across 13 industry sectors scoring 71.7 in 2015 compared to a UK average of 76.2 and the best-performing sector, Non-food Retail, on 81.6.
Most concerning for the telecoms industry is the work that ACSI has undertaken showing that customer satisfaction is linked to the financial performance of the overall economy and the performance of individual sectors and companies. The organisation states:
Source: American Customer Satisfaction index (http://www.theacsi.org/about-acsi/key-acsi-findings)
In other words, consistently poor performance by all major players in the telecoms industry in the US and UK suggests aspirations of growth may be wildly optimistic. Put simply, why would customers buy more services from companies they don’t like? This bodes ill for the financial performance of telecoms operators going forward.
Senior management within telecoms knows this. They want to improve customer satisfaction by offering new and better services and customer care. But change has proved incredibly difficult and other more agile players always seem to beat operators to the punch. The next section shows why.
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Technologies and industry terms referenced include: 4G, 5G, Amazon, Apple, AT&T, Business Model, Cost model, Deutsche Telekom, Digital, Google, Infrastructure, Innovation, Netflix, Network Functions Virtualisation (NFV), Orange, Organisation change, Platform, Software-defined Networking (SDN), Sprint, T-Mobile, Telco 2.0, Telefonica, Telenor, transformation, Unilever, Verizon, Vodafone