Summary: Becoming a Telco Cloud Service Provider (TCSP) is a new vision for the future of telecoms operators, which promises hugely improved agility, a fundamentally new business model, new services, and new growth. What is this vision, how would it work, and how can it overcome the barriers to change that have thwarted most previous efforts? (Executive Briefing Service, April 2016)
Below is a 1 page extract from this 20 page Telco 2.0 Report that can be downloaded in full in PDF format by subscribers to the Executive Briefing Service here. The full report includes an Executive Summary, along with further detailed content and figures outlined below the extract. To find out more about how to join or access this report please see here or call +44 (0) 207 247 5003.
In our recent report, Problem: Telecoms technology inhibits operator business model change (Part 1), we explained how financial and operational processes that have been adopted in response to investor requirements and regulation have prevented operators from innovating.
Operator management teams make large investments over seven- or eight-year investment cycles and are responsible for deploying and managing the networks from which revenues flow. As we show in Figure 1 below, operators therefore have much more of their costs tied up in capital expenditure than platform players or product innovators. Furthermore, they need large quantities of operating expenditure to maintain and operate their networks. The result is a rather small percentage of revenue – we estimate around 15% – which they devote to activities focused on innovation: marketing, sales, customer care, and product and service development (the green section of the bars). This compares unfavourably to a platform player, such as Google, which we estimate devotes around 35% of revenue to these activities. The difference is even more pronounced with a product innovator, such as Unilever, which minimises capital investment by outsourcing some of its manufacturing and all product distribution and so devotes nearly 70% of revenue to ‘innovation’ activities.
Figure 1: The telecoms cost structure inhibits innovation
Sources: Company accounts; STL Partners estimates and analysis
Seen in this context, how can anyone expect operators to be successful at developing new platforms, channels, or products?
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...Members of the Executive Briefing Service can download the full 20 page report in PDF format here. For non-members, to find out more about how to join or access this report please see here or call +44 (0) 207 247 5003.
Technologies and industry terms referenced include: cloud, NFV, SDN, virtualisation, business model, telco, transformation, digital services, Telco Cloud Services Provider, TCSP, costs, innovation.