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Q&A – Ask an expert: Challenges facing today’s telcos

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Chris Lewis

Information and communication technologies (ICTs) are woven into the fabric of our daily lives. They underpin services across industries as diverse as banking, transportation, media, and health care, just to name a few. Telecommunications industry analyst Chris Lewis of Lewis Insight recently answered some questions on the top challenges for telcos and how they are changing to meet the new demands.

What do you see as the top challenges facing telcos today?

The temptation for telcos is to venture into multiple adjacent markets, but they all come with their own ecosystem of suppliers and retail channels. So, technology isn’t the main issue, although this is changing dramatically with virtualisation, cloud computing and ever more powerful end devices. The main challenge is to find the right position in the ecosystems that serves the different markets and to make it easy for partners as well as customers to get access to the services they require to support their digital lifestyles.

Telecommunications was formerly a self-contained industry with its own technology, rules of operation and innovation cycles. The end-to-end control of the telephony market drove a very specific culture and approach to dealing with its customers. As the technology has evolved to extend from connecting homes and buildings to individuals and “things”, it is increasingly exposed to technological, economic and commercial pressures from the outside, which leaves telcos having to react to different cultures and business practices.

What are some examples of telcos leveraging their brand recognition and relationship with customers to create new revenue streams?

There are some good examples of where telcos have built upon their presence, brand and reach to move into adjacent markets. Orange is using its brand to build its financial services portfolio around its mobile footprint with its Ecobank bank acquisition. This was inspired by their presence in North Africa and the facility to transfer money back home for ex-pats working in France.

BT ventured into Premium Pay TV when it acquired the rights to Premier League soccer and rugby. The initial motivation was to increase connections to its fibre Infinity broadband, but its sports output has been ground-breaking and so well received by the public that BT is now exploring more shared approaches with other media players such as Sky. AT&T has gone even further and acquired media assets, including Time Warner.

What are some examples of partnering across industries that could emerge as models?

Since connectivity can find itself embedded into almost every consumer, business and public service, the telco will have to work with a wide variety of players. Autonomous vehicles, media, financial services, manufacturing and healthcare are all showing early signs of working more closely with telcos in different parts of the world. But, in fact, the role of smartphone players and digital hyperscale players means that telcos have struggled in these so-called “adjacent” markets.

Technological shifts in the telecoms world have traditionally been dictated by the telcos and their culture. Virtualisation and cloud are IT-centric developments that clash with the network engineering culture of the telco.

Furthermore, it is interesting to see how the former network equipment providers such as Ericsson, Huawei, Nokia and Samsung have built out their global capabilities and now even support some of the telcos in, for example, their internet of things (IoT) global delivery. This raises the question of whether telcos may be better positioned as wholesale providers into the digital ecosystem rather than trying to control the different customer groups with enhanced offerings.

Why haven’t software-defined networking and network function virtualisation (SDN/NFV) taken off as fast as expected?

Technological shifts in the telecoms world have traditionally been dictated by the telcos and their culture. Virtualisation and cloud are IT-centric developments that clash with the network engineering culture of the telco. Capital and operational expenditures are major costs to the telcos and, in fact, additional investment has been called for to get them over the “double bubble” of legacy maintenance and new virtualised approaches. Getting more in tune with the changing landscape of households as well as business customers in different verticals will be essential as will structural changes within the telcos.

The cloud players are making a clear contribution to telcos and their development environments. The relatively slow development overall, however, is probably best attributed to the cumbersome processes, stifled innovation and short-term focus on stock markets rather than long-term focus on building the best broadband infrastructure for a country.

There are undoubtedly advantages to having a more agile IT environment in terms of the quick launching of new services and more flexibility to wrap services around the emerging business models. Getting more in tune with the changing landscape of households as well as business customers in different verticals will be essential as will structural changes within the telcos and a fresh look at the sort of sales people and customer experience channels used.

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