A profitable growth cycle has, historically, been a foundation of the U.S. telecom industry. Investments fueled customer acquisition, which in turn drove strong top-line growth. Consistently robust earnings funded more investments, further enhancing the growth cycle. This process was as necessary as it was lucrative.
In recent decades, that growth cycle has fractured, as capital investment needs have soared due to network outlays and relentless maintenance costs. The battle for customers comes down to a competition among both wireless and wireline providers on coverage, price, and, more recently, upstream services and applications. Therefore, operators looking to remain competitive need to continue modernizing and expanding infrastructure even if top-line growth sags or stalls.
This pressure was revealed in our 2021 AlixPartners Disruption Index, as telco executives showed that they were less impacted through the pandemic than the other industries surveyed but, at the same time, expect disruption in their industry to significantly increase over time.
THE NETWORK OPERATOR’S DILEMMA
Insatiable demand for data and competitive pressure from adjacent industries have created a decoupling of costs and revenues for operators, eroding the effectiveness of legacy business and operating models. Costs continue to escalate to meet exponential traffic growth and a need to deploy NextGen infrastructure. Revenues, meanwhile, plateau in saturated, competitive connectivity markets with all-you-can-eat packages and customers shifting to over-the-top services.
Who are the winners and losers? As global data consumption continues to increase, tech platforms and ecosystems – including Amazon, Netflix, Google, and Apple – are increasingly more effective at monetizing the trend than the traditional operators. Telcos, therefore, see a flattening revenue curve. Even as revenues plateau, the pressure to expand capacity and deploy NextGen infrastructure increase amid growing data needs. In this scenario, costs simply spiral.
To be sure, operators have looked for ways to reinvent and optimize their structures in an effort to stem margin erosion. Cost cutting programs have been installed, and acquisitions pursued to fuel growth. The fundamental operating model, however, has failed to change
KEY TRENDS SHAPING FURTHER TRANSFORMATION
A series of external and internal drivers will shape the next wave of transformation in the industry:
ROADMAP FOR SUCCESS
Accelerating growth beyond competitors requires simplified operations and a partnership focus to better monetize customers. To supercharge growth and effectively monetize the next generation of technology standards, telcos need to make bold decisions regarding their service, operating, and business models (figure 2).
Platform-based, cloud-native operating model
- Business-led app modernization and cloud migration will drive true digital transformations
- Decoupling of internal processes with consumer offerings will industrialize customizations to support the complexity of 5G deployment
Collaboration and partnership-focused service model
- Given high CAPEX requirements, effective monetization of 5G requires collaboration across the value chain
- In the consumer segment, collaboration with network infrastructure providers and between telcos will accelerate 5G deployment and enable expansion into adjacent markets
- In the business segment, partnership focusing on select key industries will accelerate proof of concept development in edge computing
Customer-centric business and monetization mode
- Capturing a larger share of a customer’s wallet requires an integrated, modular approach to product and service bundling
- Improving customer experience requires a radical simplification of offerings, remove low-value, legacy options