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Communications

Pathways to profitability for CSPs

September 26, 2022 5-MINUTE READ

RESEARCH REPORT

In brief

  • In the middle of an exponentially increasing digital and connected world, communications service providers (CSPs) are a central force.
  • However, the pressures on telcos have never been greater: Capex & Opex are on the rise even as traditional revenue streams only grow modestly.
  • But a window of opportunity exists, where -with tech and innovation- CSPs can transform their business and the experience of the customers they serve.
  • We have charted five transformative pathways to profitability for industry leaders, elevating their role in tomorrow's digital ecosystem.

Over the past two years, the way we connect and are entertained, the way we work and conduct business, and even the way our social, economic and government institutions are run has changed. Entire industries are re-thinking how they operate, responding to everything from demands for greater operational efficiency to higher environmental standards.

Operating in a saturated market facing declining returns and increased connectivity demands, CSPs continue to face commoditization pressures, even while they face rising operating costs preparing for the next era of connectivity and connected services. Telcos find themselves facing three major industry-wide trends: evolving customer expectations, new business model demands, and rapidly revolutionizing technology. Their response must be swift, as the agile, asset-light digital natives continue to gain ground in the market.

Pursuing profitable growth in the next era of connectivity

In the expanding digital ecosystem, CSPs are not only positioned at the nexus of core control points, but they also boast strong trust with customers, owning these critical relationships. As they explore building differentiated solutions, they are often partnering with the digital natives who compete for market share. This new approach across the ecosystem will drive growth beyond connectivity, spurring development and charting the way for five pathways to profitability.

Telcos at an inflection point: the next 1-3 years

CSPs have historically enjoyed a central role in the technology revolutions, providing a critical foundation to advances in our connected world. In recent decades, however, they face a new set of challenges that requires their leaders to become change activists: taking on a new approach to their products, services, and internal operations. Leaders must combine optimization with discovery to realize their potential and move to unbind their organization from the status-quo. Business-as-usual will no longer suffice.

The world's insatiable appetite for data is translating into large scale investments by CSPs without the return.

+137%

Projected growth in data traffic by 2026 (24% YoY 2022-6), rising to 1.8 million petabytes. [source: Analysys Mason Datahub based on a sample of 27 countries]

-37%

Decline in median ARPU between 2012 and 2021 [source: Analysys Mason Datahub based on a sample of 27 countries]

$1.4T

Cost of capital expenditure to build and upgrade networks between 2022 and 2026. [source Analysys Mason]. Contrasted to -15.4% decline in ROIC over the past 5 years. [source CapIQ]

From cloud to AI, technology’s progress is incubating new possibilities. New network technologies play a vital role in accelerating innovation. Innovation is where CSPs intensive 5G investments will be validated.

In a crowded field with new competition, aggressive end-to-end enterprise reinvention and bold structural transformation – often fueled by a new approach to partnerships – can accelerate progress within compressed timelines.

  • CSPs continue to face commoditization pressures, even while they prepare for the next era of connectivity and connected products and services.  
  • Asset-light digital natives are gaining ground.
  • CSPs are facing a growing talent challenge to upskill or capture the workforce for their new capabilities.
  • CSPs are exploring building differentiated solutions with ecosystem partners.
  • New go-to-market ecosystems will drive growth beyond connectivity, propelled by partnership, with a shift from vertical integration to open ecosystems.
  • Market forces have fueled restructuring, mergers and acquisitions, even the separation of networks from services.

While connectivity has never been more important, markets and business models have shifted, and so have the expectations of customers – for sustainability, accessibility, versatility – whether they are personal, SMB or enterprise users.

  • Individual consumers are demanding a “connected life” from home, to work, to play.
  • SMBs want partners they can trust to help them grow their businesses, not just products & services.
  • Large enterprises are searching for ways to respond to their customers better, faster, cheaper while innovating for new connected industry offerings.

Technology’s progress is incubating a wealth of possibilities, and the aggressive adoption of the new and emerging applications (from 5G and cloud to web3 and the metaverse) must drive innovation, agility and talent.

  • 5G has been a capital-intensive investment, now globally pervasive.
  • AI, WAN, and Edge are a new set of technologies that businesses & consumers are expecting meet their increased demands for experiences, products, & services.
  • Monetizing these new technologies will be required to offset the capital intensity of 5G and other innovation investments.
  • Cloud, AI, advanced networks are changing the internal operations of a CSP to provide more flexible & agile services for their customers while reducing the cost to operate & increasing innovation.

Amidst change, charting pathways to profitability

We have identified five scenarios that can guide CSPs through the transformation and business reinvention processes towards profitability that starts at the core. These pathways to profitability capitalize on the strong foundations of the telco business, guiding CSPs on their journey to improve the returns on their investments, deliver products & services that delight customers, and elevate their role in tomorrow’s digital ecosystem.

The window of opportunity to elevate the communications industry's role in tomorrow’s digital economy is now. 

The future of networks

Establish the foundation for a new era of connectivity, leveraging AI + analytics for speed & value.

Connected consumer

Use data & consumer trust to become the ecosystem control point for the “connected life”.

SMB Growth

Become a true advisor and business partner invested in SMB success through new services & targeted offerings.

Large enterprise orchestration

Build horizontal & vertical E2E solutions that demonstrate the power of 5G, connectivity, edge, and security.

Industry restructuring

Create innovative business structures to focus on core & differentiating capabilities, and to streamline investments.

View Transcript

Making the move from learners to leaders

CSPs are unlocking their value potential with a deliberate focus on four key fundamentals. The journey is different for each telco, but the foundations of these actions are the same.

1. Network foundation

Build advanced networks and deploy with speed

2. Improve operations

Reduce costs to improve margins and fund innovation

3. Business innovation

Create new offers and transform go-to-market to find growth

4. Revenue capitalization

Execute necessary structural changes to unlock value and capital

Meet the team

Andrew Walker

Senior Managing Director – Communications & Media, Global
LinkedIn

April Wirtz

Managing Director – Strategy & Consulting, Communications & Media – North America
LinkedIn

Astha Bhardwaj

Managing Director – Strategy & Consulting, Communications & Media, Asiam
LinkedIn

Jeffrey Berry

Managing Director – Accenture Strategy, Mergers & Acquisitions and Private Equity
LinkedIn

Sean Delaney

Managing Director – Strategy and Consulting, Communications and Media

Brian Smyth

Managing Director – Communications & Media, Innovation
LinkedIn

Ankit Dhamani

Senior Manager – Corporate Strategy and Mergers & Acquisitions, Communications and Media
LinkedIn

Mark Flynn

Senior Manager – Accenture Research
LinkedIn

Get the essentials

Explore the five transformative pathways to profitability for communications industry leaders, elevating their role in tomorrow's digital ecosystem.

15 minute read

Pathways to profitability for CSPs

Explore our vision for the communications industry in-depth, with a focus on telcos’ growth opportunities and investments for the future.

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In brief

5 minute read

Understand the communications industry’s major trends and the opportunities we see for communications service providers.

Pathways to profitability for the communications industry from Accenture

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