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.
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.
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]
Decline in median ARPU between 2012 and 2021 [source: Analysys Mason Datahub based on a sample of 27 countries]
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.
Use data & consumer trust to become the ecosystem control point for the “connected life”.
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.
Create innovative business structures to focus on core & differentiating capabilities, and to streamline investments.