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While posing a real challenge for the telco industry, COVID-19 can also speed up innovations. Steven Bailey (Chief Strategy Officer, AOE GmbH) und Uwe Ritter (Board of Directors, People at Work Systems AG) elaborate on trends and give providers five recommendations for action.
What was innovative yesterday is already obsolete by tomorrow. This is more true now than ever in the era of the pandemic which, in many cases, intensifies and accelerates this process. The speed of development is and will always remain high in the telecommunications industry. And here it is clear: COVID-19 is challenging for the industry, but it can also speed up innovations and advance suppliers’ competitive capabilities, especially in the E-Commerce environment.
Particularly since the start of the pandemic, it is clear in most industries that constant change has become the “new normal.” For the telecoms industry, the most important question is how will communication service providers (CSPs) develop? Especially since many services – such as pure connectivity – are increasingly regarded as the norm, other players are advancing in sectors where value creation is the most intense, and cut-throat competition is increasing.
Against the backdrop of the ever-present goal of increasing revenues and market share, many CSPs have recognized that it’s time to become a true “real-time company.” Digital commerce and time to market are two of the critical success factors here; while eroding customer contact and digital disruptors are among the greatest challenges. One thing quickly becomes clear: In the first step, telecommunications companies need a future-oriented technological foundation to use their data profitably, increase earnings, and be able to generate added value.
The exceptionally competitive fight for customers is not a new phenomenon. Understanding the needs and desires of customer groups and individual users while maintaining customer contact is, therefore, more than simply part of the current agenda for telecommunications providers. Currently, we are experiencing a rapid change in customer behavior, which requires new organizational and technological strategies. Customer journeys are increasingly fragmented, new touchpoints arise, online and mobile dominate; previously, direct contact was a matter of course, now not much of this remains. CSPs have to be in a position to adapt their digital business constantly to continuously remain competitive. This means rethinking and redesigning commercial offerings, employing new techniques, and integrating innovative services into portfolios. And internalizing the motto: “Experience is the new product!”
A good example of the eroding connection to the customer is the paradigm change triggered by eSIMs and the challenges that accompany them. These “embedded” SIM cards are permanently installed in devices and can be activated on the software side with various CSPs’ profiles and network information. Device manufacturers and other providers thus have the opportunity to bundle hardware and communication services. Traditional CSPs are no longer involved, since they automatically lose direct customer contact and become “white label” suppliers. Wherever possible, they will now seek mergers with global alliances to monetize communication services themselves once again. Additional sources of revenue could also open up in this segment, such as machines or household appliances with integrated wireless connectivity. A good example is Telefonica’s M2M technology which e.g., was picked by Nestlé to build IoT for coffee machines.
In every case, what’s important is to think of the customer in a future-oriented perspective and position oneself accordingly. Customer centricity – not just on paper.
What, specifically, do customers want and need – in a particular situation or range of interests, at a particular time? The more relevant and individual the information about new products, services, and offerings is, the greater the chances to acquire customers and gain their loyalty on the long term; also, to do so against the backdrop of comparison and opinion portals and publicly visible evaluations by customers. The prerequisite is targeted marketing, which is oriented with the appropriate granularity to customers’ requirements. Through appropriate customer channels, storage, and enrichment of customer data in compliance with data privacy regulations in a state-of-the-art Customer Relationship Management (CRM) system, information can be provided quickly and used for personalized marketing campaigns.
Here, the handling of technical innovations such as artificial intelligence (AI) and machine learning (ML) becomes an economic success factor for telecommunications companies. Predictive analytics is already being deployed – a technique that helps analyze internal and external data, detect patterns, and anticipate future events. Important keywords: Regression analysis, multi-variable statistics, pattern comparison, predictive modeling, and forecasting. There is also enormous potential for AI and ML in other areas of application. Thus, within the future of the telecoms sector, scenarios can be supported involving automatic detection of network problems or the identification of accounting fraud, for example.
Intelligent and self-learning systems do not just give telcos tools for understanding their customers better and talking to them in a more goal-oriented fashion in real time; they pave the way for an end-to-end digitalization of entire process chains. Therefore: it’s time to use AI and machine learning not only for incremental improvements, but to enable new customer experiences.
CSPs and digital content – that’s nothing new. Thus, for example, Viacom has transformed from a CSP into a media group since 1994, with the takeover of the majority of Paramount Pictures and later with various acquisitions such as CBS and Dreamworks Studios. For more traditional CSPs, digital content is now becoming an increasingly important instrument for ensuring customer loyalty. The pandemic has contributed to this, in that consumers have been staying home and spending a lot of time in front of screens. Steaming is trending, while old-fashioned TV is not making any gains, or is even declining. In the meantime, partnerships with Netflix, Amazon Prime, or Disney are no longer a differentiating characteristic; instead, they are now a commodity product that customers simply expect. CSPs thus have to play a more active role in the market for existing and future digital services in order to gain or maintain market shares. Lurking behind this are different technical possibilities, ranging from the use of an external service under a company’s own logo to joint systems.
Another interesting bundling example is currently under development: Some CSPs are considering offering energy services in the future – and vice-versa. The rates are calculated in similar fashion and based on comparable structures, which would mean that the IT work required could be reasonably repurposed.
Right now, 5G is still largely regarded and treated as fast 4G, but telecommunications providers in business and corporate markets will therefore increasingly be in a position to expand existing business models or develop new ones, for example in healthcare, in education, or with regard to autonomous driving. Low latency times of less than 1 ms and high and predictable network bandwidths up to 10 Gbit/s make this possible. In the private sector, 5G is also opening doors for new formats, for example cloud gaming via Google Stadia, GeForce Now, Vortex, and Magenta Gaming. The former low-bandwidth networks can in the future be used for data transfers with low network profile, in the IoT sector (Internet of Things) for example.
The cloud market is also growing by leaps and bounds. This is also being driven by the pandemic and by more people working from home offices, which means that secure storage is more important now than ever. The market share of the US giants Amazon, Microsoft, and Google is estimated at 60%, and it seems that these providers have divided up the “cloud pie” among themselves. There is nevertheless still noteworthy potential for CSPs. This is the case for telecommunications offerings that are associated with cloud services, such as customer-oriented offer bundles (telecommunications, data services, and IT systems integration) and added-value services such as application hosting, enhanced security, and edge computing. Here, the focus is also on individual services or partnerships with established providers – or combinations of both.
New players in the market are also increasing competitive pressure for telecommunications providers. Whereas these digital-native organizations have mastered all technologies, traditional telco providers frequently have difficulties with new approaches such as microservices architecture, event-controlled architecture, or programmable infrastructure. An example: Thus far, most telecommunications operators have not succeeded in generating much demand for their IoT offerings beyond connectivity, despite great interest. Instead, it is the non-orthodox market participants that have broken into the market. In addition to favorable price positioning, this can frequently be traced back to simple transaction models (direct online purchasing). Many providers in this segment do not even have their own networks; they only sell products or services. A good example is IFTTT (If This Then That), where both companies and end users can create intelligent connectivity between apps, devices, and services via so-called applets. This could be relatively trivial like e.g., to light a green lamp when your favorite soccer club scores a goal, and much more complex event flows. The IFTTT marketplace already comprises of tens of thousands of applets. As a result, the only things that can help telcos to enter the market quickly are to build their own top-quality solutions or acquire a successful disruptor, or both. The prerequisite for either solution is an open and flexible business model and to understand the fine line between competition and collaboration.
In order to be able to deliver what modern, informed customers want, the telecommunications companies first have to dare to embark upon a true digital transformation strategy. The actual implementation of such a strategy could then happen by breaking down the overall strategy into smaller steps and by repetitively digitally transforming digestible chunks. The value created by these successful smaller transformations with the fuel the overall change endeavor.
Many of the technology platforms that traditional telecommunications companies are using today, however, are really showing their age. Thus, it’s no wonder that IT costs are much too high due to the complexity and redundancies of the legacy systems. Monolithic architectures frequently form the inflexible backbone (back-end/legacy system) via which most transactions are handled (for example, payment traffic, order management, availability check, etc.). In an environment that has to rely on agile development and microservices, these rigid architectures impede digitalization. In these scenarios that have developed over time, the business models often have to orient themselves according to the IT possibilities, and not the other way around. This is bad news for competitive capability, as success factors such as flexibility and time-to-market can hardly be enabled by the rigid technologies and processes.
There are a lot of opportunities to integrate legacy applications into state-of-the-art architectures. The most common solution is connection via APIs and connectors, to selectively open capabilities driven by business outcomes. In this context, the so-called “decoupling” of the customer-oriented front end from the back-end layer becomes a central focus.
This is how providers can create personalized customer experiences, gain freedom to experiment, increase their agility, and scale more efficiently. Additional touchpoints with customers can thus be incorporated flexibly into the front end via APIs. The goal is to realize significant cost reductions and optimize the essential KPIs: productivity, efficiency, quality, and time-to-market.
2020 has shown us how quickly things can change and exactly how fast the digital transformation is accelerating. Sooner rather than later, telecommunications companies have to transform themselves into digital service providers and E-Commerce players in order to stand up to and battle the “digital dragons.” This is a term that Gartner’s analysts have coined for companies that already have a functioning highly scalable online business model; examples include Amazon Web Services and Alibaba.
Transparency instead of complexity, modularity and reusability with standards and open interfaces including implementing composable architecture paradigm – this is how the digital transformation itself can be enabled at high speed. It’s high time for telco providers to act. This call for action is manifold and without question data driven companies are best suited to successfully cope with todays and future transformational challenges.
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