Former AOL chairperson, Steve Case is well-known for coining the statement “The pace of change and the threat of disruption creates tremendous opportunities.” Case is often quoted when commentators attempt to deliver a positive industry outlook when confronted with vast change. However, history has taught us that such opportunities must be seized quickly and used effectively, as the window of opportunity does not stay open for long.
Advances in technology have contributed to the recent accelerated global pace of change impacting all avenues of life, now considered by many to be the fourth industrial revolution: the digital revolution. The telecom industry has not been immune to this change and telco B2C average growth rates fell to just 1.57 percent in 2022[1] (compared to 5.6 percent win the B2B market) with compounded compression likely to have occurred in 2023. Diminishing revenues, a growing consumer demand for digital services, and shifting customer expectations and growing investment requirements have meant that traditional telcos can no longer afford to be merely connectivity providers and the dawn of a new era for telcos has been forced to emerge.
During the recent period in which the telco industry flourished, it missed the chance to capitalize on its position and become more relevant through additional customer commitment and entirely dominate the B2C ecosystem. This failure was not on account of effort – on the contrary, the industry became well-versed in ‘bundle deals’ to attract and retain the consumer. However, spiraling capex costs, European regulations such as free roaming and OTT services combined to strain telecom revenue and a steep decline in the willingness to pay for services caused margins to come under greater pressure, ultimately leading many telcos to realize the solution lies beyond a siloed infrastructure focus but in the digital transition, ensuring connectivity is the bedrock of change and not the primary focus.
Today's consumers demand connected, integrated, and value-added experiences that go beyond mere network connectivity, and become an ever-evolving continuum of consumer expectations, underpinned by a deeper understanding of customer needs and the provision of end-to-end technology solutions that enhance the customer's digital experience. In other words, continuous digital transformation.
There is no single path to becoming a Techco. However, what is clear, is that to compete in this new arena, Telcos will need to consider extending their offering of value-added services across the B2C space to incorporate B2B. In the consumer space, Telcos are extending their offerings beyond connectivity mainly with services for the connected home, including automation, security, or gaming. Their goal is to generate additional revenues but also to increase customer retention by creating wider service relationships.
Different companies are transforming themselves at different paces with different levels of commitment. Some are moving incrementally, building on their existing strengths and capabilities, taking cautionary steps into new markets and models. Others are starting from a blank sheet and building themselves from the ground up, on a hyperscaler stack.
Telco’s embarking on the journey to Techco are likely to fall within 3 categories. The three main value propositions are often grouped as
- Service Techco’s focus on developing and delivering solutions (either horizontal or vertical) to end customers using the resources available from the network. Service Techco’s are known for their agility in adopting emerging technologies, engaging both B2C and B2B customers in co-creation and leading the charge in delivering cutting-edge technology services.
- Network Techco’s focus on implementing and delivering cloud-based networks and API commercialization platforms that enable developers to embed NaaS into their digital solutions. Network Techco’s prioritize scalability, efficiency and process automation to stay at the forefront of technological innovation, enhance service delivery, and maintain a competitive edge in the rapidly evolving digital landscape.
- Dominant Techco’s combine both service techco and network techco capabilities to set industry trends and innovate around cutting-edge solutions that help them solidify their market-leading position.
The idea for those on the path from telco to techco is to move to a place where they can not only provide individuals and businesses with connectivity, storage, and processing power, but also curated technology solutions and applications, all wrapped with a privacy and cyber security line of defense.
Good leaders are rapidly moving into new business models and revenue streams, creating platforms centered around key focus areas. They are exploring new technologies – like generative AI – to see how these can help them improve customer experiences, convert prospects, and identify new cross-selling opportunities with intuitive digital experiences across various channels and platforms, utilizing technologies like customer experience management systems, chatbots, and AI-enabled virtual assistants for real-time order fulfillment and service monitoring.
The role of AI in this transformation journey is crucial: it will enable telcos to accelerate their journey to the cloud, while supporting them to overcome legacy architectures and operational models swiftly. AI has the potential to be a workforce superpower, enabling a more autonomous, sustainable, and efficient network while ensuring a more tailored, innovative, and enriched customer experience.
Successful companies that have made the transition from Telco to Techco are likely to operate using fragmented cloud architectures, designing, and deploying digital services to maximize efficiency, flexibility, and scalability. Decoupling software and hardware allow for generic hardware usage, virtualization of resources, and simplified access via APIs. In turn this should enable Techco’s to develop a diverse portfolio of innovative digital services, while constantly innovating and launching new products and enhancing existing ones.
Time is of the essence. Telcos on a Techco journey should fully grasp the need to build open models and ecosystems (and quickly) to shift market dynamics and make telco players once again the focal point, or run the risk of not only missing out on a golden opportunity but becoming obsolete.
But this is much more than just changing course. A key driver of success has been the unwavering emphasis on customer engagement, reflecting a dedication to customer satisfaction that has, in turn, driven significant revenue growth. This success is not merely a testament to technological prowess but also underscores the company's customer-centric approach and commitment to continuous innovation.
KPMG International is proud to sponsor MWC Barcelona 2024 and be the exclusive sponsor of the 5G & Beyond event theme.
Every day, telco companies see increasing complexity, conflicting choices, and infinite information. This is a world of opportunity. From enabling large enterprises to accelerate digital transformation to helping disruptive start-ups to take off, KPMG professionals know insights reveal new opportunities.
That’s why KPMG International is a supporter of MWC Barcelona 2024, where the latest KPMG insights will be shared and you can learn from innovative leaders from some of the world’s most successful telco and tech companies, future unicorns that may one day change the industry, and other leaders from across many sectors that influence how we work and live.
¹Source: TM Forum “Telco revenue growth: time for operators to place new bets?”