The other day I stumbled across a report from McKinsey; the report mentioned some figures that made me stare at them. Here is the graph that caught me:
Since 2010, the value of the total telecom ecosystem has increased significantly, but the cash flow of the largest 250 service providers has decreased by 6 percent per year. The main reason for the declining cash flow is declining revenue growth and this trend is, of course, not sustainable.
Are there any signs that the slope of the curve will change and become positive again?
Let me try to answer that question in a couple of sentences. Up until 2010, service providers more or less owned the telecom ecosystem and competition was between service providers in the same market; that is an oligopoly market.
From 2010 and onward, new ecosystems have been created at a faster and faster pace. We had iTunes, Android Market, Alibaba, Tencent, and Amazon Web Services. Each one of these companies has a market capitalization that most of us just dream about. Looking around the corner, we have Internet of Things (IoT) and 5G. What will happen then? Well, let’s put it in this way: IoT and 5G will result in a 10-fold—no a 100-fold or maybe a 1,000-fold—increase of ecosystems, solving customer needs and utilizing telecom networks to transport information.
The good thing here is that there is a huge demand, and the telecom industry clearly has a fantastic value if we provide a solution to everyday situations for the customer. And, a solution is obviously not just a bitpipe. Since 2010, the strategy that most service providers have adopted was “more for less.” But competing with price is, as we all know, the most expensive way to compete and it is not sustainable.
How do we break the curve? How do we come back to sustained cash-flow growth?
The actions taken by the telecom industry have mostly been around cost cutting, both in terms of opex and capex, and that has not resulted in breaking the curve. Too few activities has been centered around revenue growth, such as focused activities in personalization, customer experience, segmentation, targeted offerings that become part of or drive ecosystems. These activities are essential if you want to break the curve; thus, it is time to gear up for growth.
In the era we are living in, my answer to how to break the curve is that service providers must become digital disruptors in their respective market. By "digital disruptor" I mean:
- Using digital information to radically change the way business is done. Examples here are, of course, Netflix, Uber, AirBnB, Tencent, and Alibaba.
- Building up local ecosystems, providing local content that big players such as Google, Apple, Amazon never can compete with, at least not today.
Regarding the first of these two bullets, I am very surprised that very few, if any, service providers today collect and analyze data, create dynamic targeted offerings based on real-time insights, and do that per segment or individual.
This data is simply a gold mine for any company that wants to find new ways to be part of a person's daily life. Create personas, and understand the values, attitudes, and behavior of the different segments you want to attack. The behavior part can be translated from values and attitudes, so you can see potential areas for digital disruption where you shortcut one-to-two links in the value chain and, by doing that, increase reach, increase value, and reduce cost.
For the second bullet, building up a local ecosystem is when service providers take the lead by inviting entrepreneurial companies to create a very local ecosystem that fulfills customers' demands before customers have even realized what they want. Here, the impact will be substantial for the whole society. To summarize this part, think of the following sentence that I heard in a webinar and simply love:
"The future successful company will be a company with 10 million employees—during 10 minutes."
The stage has been set:
- Consumers' behavior has changed quite dramatically.
- Storage capabilities have exploded.
- Processing power to handle big data and analytics is here already.
- People are online 24/7 with access to everything, everywhere.
So it is time to break the curve and monetize these changes. It is time to gear up for growth!