Bye Bye, Monopoly

How digital is disrupting the telecommunications industry - Top 4 trends

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In the past, telecommunications companies enjoyed a monopoly-like status within their industry. Data-transmission bandwidth is scarce and in the hands of a selected few. 

But the industry’s borders are beginning to vanish, a process that likely will accelerate in the coming years. New players are entering the market, vying for the center of a newly evolving communications and media ecosystem. Among these intruders are household names like Apple, Samsung, Google, Amazon, and Netflix. These are innovative companies, known for disrupting whole industries, with big war chests, and a highly agile approach to product development.

If telecom companies want to save their place in the center of this new evolving ecosystem, they will have to adapt to a multitude of new trends. Otherwise, they risk becoming simple suppliers of a cheap and replaceable commodity called data-transmission bandwidth.

Trend 1: Artificial Intelligence reduces costs and increases customer satisfaction

The emergence of the Internet of Things (IoT) will lead to billions of new devices that need to be connected by telcos. This will result in massive traffic and an immense number of data points, containing patterns only intelligent algorithms will be able to recognize, utilize, and manage.

Thus, AI becomes increasingly important for providing higher network quality. Traffic classification, anomaly detection, risk prediction, and related network orchestrating will have a tremendous impact on the network quality — and self-optimising networks will influence the performance of all of them. Higher quality networks will lead to more stability, less downtime, and higher network speeds, eventually decreasing operating costs and increasing customer satisfaction.

AI can also be applied to personalizing the customer experience (CX). Throughout their years of operations, telecommunications companies have accumulated massive amounts of customer data that — thanks to AI and machine learning — can now be used to place highly targeted offers at the right time during a customer’s journey.  Sales can be increased by reaching out to customers at a point in time in which they are most willingly to buy a certain product.

Furthermore, customer satisfaction can be kept at a high level by replacing human labor in customer care centers. Intelligent chatbots like TOBi from Vodafone are already being rolled out, answering customer complaints 24 hours a day, 7 days a week. That becomes increasingly important in times in which the majority of customers expect their support queries to be answered within 5 minutes, according to a study conducted by IMImobile. Additionally, according to the “The Chatbot Explainer” report from BI Intelligence, companies can reduce their cost for customer service by up to 30% by replacing human labor with smart virtual assistants.

And while the telecommunications industry is among the leading sectors of early adoption of AI, there is still huge potential for improvement. According to the McKinsey Global Institute, only 20% of surveyed companies (including telecom companies) said they had adopted at least one AI technology at scale in their business. In the end, the gradual implementation of AI into the operations of telecom companies will lead to more efficient operations, lower labor costs, and ultimately higher revenues.

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Trend 2: New opportunities emerge by connecting the Internet of Things

In addition to implementing AI-technology in their business to drive revenues and reduce costs, telecom companies are in a strong position to profit from the emergence of the Internet of Things. Due to their experience delivering high-quality networks at scale that meet regulatory requirements and their expertise in the life-cycle management of millions of devices in their networks, telecom companies do have advantages compared to other players that also want to gain a share of the market.

A first opportunity lies within the development of end-to-end platforms that are tailored to specific industries. These platforms will e.g. enable users to manage the registration, maintenance, and decommissioning of their IoT device fleet. The main problem is, according to a study conducted by Accenture, that no more than 10% of existing platforms eventually will succeed. The remaining 90% will ultimately be shut down, consolidated, and thus become a deep grave of capital and time.

Another opportunity is the provision of data-analytics services. Data that is processed intelligently will help customers in their decision-making process and the optimization of their device fleet.

To thrive in this new IoT-era, telecom companies need to first assess their existing competitive strengths and then develop industry-specific solutions. It will be an imperative to gain knowledge about emerging technologies and protocol standards and to attract top talent to turn the developed strategies into real solutions. Partnering with or acquiring third party companies or building own digital ventures will turn out to be a valuable undertaking.

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Trend 3: Introducing 5G to the world requires a big investment

The advent of the fifth generation of wireless technology (5G) will be crucial to cope with the data flood that comes with the Internet of Things. However, rolling out this new technology at scale will be an economically challenging project. While the average revenue per user (ARPU) for telecom companies is declining in most markets, the rollout of 5G involves huge capital expenditures (CAPEX). According to McKinsey, network costs could nearly double because of this evolution. Telecom companies see their margins vanish and thus need to find new possibilities to monetize their 5G efforts.

One such possibility is Fixed Wireless Access (FWA), which provides high-speed internet access to households in rural areas where fiber lines aren’t economically feasible. While FWA already exists today, it suffers from high latency and low speeds. 5G provides low latency and lightning-fast speed. That makes it a viable solution for this use case and thus presents new potential for future revenues.

Low latency, fast speeds, high reliability and availability, and the bandwidth to carry massive numbers of connections simultaneously presents another use case for 5G: to make the Internet of Things possible! The tremendous growth of connected devices will soon overpower the current technical capabilities of 4G technology. Providing cutting-edge data transmission bandwidth that can handle the numerous new connected devices therefore presents a new source of revenue. The same point can be made for time-critical applications. In autonomous driving and health-care applications, seconds (even fractions of a second!) can create a huge difference in outcomes. While high latency as well as moderate reliability and availability previously presented a huge burden for these types of applications, 5G has the potential to turn them into reality. That, in turn, leads to new revenue streams for telecom companies.

However, it still needs to be shown how much new revenue the aforementioned use cases will translate into. Also, it needs to be shown if, in times of declining ARPU and increasing CAPEX, those new revenue streams will be worth the underlying investment needed to upgrade from 4G to 5G. Thus, the ROI is still uncertain.

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Trend 4: The eSIM threatens telecom companies’ relationship with end consumers

While technologies like AI, IoT, and 5G are having a lasting effect on the industry’s playfield, a small technological development in mobile devices also poses a threat to telecommunication companies. With the arrival of the embedded SIM (eSIM), telecom companies are at risk of losing their relationship with end consumers.

Hardware manufacturers like Apple and Samsung will be responsible for integrating the eSIM into mobile devices. Gone are the days when telecommunications companies had decision-making leverage over the distribution of SIM cards. In the future, the balance of power will shift to the hardware manufacturers, which will translate into fundamental changes in customer ownership. The next logical step for the likes of Apple and Samsung could be the purchase of data-transmission bandwidth, a previously scarce resource that is increasingly becoming commoditized. The subsequent offering of this bandwidth would lead to significant revenue losses for traditional telecom companies.

Summary: What to do

While telecommunications companies held monopoly-like positions in the past, they now have to fight the commoditization of data-transmission bandwidth and the increasing expenditures for infrastructure investments. They will have to deal with a multitude of new emerging technologies, exploring new business cases that eventually will have to translate into new revenue streams.

To thrive in the future, they will have to capitalize on their existing expertise and experience, their large customer base, and strong brand name. Furthermore, telcos will need to offer additional digital services to retain their relationship with end consumers while undergoing necessary “weight loss programs” to become more agile. Otherwise, their place in this evolving ecosystem will be along the periphery rather than in the center, thus becoming simple providers of a cheap and replaceable commodity.

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