Mobile operator revenues from voice and data services are in decline. Juniper Research estimates the drop to be around $50 billion or 6% over the next four years. This is a result of smartphone-based communication moving to services created by third party companies, mobile connectivity becoming more widespread and the decline in service prices due to increased competition.
Looking at the annual reports of telecommunications companies, the vast majority are going through a shift. Telcos are allocating more focus from the current core business to the Internet of Things, security solutions and are becoming a media convergence point. In addition to owning the channels used to deliver content, telcos also want to be the content creators and owners.
At the same time, the headcount of many telcos is either flat or in decline. Examples can be seen across the world: in India, the United States, Italy, Poland and the United Kingdom. This puts more pressure on teams to achieve better results with a smaller number of people. How can the smaller teams perform better, stay ahead of the competition and launch more digital services?
Telcos have three options when attempting to gain a foothold in new segments: either build out the products on their own, acquire established companies in the segment or partner with them. The most notable example of doing things on their own have been telco-operated app stores which popped up across the world a few years ago. The majority of these have faded out as providing competition to Google was tougher than expected.
Some telcos are entering new segments on their own, such as streaming services of Airtel in India and Claro in Brazil. While 50 million users for Airtel is an impressive achievement, the moment of truth will arrive when free access to the service stops. Only time will tell if people are going to convert into paying customers of the service or leave for competing apps. Market data for India shows that more than 10% conversion is unlikely to be expected. From the other side of the world, Verizon just threw in the towel with live streaming.
It’s difficult for telcos to launch new digital products on their own as it requires the same skill-set and knowledge about the segment which competing companies already have. It also usually means avoidance of working together with those companies who are now competitors as the focus is on trying to make their own service successful. This slows growth down.
Getting new services off the ground at the pace which telcos are used to move with is too slow for the quickly changing trends in the digital ecosystem. The low uptake of telco app stores illustrates this. Today around 100 telcos work with Google on carrier billing for their app store. This number would likely be bigger with more telcos benefitting from the service if they had not created a lag in the market by entering a battle that resulted in a loss for the most of them.
Know-how, technology and processes of new segments can also be gained through acquiring or investing into another company, such as Zain recently did with iflix. While such companies are often integrated into the existing team, this is a dangerous temptation due to the different mindset and focus of telcos and digital service providers. If the goal is to accelerate product launches, the acquired company can perform better when kept free from the overall telco machinery.
This also means the company remains responsible for its own performance, stays hungry and agile: something which can dissipate when becoming part of a bigger team where responsibility is scattered. Microsoft recently gave a good example of enabling independence by keeping teams separate and not interfering with the decision making after acquiring LinkedIn and GitHub.
The third approach is to partner up with companies already on the market. By becoming an enabler for others to succeed, telcos can achieve success themselves. In the digital ecosystem the key strength of telcos is not the capability and resources to create new services: there are thousands of OTTs already doing that. The biggest asset of telcos are their subscriber base and established relationships with consumers. While stand-alone OTTs have to battle for user acquisition, telcos have already acquired the users.
In a situation like this, does it not make sense to leave digital product development to others for whom it’s bread and butter, and instead focus on enabling easy access to these products for their subscriber base?
Using the partnership approach means the ability to mitigate risk. Let’s take music streaming as an example. If a telco decides to launch their own music service or acquire a company to achieve the same result, the project can fail. If that happens, the telco is left with nothing.
On the other hand, for a telco like Digi who has teamed up with more than 10 music streaming services, having one partner drop out does not change things in the big picture. Having many partnerships in place also creates healthy competition among the service providers, which means telcos are able to get better deals out of their deals.
This also gives subscribers more freedom. Digital services are priced differently and the content available varies. Choice is critical: how much value would you see for an app store that has only one app available in each category?
The downside of a large partner network is the overhead that it creates. For each new partner, there is prospection, negotiation, agreement, integrations, onboarding, billing, reconciliation, end-to-end UX, analytics, promotions, reporting, settlements and daily operational support.
Managing the process end to end in-house and seeking out solution providers through RFP-s becomes unfeasible. The speed at which the digital ecosystem moves simply does not accommodate the old approach. Even governments are looking to change how they bring on board new partners. What can telcos change to make faster growth possible?
Understand what service providers need: Telcos operating with a unified commercial logic and technical capabilities for all digital segments encounter many “square peg in a round hole” situations because the need of each segment and service provider is unique. Launches can be accelerated by trying to understand things from the service provider’s perspective. Why do they need certain technical features? What is their business logic, and does it match with the payout offered? How good is their understanding of the solution you have available? What is their goal with the partnership: user acquisition, revenue growth or customer loyalty? Having answers to these questions helps understand whether they are playing hardball in discussions or whether what you offered is really not feasible for them.
Create an environment that enables growth: Reducing manual work, automating and simplifying processes should be at the forefront for every person dealing with partnership launches. It’s helpful to review what activities create value for both parties in the relationship and which ones create waste. Eliminating steps in the launch process for which the following answers are negative reduces waste:
Is this task required by law or regulation?
Does this task reduce the financial risk of the owner?
Does this task support financial reporting requirements?
Would the process break down if this task were removed?
Resolve myths related to working with telcos: Telcos rarely make information about their B2B2C solutions publicly available, which means service providers with no previous telco experience have misconceptions about the solutions. In extreme cases, we hear from service providers who think carrier billing is not suitable to them due to payouts of 30-40% or unintuitive Premium SMS technology. Most telcos have moved far beyond this but the myths stick around, which means telcos should actively educate service providers on what the market standards are. It wouldn’t hurt to help to add the information to your homepage or at the very least, provide a dedicated contact point for service providers interested in teaming up.
Understand that there is fierce competition: Ten years ago, there was very little competition for telcos when it came to user acquisition, communication and payments on mobile devices. Today, service providers have hundreds of advertising channels and payment methods to choose from. This means “aggressively waiting” for business to walk through the door is unlikely to happen and telcos should proactively work on seeking out and building new partnerships.
Find opportunities for cross-selling: It’s often easier to grow established relationships than build new ones. Reviewing the existing partnerships and cross-selling solutions that the service provider is not yet using are an effective path to growth. If service providers already work with you on payments, try to find out what their plans are for user authentication, on-boarding, communication, bundling and reselling. And in reverse, if you already have a bundling partnership in place, perhaps there are other solutions the service provider could take advantage of?
In summary, the nature of telco business and their relations with consumers mean they are extremely well positioned to capture value from the digital ecosystem. In order to successfully monetize this opportunity, the existing (and at times legacy) processes need to be reviewed in order to create a scalable framework for launching more digital partnerships at a faster pace.