Telecoms.com periodically invites expert third-party contributors to submit analysis on a key topic affecting the telco industry. In this piece Oliver Neuberger, Associate Partner at Glue Reply, explores the strategic and tactical options, especially regarding their IT assets, available to telcos as their business environment becomes ever more challenging.

The telecoms market has experienced a rate of unprecedented change over the past five years, driven by evolving consumer behaviour and an increasingly converged world. The new digital world has changed the way in which consumers use their devices, making calls and sending texts using their data allowance via “over the top” applications. Increasingly, users are much more savvy about using wifi to access these services, rather than via the mobile network operators.  As a result, payment models have changed dramatically, leading to reduced margins for mobile operators. Unless traditional telcos look to reap back these revenues from additional streams, the environment will become even more challenging.

Customer Churn

As the services offered by telcos become increasingly commoditised, customers have shown themselves increasingly willing to churn. Strong competition rules from Ofcom, combined with a price comparison atmosphere, make retaining and attracting customers more difficult.  There is little brand loyalty for mobile operators, with consumers more focused on the handset manufacturers. Telcos can differentiate themselves in the capabilities they provide, bringing must-have services to market before any of their competitors.

Digital Transformation

For traditional telcos, being agile enough to deploy new capabilities quickly that meet rapidly changing customer demand is easier said than done. Recently, we have seen how digital has transformed the market for both traditional telcos and emerging players. The way in which businesses and consumers access and use fixed-line and mobile communications have changed beyond recognition in the past 20 years, presenting new opportunities to identify and revenues to generate.

Revenue streams go through a life cycle of appearance to exploitation to decline, requiring telcos to adapt their IT fast enough to exploit new opportunities. Without a responsive and adaptable IT infrastructure, telcos will continually make loss-making investments in new capabilities that hit the market too late. Frequently we have seen key industry players catch the market as it reaches the decline phase. Meanwhile, a more agile competitor has got there first, benefitting from the growth and maturity stages. We have seen telcos develop their own mobile app stores, social networks and video streaming services just as the market has been captured by a third party.  This is an enormous waste of time and money at a time when margins are under significant and increasing pressure. Telcos have a good grasp of the market, with impressive R&D functions, but their technology is not allowing them to exploit these opportunities fast enough.

New Kids on the Block

Increasingly, new threats come in the form of nimble start up organisations, without the legacy of an aging IT estate to maintain.  In some cases, they are able to use cloud-based software as a service offerings for commodity functions, allowing them to focus on developing really innovative offerings. Meanwhile, the traditional mobile operator has a much more clunky, complex IT environment.

We frequently see telcos manage change to their IT estates on a project-by-project basis.  The enterprise architecture function is often a collection of individuals who are assigned to various projects and programmes, to architect the change, and once that change is completed, they return to the pool.  The result is an architecture that evolves organically without the necessary strategic planning, with decisions made based on lowest cost for that specific project rather than in the interests of the overall business strategy.

Telcos need to change their approach in order to survive. They need a dedicated strategic enterprise architecture function that uses a capability-led planning approach to map the whole technology estate onto defined business proficiencies and objectives. This vital tool allows decisions to be made across portfolios of projects based on what will best deliver the business strategy. This approach aids communication between the IT and business functions, crucial to the success of delivery.

In most cases, we advocate following a four step process:

This planning activity means that capability can be deployed in a sequence that best suits the businesses objectives, resulting in a quicker return on investment and a more harmonious relationship between the business and IT.

Achieving Digital Maturity

Telcos are operating in an increasingly complex market, with reduced margins but more opportunities to exploit. They have customers with little loyalty and a band of emerging players snapping at their heels. Mobile operators are embracing digital with open arms, but are not taking in the bigger IT picture, mapping how a new service can be integrated successfully into the existing infrastructure.

The capability-led planning approach allows telcos to significantly improve the rate at which they can deliver new must-have services to generate a competitive advantage in an increasingly challenging marketplace.  This is the only way to stave off increasing competition from new entrants, who enjoy more freedom and flexibility to deploy.

The aim for any telco provider is to become digitally mature, leveraging the infrastructure and data that has been building for years to make new and emerging digital services. I strongly believe that the foundation that telcos have are invaluable to creating a solid and long term proposition, but it’s the new players in the market, with their agile approach, that are the greatest threat to the digital opportunity for telcos.

Oliver Neuberger is an Associate Partner at Glue Reply. He is an accomplished technology strategist and consultant with over 12 years’ industry experience predominantly in the telecoms industry. Amongst many other projects in the UK, USA and Europe, he has led major digital transformations with a number of tier one operators. Glue Reply is the Reply Group Company specialising in IT architecture, integration and data solutions across many industry sectors. Oliver heads up the Telecoms division within Glue Reply.