The diversification dilemma; making money and meeting expectations, can it be done?

Diversification is an accepted truth in the telco industry nowadays, but are the telcos resourceful and adaptable enough to chase after new revenues while also achieving their connectivity responsibilities?

This was one of the questions facing the panel during the opening session of The Great Telco Debate 2018; should the telcos confine themselves to connectivity or should the aim be to chase new revenues? Of course, the answer to this question is relatively simple, diversifying to build alternative revenues streams is an absolute must, but how this is done and whether the telcos have the capabilities to do so is a bit more of a murky area.

First of all, lets address the overarching question, which has to a degree become redundant nowadays. With customers expecting more in terms of speed and capacity, but not necessarily willing to pay for the upgrades, diversification is a necessity. The equation is not balanced anymore and the connectivity business model is failing. Analyst Chris Lewis pointed out that while the telco industry is worth in excess of $1.6 trillion, it isn’t actually growing.

Those who confine themselves to connectivity revenues will only find their own expenses going north, while ARPU remains relatively stable, or increasing ever so slightly. In the developed markets, subscription growth has more or less hit a glass ceiling, therefore telcos are spending billions on swapping customers between themselves. This is an industry which is heading towards bankruptcy unless new ideas are sought, and, more importantly, put into practise.

However, there is a problem with diversification; the telcos are not doing the basics properly. When you look at broadband and mobile coverage, or average download speeds, the telcos fundamental mission has not been completed. Coupled with a disastrous relationship with the customer, NPS for telcos is lower than with airlines, you have to question whether the telcos have the right foundations to do anything aside from their basic purpose.

The foundations of this journey to profitability and growth are certainly shaky, but the issue is there is no time to fix them, ultimately the telcos are under threat. For all the billions which have been spent on 4G, you could argue the rewards for the telcos have been minimal. 5G will be more expensive, so you have to question whether the telcos could survive another G which went down this avenue.

Diversification was the resounding message to come out of this morning’s debate, but what is critical is doing it in the right way. Veon, Google, Softbank and many participants from the audience pointed towards joint ventures and partnerships, with stories such as BT’s venture into TV as a lesson of the disaster which can occur when you go it alone. But where do you start? Carrier billing is an obvious choice.

As Google’s Mike Blanche pointed out, more of the world is becoming digital meaning more transactions will have to happen in the virtual world. Unfortunately the virtual world is full of horror stories concerning theft and fraud, while consumers are constantly warned about safe-guarding credit card details online. The telcos established billing relationship with the customer is a simple exercise to add value, drive additional revenue and lean on already existing processes.

Having Google present at this event was an interesting twist as well, as it puts a face onto the big, bad OTTs. For years, these companies have been portrayed as the enemy, but the telco of tomorrow should really be leaning on the success of these guys. Why, for instance, would you want to compete with the billions being spent by Netflix on content and marketing, when you can just partner with it? In most cases, the OTTs are virtual companies with limited presence in the physical world, the telcos high-street retail presence and field-engineering workforce can aid the OTTs. The idea of wholesaling business processes and assets takes the telcos into a new world.

This is one of the important takeaways from this morning’s session, diversification is critical but, as the former CEO of Veon Jean Yves Charlier put it, you have to diversify as close to the network as possible. Exploring the exciting new opportunities might sound like a wonderful idea, but you have to question whether the telcos are competent enough to move too far away from the network. Without sounding rude, we suspect there aren’t many.

So this is the diversification dilemma. Telcos need to diversify, but they aren’t good enough at the core business to justify the new journey. Unfortunately, there isn’t an alternative.