As consumer demands become more pronounced and as digital services proliferate, today’s standard telco business model no longer works. But what products and services do telcos need to offer in order to stay competitive? Here’s why the standard core business model for telcos no longer suffices and how it should evolve.
In the beginning, the primary – often the sole – purpose of telcos was to facilitate landline phone calls. Of course, many telcos also had little to no competition, often operating as monopolies – think the era of “Ma Bell” in the U.S. or the early history of British Telecom.
In this era, telcos could see success through hardware and network infrastructure, being the only or one of a few providers of phone service within a given service delivery area. Even when cable television and wired internet services came on the scene, the core business didn’t change all that much; by serving as the technical backbone to these telecommunications services, telcos could expect to see success.
And of course, many telcos have successful business offerings, with packages designed to meet corporate connectivity needs. This is rarely a high margin business nor is it as profitable as consumer-facing offerings usually, but it is another way that telcos have slowly expanded in the past few decades.
But then mobile entered onto the scene. Especially in a post-iPhone world, mobile and apps replaced landline phones, cable TV and internet connectivity. As Marc Andreesen famously quipped more than a decade ago, “software is eating the world.”
To see this dynamic in action, consultants at McKinsey analyzed the profit and market cap of the top 25 global telcos and the eight most profitable internet companies in 2014 and then in 2019. While the telcos were in a stronger position in 2014, by 2019 the situation was reversed. For example, in this time frame, the share of profit among the leading telcos declined by 34 percentage points.
Over the past 15 years, as smartphones have become the main device both for communication and for media consumption, telcos have become commoditized. And even just providing this basic connectivity is becoming more difficult, with telcos needing to make major capital investments to keep up with rising demand for mobile connectivity (most recently for 5G connectivity but then around LTE and 4G before that).
And to top it all off, the growing Internet of Things (think smart fridges, connected cars, etc.) is putting further pressure on cell networks. With billions more internet-enabled devices expected to come online soon, telcos have to further scramble to ensure their networks can keep up with growing demand.
Essentially, telcos are being asked to make significant investments in their cellular networks, service and infrastructure while consumers are pickier about telco services and have more options to choose from regarding communications and media consumption. There is downward pressure on them around pricing, connectivity and customer service, and yet it couldn’t be coming at a worse time.
To deal with rising consumer demand while still remaining profitable enough to make needed infrastructure updates, meet rising consumer expectations, etc., most telcos have aimed to expand their offerings. The problem has been, however, that many of these other business ventures/cross functional teams have not yielded demonstrably positive results.
One route has been to acquire media outlets and channels. The thought process being is that by controlling both how people consume content and what they are consuming, the telco can expect to see profits. France-based multinational telecom Orange has embraced this strategy, investing in media properties like Dailymotion.
Other telcos elect to take their media investments further by pairing them with advertising technology, which can then enable to more effectively monetize their own media in house. Both AT&T and Verizon in the U.S. have taken this route.
While these paths look appealing on paper, the results in real life have been less than stellar. Many telcos have struggled to make their media and/or ad tech investments profitable. As the old saying goes, “jack of all trades, master of none.” The risk is that by investing in so many disparate offerings, telcos can venture too far away from their core strengths.
One area where some telcos have seen success is by offering unique financial services such as online payments apps. For example, Saudi Telecom has seen success with its mobile wallet app stc pay. But this option A) only works in markets that don’t have a dominant mobile finance app and B) this option alone is unlikely to buoy a telco’s fortunes on its own.
So if previous attempts at expanding the business are not yielding results, what can telcos do? Instead of expanding, telcos should double down on what today’s consumers really want: a positive, mobile-first customer experience.
For inspiration, think about Apple. They spent much of the 1990s and early 2000s playing second fiddle to Microsoft and other OEMs (original equipment manufacturers), only to emerge as the dominant player in mobile in much of the world.
And really, Apple has become one of the world’s most valuable companies by focusing and honing in on the mobile user experience. Apple has become synonymous with ease of use, delighting customers with a mobile user experience that is intuitive and simple. While Apple has expanded beyond its mobile underpinnings in recent years, especially with the recent release of Apple TV+, mobile still remains very central to the company's DNA.
This same methodology and approach can work for telcos too. After all, most people pay for and access their mobile devices through their carrier of choice. By ensuring that consumers are delighted by their mobile experience as soon as they unbox their new smartphone, telcos can put themselves on a path to renewed profitability.
We at InMobi have developed a way to bring the power of programmatic advertising to telcos without the expense of M&A. Leveraging our end-to-end platform — the world’s leading mobile exchange, SSP and DSP — as an engine for growth, we are making it easy for telcos to activate their audiences and grow their businesses.
Our compelling Swish consumer content experiences, proven monetization technologies, and always-on access to advertiser demand help telcos engage with their subscribers and tap additional revenue streams without having to create either.
And like all good things, it didn’t happen overnight. With tens of thousands of advertising brands and mobile apps on our exchange, InMobi has been serving the telco industry for years. More directly, since 2018, our unique and rapidly growing on-device media solution was born of our strategic alliance with several mobile handset manufacturers (OEMs) and leading global telcos to monetize their inventory assets across the board.
What do you see as the future of telcos? How do you think telcos will evolve? Let us know on social media! You can reach out to us on LinkedIn, Twitter, Facebook or Instagram.
Interested in learning more about InMobi and how we work with telcos and OEMs? Reach out today to speak with one of InMobi’s experts.
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