Kathy Gibson is at Satnac in Hermanus – Communication service providers (CSPs) are facing perhaps their biggest ever challenge: they are expected to provide rock-solid networks, but are losing revenue to over-the-top providers.
“They cannot delay in starting a transformation to offering value-add services,” says Vernon Thaver, executive partner: executive programmes service delivery at Gartner.
“They have to prevent themselves from being trapped in the role of utilities players.”
The market forces driving this imperative include competition from cloud-based and over-the-top service providers; there are new demands and expectations from customers; there’s an opportunity to address new markets, but this requires new capabilities; and we are seeing a commoditisation of traditional telecommunications services.
CSPs have to respond with synergy across legacy and adjacent offerings, partnering under volatile conditions and new organisational structures that touch every employee.
A new survey from Gartner shows that almost 70% of CSPs’ total revenue is still tied to legacy access services, with digital media and IT services the main contributors.
Adjacent market revenue, though only 21,7% of total revenue, was responsible for more than half of the total contribution to growth.
“So adjacent markets are the space to understand, and to enter sooner rather than later,” Thaver says.
Not surprisingly, legacy services are in a decline, while adjunct services are growing.
Voice revenues are in decline in most markets, while digital media services have experienced a lot of activity.
Some of the most relevant announcements made recently in this regard include video content reselling and channel partnerships, branded content offerings and branded content offerings outside of pay-TV content.
A truth that cannot be denied, Thaver adds, is that digital media services come with a high price tag.
The largest nine player are able to make major investments and so they are the ones that grow revenue – but it’s not certain where that leaves everyone else.
“We need to create a virtuous cycle in content acquisition,” Thaver says.
Key market success factors include targeted/personalised content, differentiated content, social dimension, contextualised advertising, cross-platform content delivery and data analytics to uncover preferences, trends and how to segment the market.
“This creates a virtuous cycle that leads to stickiness,” he adds.
Internet of Things (IoT) is a massive trend and an adjacent market that is driving growth.
Major telecoms operators find that a growing percentage of revenue is coming from IoT.
However, IoT still contributes less than 10% of the market opportunity. “So CSPs have to move up the chain of value, and this means they have to offer services,” Thaver says.
Sector opportunities are predominantly in automotive/telematics, energy/utilities, transport/logistics, healthcare and smart home/city, and metering.
Thaver says Gartner believes the opportunity for CSPs is in professional IoT services, and they should look to offering consulting, implementation and operations services.
“So the opportunity is not connectivity.”
CSPs are also missing out on the opportunities presented by digital transformation.
As companies pursue digital transformation, they are looking for ecosystem partners. “This is a great opportunity for CSPs,” Thaver says.
“However, the history of CSPs acquiring services businesses and making them successful has been dismal. By and large the challenge has been for CSPs to fuse the services world into the telecoms world.”
CSPs are making some headway in this regard, but the revenues are still small, Thaver adds.
Partnerships are key to how the world’s largest CSPs are entering the market.
Thaver says the secret to making this a success lies in choosing the right implementation model – knowing when to build, buy or partner. Parnerships are currently the favourite model, at about 50%, with acquisitions accounting for just 5% of the services in CSPs’ digital portfolios.
Successful CSPs tend to leverage the platform business model, particularly in cloud computing, big data, M3M/IoT and consumer digital services.
He outlines three possible go-to-market strategies that CSPs should consider:
* Producers of value can go to market directly to the end user. In this scenario, the independent software vendor (ISV) would develop a solution and sell it to the enterprise. The ISV would own the end user relationship.
* The producer of value can go to market via a third-party. An app developer could work with the systems integrator (SI) to take the solution to market. The SI would own the relationship with the customer.
* The producer of value could go to market via the platform. In this instance, the app developer would work with the CSP to take the solution to market. The CSP would own the end user relationship and most of the value chain.
“We think the platform business model will be the dominant one for CSPs in relation to adjacent market opportunities,” Thaver says.
He reiterates that companies pay a massive price for lack of innovation, and urges CSPs to actively address adjacent market opportunities now.
“Otherwise you will hit a stall point, which will lead to a massive revenue drop and attrition in the executive.”