Lewis Insight

We are entering a major annual planning cycle for many players in the ICT industry. The challenge for the telecoms sector is that there are so many moving parts, some positive, some negative and all interacting with each other. And with the increasing digitisation of everything, factors from outside the telecoms market will seriously impact the future shape of telecoms. Indeed, one thought for the backburner is whether we will even think of telecoms services as a market in the future – but that’s for another day!

The basic equation for the telecoms market looks something like:

• Demand from individuals, households and businesses and now ,‘Things’ (M2M) continues to grow as communications expands its horizons both in numerical and volume terms.
• Total Revenues from traditional and new connectivity services are either in decline or about to go into decline – it is still a very big number overall, something like $1.4 trillion worldwide. The mix of legacy and new revenues varies by country but few doubt the gap left once the legacy services have washed through the system
• New revenue streams such as TV/media, IT services, security, cloud, M2m all have attractive connectivity dependent components but they are also being addressed by other parts of the ICT industry and generally have lower margins than the connectivity services
• Applications and content leveraging the telecoms networks are increasingly disconnected from the telecoms world and increasingly linked to the apps and links on our multiple screens through which we consume and execute
• Maintaining a network infrastructure that can handle the explosion in traffic across all access methods and across the core, including in and out of data centres, needs major investment along with a rationalisation of the internal ICT infrastructure for most operators if margins are to be maintained, let alone grown

We need to recalibrate the expectations of the industry and its investors. Perhaps considering how many connections per household, individual, business and ‘thing’ require  and a fixed rate of revenue for each. This would define the worst case scenario, but still potentially very profitable. Add to this a percentage of the adjacent markets from ICT and Media and two-sided business models from pretty much every industry sector, and we have the potential future addressable market. However, remember that this new digital world means that the adjacent market incumbents can equally enter the telecoms space!.

There is fundamentally a lot of ‘spend’ at stake from all on the demand side. As everything digitises the demand side is increasingly likely to dictate through which channel the service (including connectivity) is consumed. So, a multi-channel strategy is needed along with major network and ICT rationalisation to bring the telco of the future into the new digital era.

Don’t get me wrong, Telecoms does have an underpinning role in the future scenario.  It may not necessarily be as the deliverer of the final service function or feature but there is a fundamental role at the heart of the new digital era for a trusted, reliable provider of the digital glue.