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Feb 02 2018
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Telecoms Future, The Great Telco Debate

An Economist’s perspective on the future of telecoms

Getting external perspectives always adds to the richness of the Great Telco Debate.  Mark Gregory, Chief Economist at EY in London and I discussed the economic realities of telecoms and the digital economy going forward. Here are the key themes that emerged:

  • Measuring productivity in traditional economic terms has been challenged by the Gig economy and its processes: ubiquitous connectivity is destroying traditional value such as in the taxi, hotel or retail markets but is creating new value as different parties are brought together on the exploding number of platforms for consumer and business use
  • ‘Digital’ was formerly about hidden components such as semi-conductors, servers and 3D printing. It’s now all pervasive and, from an economist’s perspective, it’s about how all industries work, the potential impact of technology and where value is created
  • The potential ubiquity of ultra broadband diminishes the relative value of connectivity since scarcity tends to create value
  • Telecoms is in the group of General Purpose Technologies (GPT) as described by Robert Gordon in his assessment of the impact of IT on productivity. It may be a disproportionately important enabler in a more digital world, but it is nonetheless an enabler
  • Telecoms (broadband) should have a relatively bigger role going forward but that depends on how it evolves and how it allows other industries to evolve
  • Telecoms first of all has to deliver its role into the digital economy as an enabler. Moves into content delivery and other services have been only variously successful
  • Telecoms must think about how it can enable other value chains rather than dominate them by underpinning new processes and allowing new apps to flourish.
  • Politics is becoming extremely important for the future of telecoms. Regulators have to get out of the mindset of capping prices if they are going to allow the telecoms industry to evolve into its new digital economy support role. The telcos have to be able to benefit in terms of value capture if they are going to be incentivised to invest for the future.
  • 5G is what some of the financial community are most worried about in terms of another big chunk of investment being required.
  • Digital skills are important as automation shifts the focus for human roles in the digital economy
  • As we look at Brexit some sectors are clearly going to be impacted:
    • Financial services and Life Sciences because of the regulatory environment.
    • Automotive could be impacted but this is still not clear
    • Telecoms does not appear to be in the high impact category.
    • Data protection will be a major focus given European regulation.
    • The labour force is the one to keep an eye on – digital skills and a more flexible work force capable of coping with the the dynamics of a digital market will be vital.

Here is the full interview:

Keep November 29th 2018 free for the next Great Telco Debate. If you have topics you think are shaping the future of the industry and would like to contribute as an ‘expert witness’ please drop me a line.

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Aug 19 2013
3 Comments
Telecoms Future

Plotting the telecoms future

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.

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