European telcos | Lewis Insight

A client recently asked me to present on the top 5 disruption themes in the industry. A pretty broad brief given that I have covered almost every aspect of the industry over the years of being an analyst. So, I had to find a framework within which to identify the disruptions. The following evolved:

Demand is taking over from supply in shaping the telecoms market so the start point has to be the demand side.

The individual: how do individuals see the telecoms piece of their digital lives?
Households: is the household a market and if so, who is the domestic CIO?
Business: what is driving business’ use of telecoms services?
Society/government: how is telecoms fitting in with the increasingly joined up whole public sector play?
IOT: Cuts across all the segments above, throwing a whole new light on the demand side with its mix of personal, household and business/industry connections. How will this fit and who will provide these business process services?

Supply has to face this massive shift in demand with several constraints:

Firstly the flat if not shrinking market for telecoms services in terms of revenue. This is especially acute in the highly regulated European markets but it is increasingly true around the world.
Secondly, the revenue position belies a massive uplift in volumes and complexity of traffic. The more granular networks have to cope with video but also with complex series of loops including our personal, business and society links that may be private, open to public scrutiny or part of a 3^rd party business process such as in the healthcare sector.
It is not that the role of connectivity is lessened, but that it is being absorbed into much broader business activities. The clear end-to-end nature of the early telephony systems has been replaced by either ‘end’ being variable, virtual, and dynamic and often via cloud-based 3^rd party application. The connectivity provider may get the blame for poor performance of an application despite there being many steps in the process beyond their control.
The disruption on the supply side in terms of investing in the long term suitability of the networks to cope with this new age demand means that NFV , SDN , small cells, WiFi, shorter application development cycles and a generally more agile approach to business all add up to a short term need to increase budgets to get over the investment hump of removing siloed, legacy networks and services in favour of simpler more adaptable fixed and mobile services.

Given the pressures on the connectivity front, telcos are, of course, tempted to shift up the value chain towards the applications that really make different industries tick. And, the IOT also represents new territory to ‘conquer’. Neither, in my opinion, are that easy to achieve. The business applications players are already well versed in the industry-specific apps and that also translates for the major integrators when it comes to IOT in specific industries.

The answer is to adopt a much more open stance towards partnering with other specialist players and accept a supporting role. As ever, the caveat is that every country market is different. Some telcos will continue with prime contracting with a strong business, retail and/or media presence, but all players should seriously consider a multi-channel approach to the customer and let the customer choose.

And, by the way, there is little sympathy for the telco from outside. It is often perceived as having taken high profits over many years and neglecting to invest for the long term of the industry. Outsiders see the telcos as fair game when it comes to exploiting them in the digital marketplace. Customers, of course, see the benefits of their app-based worlds across their different devices as either part of their hierarchy of needs or just their basic human right.

Policy has to ultimately rebalance this demand and supply issue. If telcos are not incented properly to build future-proof networks then the politicians won’t be able to use broadband and digital inclusion as just another thing to throw around during election times.

No-one expected her to go quietly and Neelie Kroes, the out-going European Commission’s vice president for the Digital Agenda, did not disappoint. Speaking to the European Telecommunications Network Operators’ Association (ETNO), last week in Brussels, she let the major European telcos have it – with both barrels … Like John Wayne in a bar-room disagreement, Kroes waded straight in, stating her speech could be entitled “Adapt or die: What I would do if I ran a telecom company.” She went on to hit the assembled delegates hard stating “sometimes I think the telecoms sector is its own worst enemy”.

Warming to her theme, (and practically blowing on her knuckles), she told the telcos that they “have to change”. “What is the telecoms sector’s relationship to that digital future?” she asked. “Will you be leading us there? Or will you be dragged along behind, against your will, resisting until the last?”
In addition, , she urged operators to change their views of Over the Top players in the sector, and stressed that digital content providers are a key motivator behind consumer use of broadband services. How many European consumers would want ever faster broadband if there were no over the top services? She asked. “If there were no Facebook, no YouTube, no Netflix, no Spotify? OTT players are the ones driving digital demand, demand for your services! That is something you can work with, not against.”

Kroes, aware of her standing among the telcos, admitted to her audience that they are probably ““all looking forward to the very near future, when the Juncker Commission takes office, when you won’t have to put up with me anymore.” She also noted that her role will be spread across three different men: Günther Oettinger, Andrus Ansip and Jyrki Katainen – an indication of the expanding importance of the digital agenda for Europe.

“This is a project that will continue under the next mandate; as Jean-Claude Juncker has made clear. It is a project that can ensure our digital future, where a strong telecoms sector supports every European. That is what I long for, and that is what all of you should long for too” she said, with a slight trace of menace in her voice …

I was lucky enough to MC Neelie at a 5G press conference earlier in the year. She may not be liked by the telecoms sector but she does command tremendous respect. Needless to say, these are all themes that will be picked up at The Great Telco Debate, now just over a month away, http://www.telcodebate.com, only this time the telcos will have the right of reply. One of the items on the table may well be whether Neelie has prepared Europe better for the digital future where other regions are still protecting their telecoms players and their old habits.

Lewis Insight

Unravelling Telecoms and the Digital future

Tag Archives: European telcos

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