Transformation and disruption in 2017

King-Yew Foong/Gartner
16 Jan 2017

Telecoms operators face market disruption from competition, new technologies, and new business models. In 2017, technology business unit leaders will need to re-evaluate their business and look to investing in new services and capabilities.

To address market disruption of their traditional business but still continue to grow, operators must innovate and refine their own processes, as well as offer differentiated services.

Diversification into adjacent markets

Gartner has identified three areas where operators can expand their offerings through 2019: IT services including cybersecurity, media and content (pay TV, video-on-demand), and the Internet of Things.

Up to 70% of initiatives to enter adjacent markets will rely on partnerships as new market opportunities are complex and fragmented, and require a broad range of capabilities. The IoT market is an example where operators will need to support multinational deployments and offer end-to-end solutions. Where operators lack the necessary experience and expertise in-house, partnerships will help bridge the gaps, and also accelerate the go-to-market process.

Investment into innovation

Gartner’s discussions with major operators worldwide showed that innovation budgets currently range from 1% to 2% of total revenue. Up to 85% of the innovation budgets of diversified operators are channeled into internal innovation activities, including long-term core business projects - for example, advancements in network technologies.

As operators diversify into adjacent and non-adjacent markets, external ideas and inputs will be required to develop new digital services. An outside-in approach to sourcing innovation will help compensate for skills and capability gaps.

Gartner expects operator innovation budgets to rise to around 3% to 4% of revenue through 2020. A higher share of spending will also be diverted to external innovation activities - namely collaboration and investment. Collaboration includes startup acceleration and ecosystem activities, open collaboration with universities, developers and tech firms, as well as co-creation initiatives with customers, while investment comprises equity participation in other companies including VC or startup funding. This is already the case with diversified APAC operators such as Singtel, SK Telecom and Telstra.

Workforce transformation

Intense competition, cost pressures and disruption from internet- and cloud-centric service providers continue to challenge operators. At the same time, service providers like Uber, Apple, Facebook and Google are creating platform-based business models which threaten to render operators as pure network enablers and providers. By 2020, such market dynamics will compel op to reduce their traditional telecom workforce by 15-20% on average. The current workforce is not well equipped to support new initiatives, including entry into adjacent markets, innovation methodologies or analytics-guided processes.

These reductions will be supported by process automation, data analytics and new technologies like customer self-service portals. The reduction in traditional telecom workforce will give an opportunity for operators to acquire new talents, including skills in software, data analytics and innovation management.

Competition, new technologies and other players are disrupting the traditional telco business. Company leaders and strategy planners must look at digital initiatives and deep transformation of aspects of the business, including leadership, culture, skills, processes and infrastructure to retain their competitiveness and growth.

King-Yew Foong is a research vice president and chief of research for communications service providers in Gartner’s Technology and Service Provider Research group

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This article was first appeared on Telecom Asia Dec2016/Jan 2017

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