Survival of the fittest: The challenges telcos need to address by 2020

People, places, objects and organisations are now all connected in unprecedented ways, thanks to technology. Experts predict that there will be 8.4 billion connected ‘things’ globally this year and that’s set to rise to 20.4 billion by 2020. That level of connectivity will place a huge amount of strain on telecommunications companies powering everything from mobile devices to smart cities.

To stay relevant in this brave new world, telcos have to adapt and get comfortable with change. Those that are able to strike a balance between consumer demand and innovation will not only survive but broaden their user base and open up new revenue streams. However, those that are stagnant will lose out to the competition, largely driven by innovative and hungry start-ups who thrive on that pace of change.

The good news is, this presents a huge opportunity for telcos around the world. The bad news is, it won’t be easy. The new wave of digital innovation will usher in a new set of challenges that every telecoms company need to consider when developing their business strategy. Understanding the implications of these threats and addressing them early will be the difference between success and failure.

The rise of OTT services

The exponential rise in mobile messaging apps has become a key threat to telco revenue. In the next two years, a quarter of the world’s population will be using mobile messaging apps. The meteoric rise of the likes of WhatsApp and Facebook Messenger has transformed the way people communicate and moved that valuable traffic away from telco-driven text messaging to Wi-Fi or 3G/LTE enabled messaging apps.

Over the past six years, the Average Revenue Per User (ARPU) of telcos has decreased by 12%. That’s a huge amount of revenue in a very short space of time. Although text messaging is the service that’s been most heavily impacted by OTT service providers, to date, as these applications increasingly offer voice and video call services, declines in ARPU become even greater. 

Finding a balance between investing in network upgrades to support the likes of 5G and reversing the trend of declining revenues on a more permanent basis, is going to be difficult. There’s no question telcos need to capitalise on both, but when it comes to raising ARPU it cannot just be new “me-too” OTT services, new value added services need to happen at the network level. Why? Because the market is oversaturated to the point that consumers are not interested in yet another messaging app.

The most common barrier to progress and service diversification is time and resources. So it’s important for operators to look beyond traditional methods to more flexible platforms and cloud infrastructure as a way to deploy quickly and scale rapidly as usage fluctuates. That means minimal strain on the network, with the flexibility to maintain and gain market share.

Gearing up for the IoT

The integration of the Internet of Things (IoT) into our everyday lives is edging ever closer each year. The connectivity demand will put pressure on operator networks to deliver and maintain a consistent service under the weight of IoT. One way to address this is by moving to a converged platform as it’s a scalable solution to a long-term issue. Working closely with technology companies and integrating telco services is also key as it could result in a hugely compressed telco infrastructure.

The prospect of widespread IoT opens up a compelling opportunity for telcos. According to a study by Juniper Research, mobile operators have the potential to make an additional $85 billion in revenue by moving beyond connectivity and selling both analysed and raw customer data. In an IoT world, rich data will be one of the biggest commodities, one that telcos will have in abundance if they’re able to package it correctly. For example, pay-per usage, metered usage and results-based fees. All will be lucrative services for customers but also provide valuable insights for strategic partners, driving additional and much-needed revenue for operators.

Disappearing voice revenue

The way people communicate is changing: where voice and text used to dominate the communications industry, now internet messaging and VoIP do. Until about 8 years ago, voice revenue was the largest source of income for a telecoms business. Now it’s dropping and doing so rapidly, which is also impacting on the overall decline in ARPU.

Diversifying the product offering is vital, but understanding what customers want from these services is even more important. A recent report into employee behaviour at small and medium enterprises found that personal mobiles are the dominant phone used at work (38.3%) over a landline. In addition, instant messaging is in high use, but 42.5% stated that call recording is a service they would also choose to have on their phone if available. More importantly, 64.2% claimed they would like to have all of their business communication (mobile, internal messaging, conference call facilities) provided to them on one platform.

With that in mind, delivering a holistic service that pivots away from an operator’s traditional model is difficult without incurring additional costs, especially at a time when revenue is at risk. One solution is looking to Communications Platform as a Service (CPaaS). It’s a cloud based platform that enables real-time communications, such as voice calls and instant messaging, to be integrated into an operator’s existing applications and services without the need to build back-end infrastructure or interfaces. Services such as advanced communications capture and voice intelligence solutions for communications can be offered to business customers via a fully managed platform.

That means high availability and accessibility of business communications as a solution with no CapEx, affordable pay-as-you-go pricing models, high security, and multi-tenancy. An ideal solution to drive innovation and revenue, without compromising on quality. 

Preparing for a 5G world

5G is expected to become commercially available by 2020. It’s set to revolutionise connectivity, powering everything from driverless cars to drones and improving not just the speed of the spectrum, but the capacity and latency as well. Ultimately, 5G will provide an experience for users with less delay and unlimited connections.

Telecos and technology companies alike are hedging their bets on 5G given the strains existing network infrastucturs face with increasing data demands. Similar to the other challenges outlined above, there’s a huge amount of expectation on networks to provide a robust and reliable 5G infrastructure. Technology companies like Apple, who are investing in 5G to support their smartphones, or Google, who acquired a small 5G cellular network to get one step ahead, will look to telcos initially but will build a network themselves if they have to, to deliver the services they want. That’s not a risk any operator should be willing to take at this stage. Building the necessary foundation now will cement their place in future.

The digital world is set to change dramatically in as little as three years. Time is running out for telecom’s companies to consider the challenges, adapt and evolve their services to remain competitive in the face of increasing completion from non-traditional sources.