Two industry studies have identified problems for telcos. A KPMG survey suggests that they are struggling to adapt to new technologies, while an Ampere Analysis report suggest that mobile providers will lose out unless they embrace a move to content.
The KPMG survey of 580 senior executives within telecommunications companies in 16 countries suggests that 58 percent of telcos that have adopted new technologies report a positive impact on their business models and operations, but that only 11 percent feel strongly that their organisation has a clear strategy for innovation.
Almost four-fifths (79 per cent) worried they don’t have the capabilities to take advantage of opportunities in key areas such as over-the-top (OTT), cloud computing, the Internet of Things (IoT) and data analytics.
The pace of the market is making it difficult for telco providers to keep up. Telcos are investing in a broad range of investments, with the most common being cloud (65 percent), mobile (64 percent), marketing platforms (59 percent) and D&A (58 percent), according to the findings. However, of those that reported a negative impact from disruption, more than half (54 percent) believe their company only invests in proven technologies, leaving them ‘behind the curve’
Alex Holt, Head of Technology, Media & Telecommunications (TMT) KPMG in the UK, said: ‘Disruption is the new normal for telcos. Businesses across the sector are accustomed to running large networks and customer service operations with significant staff numbers, and many are burdened with traditional ways of thinking and need to undergo a substantial cultural shift to embrace new disruptive technologies.’
‘To compete effectively, the telco of the future needs to be staffed with digital architects, data scientists and developers to remain agile and the industry has considerable work to do to reach that position.’
Meanwhile a market study by Ampere Analysis concludes that mobile operators have no choice but to invest in content in order to retain value in their contracts. The study over 80 countries worldwide shows that mobile product lines have lost substantially more value per customer than their fixed counterparts.
The average annual mobile contract spend has declined in value by over $130 in the last decade, dropping from an average spend per customer (after tax) of $23 per month in 2006 to just $12 per month in 2016. By contrast, the value of fixed broadband subscriptions declined from $25 per month to $21 per month over the same period – equivalent to just $48 per year, almost three times lower than the decline seen in the mobile space.
Richard Broughton, Research Director at Ampere Analysis says: ‘This trend can be seen within every region worldwide, and is the result of a whole host of factors, spanning the rise of fibre broadband, heavy MNO and MVNO competition, and the rise of OTT messaging.’
Mobile operators should be seeking to replicate fixed telco strategies of bundling content with their services, in order to shore up and protect a rapidly commoditising business line. Fixed telcos have achieved substantial success with their TV products - often using them as loss-leaders to support and protect their wider broadband businesses.
The mobile market is still growing rapidly, accounting for 70% of all communications revenue in 2016, but revenue per contract is in decline. In the last ten years, the value of an average mobile contract (ARPU) has declined from $23 per month to $12.
But fixed broadband continues to retain its value. A fixed broadband subscription was worth 70% more than a mobile customer in 2016. The average fixed broadband contract has declined in value by just 15% over the last decade. Mobile contracts however have fallen by a half over the same period.
The Ampere report points to Deutsche Telekom emerging as a winner amongst the top international communications groups, by focusing on higher value Western markets. Its average monthly value per fixed and mobile communications product has dropped just 15% over the last ten years according to Ampere’s estimates.
By contrast, telcos such as Vodafone, Orange, and Telefonica, which have placed a heavier focus on emerging markets and have endured tough domestic competition, have seen average revenues per product decline by over half.
Even in the USA, a classically high-ARPU mobile market, Ampere expects fixed broadband spend per contract to overtake mobile spend per contract within the next three years, as vigorous price-driven competition begins to take its toll.