Telecommunications Sector

The telecommunications sector and its challenge in the face of the digital transformation

The growing demand for new and innovative communication services has led to the emergence of new competitors in the telecommunications market and has been putting strong pressure on the industry to migrate towards a digital transformation.

Two decades ago, before the evolution of telephones, it was inconceivable to pose a threat to the dominant telecommunications industry. But with the advent of smartphones came an explosion in demand for mobile data and applications for instant messaging, free calls, etc. led by a new generation of disruptive players looking to monetize new customer behavior.

These new disruptive competitors are also known as Over-the-top. In other words, they are those digital companies that offer their services using traditional telecommunication resources as a base. In Peru we are familiar with many of them, such as Whatsapp, Skype, iMessage, Facebook Messenger, among thousands of others.

This group of companies has become part of the new competitive ecosystem of telecommunication operators, which in recent years saw their economy seriously affected by a decrease in revenue from SMS, voice calls, television, video on demand, data storage, etc.

Given this context, telecommunications operators have begun to reconsider new forms of business to regain their dominance under the new rules of the game.

How to meet the challenge of digitization?

EY Global spoke to 44% of the top 50 operators in the world and found that while many have begun the process of becoming digital service providers, the sector remains vulnerable due to rapidly changing technology cycles, dynamic competitors and evolving customer needs.

The results, published in the report “Digital Transformation for 2020 and beyond: a global telecommunication study”, showed that telecommunication companies have been diversifying their revenue streams, but management is still seen as a challenge.

Geographically, telecoms companies in North America and Asia-Pacific have recorded the best results in terms of share prices over the last five years.

In the US this performance was favored by strong market structures and early access to new spectrum; while in Asia-Pacific it was due to strong smartphone penetration and demand for mobile data services. Meanwhile, in Latin America the recession is affecting the performance of telecommunication stocks.

In response, industry leaders said that companies have reacted by expanding their service portfolio to include a wide range of offerings, seeking to take advantage of growth opportunities through technology, media and telecommunications (TMT) in areas such as enterprise cloud, TV and the Internet of Things (IoT).

However, a key challenge for telecommunications companies in expanding their service portfolios is that certain market segments tend to offer lower margins and over-the-top competitors are already well positioned in key segments such as the cloud and advertising.

A look into the future

EY classified into 8 groups the main findings of the global telecommunication study, in which it presents the most important aspects to face a digital transformation process in order to increase the industry’s profitability margins.

Disruptive competition tops the list of industry challenges. As mentioned at the beginning of this article, 74% attribute disruptive competition from over-the-top operators as one of the main strategic challenges facing the business, followed by 47% who attribute it to lack of organizational agility.

The strategic agenda for will be led by: Digital business models, customer experience and cost control.

More than half of the respondents cited digital business models (71%), customer experience (61%) and cost control and business efficiency (53%) as their three strategic priorities for industry transformation by 2020.

However, the low emphasis on talent retention (3%) may weaken the impact of this set of priorities.

The network dominates the short-term spending agenda, but IT improvement is also sought.

In terms of what they expect to be the three most important IT and investment domains in the next few years, the leaders of the organizations consulted opted for technologies such as Big Data Analysis (43%), Cybersecurity (37%), access networks such as 4G and FTTX (74%) before BSS / OSS (54%), i.e., any broadband access over optical fiber.

Investments in capital goods are increasing but IT spending profiles vary. Fifty-three percent of respondents believe that capital expenditures will increase over the next 12 months, while 21 percent think it will remain unchanged.

This expected increase in capital spending will inevitably put pressure on spending on other priorities, such as IT and blue-sky digital services project development.

In the meantime, the prospects forThe short term IT issues are mixed. Thirty-five percent of respondents believe that IT costs will increase due to the continued migration to the cloud, while 47 percent predict a decrease.

It increases confidence in the opportunities offered by digital services. Although operators see Internet of Things (IoT) services as a priority revenue stream for the future, some doubts remain.

Smart homes, connected cars, security services and the smart city have improved in the perception of industry leaders over the past few years.

Analytics and virtualization are the main drivers of innovation, but skill shortages are acting as brakes.

While data analysis is widely perceived as a key objective to achieve a deeper understanding of customers, there are additional opportunities to drive greater efficiency in capital spending.

Participants cited analytics-based knowledge, virtual networks, and IT as the main drivers of innovative capabilities.

Process automation tops the list for long-term operational excellence. According to survey participants, a wide variety of technologies will help telecommunications companies build long-term operational excellence.

Process automation (71%) and analytics (51%) are considered the main drivers for improving, among other things, the customer experience.

The post-2020 scenario will be transformed by 5G. The greatest attention of the leading communications operators for the transformation of the industry towards 2020 is focused on 5G (77%) and IoT (57%) networks.

Some see 5G as a paradigm shift in mobile network capacity, while others believe it will play an important role in the fixed-line market.

The path towards has begun and no doubt the telecommunications market will change in the short term with the measures being prepared by the major companies worldwide.

Operators will struggle to remain part of the digital transformation and to recover the ground given to those disruptive competitors that appeared in the market during the last decade.