Two analysts, brand new, groundbreaking research and an engaged audience talking transformation – arguably the single most important topic ever for telcos – pull up a chair.
TM Forum’s Chief Analyst Mark Newman with Senior Director, Research & Media, Annie Turner, presented and discussed the findings of our first ever Digital Transformation Tracker (DTT) during a webinar Thursday. Here are some key highlights. Listen to the full webinar on demand to learn more and access the slides.
With more than 350 total responses – 187 of them from communications service provider (CSP) executives – TM Forum’s DTT survey is one of the most comprehensive, if not the most comprehensive, so far about digital transformation in the telecom industry.
“The 187 responses came from 93 unique operators spanning 64 countries,” Newman said. “We had extremely good geographic representation, so I’m confident in saying the sample we’ve taken is a good snapshot of where we are today in digital transformation.”
The trillion-dollar question: What do CSPs want to be?
One of the chief findings of the survey is that communications service providers (CSPs) are unclear about what they want to become, and this is one of the most significant challenges standing in the way of success, as we’ll explain later. Should CSPs be content to deliver connectivity only, or should they be trying to move horizontally as illustrated in the graphic below to become digital service providers (DSPs), competing head to head with over-the-top, digital natives like Amazon and Netflix? Or should CSPs instead try to move vertically to become enablers of these platform services?
For many CSPs, the answer likely lies in continuing to deliver connectivity while also branching out as a DSP and a platform enabler, in other words becoming what we like to call a ‘2020 CSP’.
“The big question we’re asking the industry today is: When you take that journey from being a traditional CSP to a 2020 CSP…what’s the correct route to go?” Newman said. “When you start to analyze the two opportunities…there is a very different level of competition in those areas.” Becoming a DSP certainly means facing extreme competition, while becoming an enabler may be a slightly easier path and a ‘blue ocean’ opportunity, he noted.
When asked specifically what they want to become, operators clearly expect to be players in all types of businesses.
“As you can see from the replies, lots of [CSPs] want to be all of them – everything – which is really interesting,” Newman noted. “That lack of clarity is one of the challenges we have today in our digital transformation programs.”
Investors don’t get transformation
Turner pointed out that while CSPs seem to have “a huge preoccupation” with digital transformation and moving into platform business models, investors and shareholders don’t seem to share their enthusiasm. “Why does this disconnect exist, and should we be concerned about it?” she asked.
There are two possible reasons for the discrepancy, according to Newman. First, telcos are looking at their long-term prospects for success, while investors are looking for short-term gains. The second problem is that investors and shareholders only know what telcos tell them during quarterly earnings presentations, or in the case of investors during occasional phone calls with telco management.
“If the telecoms operator isn’t communicating its concerns, its issues, its strategies around digital transformation to shareholders…then the investor community isn’t going to have that visibility and won’t be aware it’s such a big issue,” Newman said.
The future looks bright
An interesting finding in the DTT report is that CSPs are optimistic about their potential for success. More than 70 percent of operator respondents said they are either reasonably or very optimistic about the short- and long-term prospects for their businesses.
When we look at some specific expectations (see graphic below), close to a third of CSPs and even more suppliers are expecting gently increasing revenues as telcos roll out TV services and move into internet of things and ICT services.
Turner questioned the push into pay TV: “I’m wondering how long that opportunity might last given the amazing success of OTT companies with content and their investment in it.”
There’s no question that the pay TV business is threatened by OTT in the long term, Newman said. But CSPs, particularly large ones, see it and other multi-play offers as critical because they increase customer loyalty. “If you look at multi-play operators today, their churn levels are about 5 percent, whereas a mobile operators’ are probably 20 or 25 percent,” he explained.
It’s all about the customer
The biggest driver for digital transformation is improving customer experience, and the most often used measure of customer satisfaction is Net Promoter Score (NPS). We asked CSPs about their NPS and found that among the telcos surveyed the average is between +5 and +10.
“It’s not a particularly pretty picture, but it is improving,” Newman said.
What are the biggest obstacles?
As noted, the biggest inhibitor to successful digital transformation centers around lack of vision for what the company should be aspiring to become. This is a leadership issue.
“A lot of service providers are not too sure if they want to be a connectivity play, a digital services play or a platform play. If you don’t have that context, it can be hard to properly shape and conduct a transformation program,” Newman said.
Many of the other inhibitors, such as cultural and organizational challenges, lack of skills, governance and aversion to risk are all related. Indeed, cultural and organization issues are so important that the next DTT survey is focusing on them specifically, along with repeating many of the first tracker’s questions to gauge progress.
Suppliers see a stodgy culture
We asked CSPs how they view their culture, and a majority see their companies as dynamic, creative and team-based. Suppliers disagree – fairly strongly.
“The vendor respondents see [CSPs] as being overwhelmingly hierarchical and formal, and as a result more difficult to work with,” Newman noted. “We speak to a lot of technology suppliers who are frustrated working with CSPs, particular when they’re involved in their own silos or divisions.”
Is network transformation part of digital transformation?
Although some survey respondents see network transformation as separate from digital transformation, it is important to consider them as interconnected and interrelated. Adopting technology like network functions virtualization (NFV) and software-defined networking (SDN) requires significant cultural and organizational change and necessitates merging the CIO and CTO roles within CSP organizations, Newman explained.
The move to NFV, SDN and cloud mean operators also are going to have to shift their thinking about operational expenditure (OpEx) and capital expenditure (CapEx), both of which were cited as key methods of measuring digital transformation success.
Cloud vendors are frustrated with telcos, because many of them consider investment in cloud technology to be OpEx while investment in network is seen as CapEx.
“As a generalized principle, CapEx is good but OpEx is not so good,” Newman explained. “On the one hand you have CSPs who want to invest more in cloud services capabilities and platforms but on the other hand if that requires an increase in OpEx, what will your CFO and investors think of that? It does pose some quite deep challenges about how you go about purchasing new technology.”
How to make digital transformation happen?
Following is Newman’s list of steps to take to make digital transformation a success:
Lead from the top – “Leading from the top is absolutely essential. If you do not lead from the top, you will not get buy-in across the organization.”
Learn from failure – “CSPs have largely learned [from failure], but at the same time, it might be useful to have some external support to understand precisely what went wrong and clearly addressing those issues in current transformation programs. what’s gone wrong in the past so that it can be avoided in the future.”
Set goals – “If you don’t set goals, things won’t happen; those goals must be communicated throughout the whole organization. One concrete measure we recommend is integration of the CIO and CTO functions.”
Use a model – “TM Forum’s Digital Maturity Model enables you to look at the depth and breadth of your business and understand where you will need to act in order to transform your business.” It also is unique in that it asks people across the entire organization, not just leaders, how they view transformation.
Develop the right culture – “It’s a leadership challenge…but it’s also about empowering people lower down in the organization.”
Embrace partnerships – “I don’t just mean partnerships for new services; I mean partnerships for technology, partnerships for the network, partnerships for IT. It means a new way of buying and it means moving away from a reliance on RFPs [requests for proposal]to more of a proof-of-concept approach.”
Keep shareholders informed – “If you think transformation is essential for your business…then so should your shareholders. So keep them informed.”
Measure results – “We need new, quite complex metrics to measure results,” for example, metrics around automation and real-time capabilities.
Webinar listeners asked some interesting follow-up questions:
Q: Are the benefits of digital transformation showing up in CSPs’ financial results?
They are, according to Newman. He cited Telenor as an example. The company has said publicly it expects to see a 1 billion krone ($130 million) reduction in OpEx as a result of its digital transformation program. “We’re at stage where shareholders and investors will become more aware,” Newman said. “The scary thing for them though I guess is being held to those numbers.”
Q: Should digital efforts be integrated or separate?
Operators have absorbed most digital services business units back into the core network, but it may be swinging the other way now, Newman said, adding that he thinks we may see a mixed approach in the future. Overall CSPs are trying to focus on digital services more generally rather than highlighting services for specific vertical like digital health or connected cars, he noted.
Q: Should CSPs aim to become DSPs or digital platform enablers?
“I wish I could give an answer,” Newman said. Today about 4 percent of telco revenue is from “non-core” services, for example, machine to machine and ICT services, he said, adding that less than 1 percent is coming from platform enablement.
Q: Which maturity model do most CSPs use today?
Large network equipment providers like Huawei and Ericsson have their own maturity models and so do management consulting firms like Deloitte and Accenture, so CSPs are often using more than one model.
Q: What’s the advantage of the DMM?
“Most of the DMMs developed by large consulting firms are generic,” Newman said. “To my knowledge, the TM Forum DMM is the only independent industry-wide maturity model that has been crowdsourced, so it seems like a pretty good starting point to me.”