‘Digital’ and ‘digital transformation’ mean different things to different people. Nowhere is this more apparent than in telecoms, where a TM Forum analysis of the latest quarterly financial presentations from 25 leading communications service providers (CSPs) reveals a wide range of interpretations, drivers and metrics applied to digital initiatives within their organizations.
For all 25 operators, their digital strategies (including digitization and/or transformation) focus on at least one of these areas:
- Delivering improved customer experience, more digital experiences and re-orientating the business towards the interests of the customer
- Driving operational efficiencies or cost savings
- Developing new lines of business outside of communications and connectivity
Most CSPs likely will maintain that their strategies embrace all three of these objectives. However, our analysis considers only the most recent financial presentations delivered to shareholders, so if the CSP references only one of the three pillars of transformation, we record only that pillar in our analysis. Such an approach may not seem fully representative of a CSP’s overall transformation program, but it does allow us to make comparisons based on publicly available data. It also shows where a company’s focus is today rather than where it may have been one or two years ago.
Comparing operators’ reasons for going digital
The graphic below shows the relative digital focus of selected CSPs based on their most recently quarterly presentations of financial results. The companies were selected because they have made strong reference to “digital” in their results.
While many operators include operational efficiency as one of the benefits of digital transformation, Telenor is the only one of the operator groups we tracked that clearly identifies cost savings as the primary driver.
A cluster of European operator groups (KPN, Orange, Swisscom, Telefónica) and VEON in Russia appear to have a balanced approach to digital transformation, giving equal emphasis to operational efficiency, customer experience and new business. Their focus on transitioning to a digital experience helps them reduce costs (through a reduction in calls to call center agents) and improve customer experience.
Operators whose principal digital focus is developing new lines of business include CSPs in growth/emerging markets, such as MTN in South African, Turkcell in Turkey and Etisalat in the Middle East. Others in this group include North Asian operators SK Telecom and NTT DoCoMo, and North American CSP Verizon. However, it is not altogether clear how and where many of these new business initiatives connect into bigger, overarching transformation initiatives. Despite the fact that some of these companies (and other operators) include platform businesses in their future strategic visions, few of their current new lines of business can be genuinely referred to as platform businesses.
What are the KPIs?
In our analysis, we focused on measurable benefits or key performance indicators (KPIs) delivered through transformation – or future hard targets – rather than loose visions lacking specificity. We have identified the following categories of digital results where there are enough CSPs reporting numbers to draw out interesting comparisons and trends:
- Use of digital/mobile self-service apps and resulting cost savings through reductions in calls to customer care agents (customer experience and operational efficiency)
- Operational expenditure (OpEx) savings through initiatives including the automation of customer care functions (operational efficiency)
- Improvements in NPS (customer experience)
- Usage and revenue from new services (new business)
Use of mobile self-service apps
CSPs are deploying an array of digital capabilities to transition customers to online experiences. Many are reporting on their progress in different areas including:
- The number of self-help transactions
- Usage (users, downloads, visit) of mobile apps
- Online sales transactions (including top-ups)
Many operators have started incentivizing customers to use mobile apps by offering (free) data add-ons or value-added services. There is clearly growth in the adoption of mobile apps but the selective approaches to reporting (for example, reporting numbers of downloads or visits rather than the number/proportion of their customers using these apps on a regular basis) indicates that CSPs still have a long way to go before they can claim that a meaningful proportion of their customers have a primarily digital experience.
The table below shows a comparison of selected CSPs’ mobile app usage, measured either by number of users/downloads, percentage of online sales transactions or volume of calls into customer care centers.
CSPs are becoming increasingly confident about their ability to reduce OpEx as a result of successful digital transformation programs. Orange, Telefónica and Telenor disclose annual reduction targets, while KPN has provided detailed breakdowns that drill down into specific cost savings resulting from changes to business support systems (BSS) and operational support systems (OSS). VEON has set an ambitious target of halving its BSS costs.
Improvements in NPS
For a long time, telecoms has compared poorly with others when it comes to Net Promoter Score (NPS). However, this is starting to change, and CSPs now commonly report NPS as they work toward improving customer experience. The chart below shows a comparison of select CSPs’ NPS scores.
New business revenue
Most of the operator groups we track are targeting revenue from new services outside their core connectivity and communications business. For many the focus is principally pay-TV (and it is debatable whether TV is emerging as a core CSP line of business rather than an adjacent market opportunity). For many others the focus is internet of things (IoT) and IT services more broadly.
Revenue from these new lines of business are not reported consistently. However, a picture is beginning to emerge of their relative potential.
Some operators are now reporting revenue and/or growth from the entirety of their ‘digital services’ portfolio. For example, African telecoms group MTN says that digital services represent 10% of total group revenue, while China Telecom’s revenue from IoT, ‘new’ ICT, smart family and mobile financial services topped 15% of revenue.
Other operators are limiting their reporting to snapshots of revenue (and/or) growth from individual lines of business. Vodafone, for example, reported annualized IoT revenue of €730 million, equivalent to 1.5% of total revenue, in 2017. Cloud, and ICT services more broadly, are other segments where CSPs are starting to provide snapshots of revenue, or revenue growth. Cybersecurity is an interesting new opportunity where Telefónica, Orange and SingTel are all starting to disclose actual numbers and overall market potential.