CSPs under pressure to diversify to enable consumer business growth

Communication service providers (CSPs) are increasingly under pressure to “look beyond data and diversify into adjacent digital markets to enable continued growth of their telco consumer businesses,” according to Jonathan Doran, principal analyst, Omdia. And they will need partnerships to do so.

Latest research from Omdia estimates that digital consumer services will provide communications service providers (CSP) with a revenue opportunity of around $513 billion by 2027, with digital gaming and online video highlighted as the two biggest areas. Although Omdia notes that established CSP services such as mobile data, pay TV and broadband are of greater value at present, non-traditional categories such as digital gaming, online video, messaging apps, smart home, and digital music are showing faster growth, with projected five-year CAGRs of 5% to 21%.

There is of course a caveat: CSPs will face significant competition from hyperscalers, specifically Amazon, Apple, Google, and Meta. Doran counsels CSPs to accept they will not be able to compete head-on when developing these new service opportunities. “Developing partnerships with such players is not only more pragmatic but will also serve to strengthen their own products and brands,” he says.

Doran points to other areas offering strong future potential for CSPs including e-health and financial services. “Several leading players have already started to invest in these spaces,” he says. “SK Telecom owns South Korea’s most popular online store with over 34 million active customers, while Vodacom South Africa has over 1.1 million monthly active users (MAUs) for its VodaPay service.”

Picking the right go-to-market strategy

Certain CSPs in EMEA stand out because of their early approaches to expanding their product offerings beyond core connectivity services. In Spain, for example, both Másmovíl and Telefónica España have built up a broad portfolio of services in order to differentiate themselves in this highly competitive market.

Telefónica offers financial and insurance services, as well as telemedicine services under Movistar Salud, device insurance under Seguro Dispositivos and connected car services via Movistar Car. In 2022, it began to allow customers to combine these non-traditional services with mobile, home broadband and TV offerings under the miMovistar proposition. 

According to Telefónica’s recent results statement, miMovistar is already having an impact by improving convergent customer trends. In addition, the higher contribution from B2C digital businesses is helping to maintain a positive revenue trend on a sequential basis. 

Másmovíl, which is set to merge with Orange Spain should regulatory approval be secured, sells energy services under several brands. In addition, its sub-brand Yoigo offers a range of adjacent services, including EnergyGO green energy products, the DoctorGO app, HomeGO smart home alarm services, SafeGO digital security, MoneyGO payments and the Next Smart Car device for in-car connectivity.

More recently, UK-based EE partnered with security service providers Verisure and Norton and is now offering home security and cybersecurity packages to its customers. At the time, the BT-owned mobile operator indicated that these security partnerships were the “first of a new wave of agreements” that will allow EE customers to “buy exciting services beyond connectivity” as part of their monthly bill.

Not all efforts to move into new markets will succeed, of course. Indeed, many CSPs have now shuttered zero-rated content offerings that breached European net neutrality rules. Vodafone Pass and Deutsche Telekom’s StreamOn are two high-profile casualties here. Some smart home offerings have also failed to take off. For example, V for Vodafone (or Smart Tech) has now been withdrawn in several markets and Orange also ended its Connected Home service in France. 

Omdia’s Doran notes that while there are fast-growing markets telcos can explore beyond TV and online video entertainment, “the right go-to-market strategy and business model for each individual service area will be critical to striking the balance between achieving market success and mitigating financial risk”.