How do CSPs see their digital future?

In this new research we discovered a considerable increase in the percentage that want to become digital service providers (DSPs), but many say they are not planning to take on the role of platform provider, which could be a missed opportunity. There were also some changes to post-pandemic priorities compared with last year as well as some surprising changes to what respondents think are the most important drivers of digital transformation. Nevertheless, operators remain overwhelmingly optimistic about their future.

Compared with DTT 5, there seems to be more clarity this year about what CSPs do and don’t aspire to become. After so many failed attempts to expand into pay-TV services, it’s not surprising that the number of CSPs aiming to become multi-play operators has almost halved since 2018. Many have extricated themselves from those lines of business. Perhaps AT&T’s disposal of Time Warner (renamed Warner Media) is the best-known example, which was announced just as DTT 5 was published in May 2021.

Now more than half say they want to be full DSPs, offering a variety of end-to-end services, which is more than double the percentage which chose this option in 2020. Most of the 52.5% are incumbents or belong to large CSP groups that have operations in multiple countries and regions.

Platform puzzle

The big surprise, though, is that aspiring to become platform providers – working with partners to bring services to market – only secured 13.5% of the votes, behind the 19% who still see their future as multi-play operators and the 15% who opt for best-in-class connectivity provider.

The lack of interest in being a platform provider versus being a DSP gave us pause for thought, including whether our definitions could be clearer. For instance, respondents might think of an end-to-end service provider as having a platform, and a DSP as going a step further on than being a platform provider. Certainly, end-to-end services can be delivered via a platform, although the services CSPs talk about in this context tend to center around connectivity, such network-as-aservice (NaaS).

TM Forum’s Chief Analyst, Mark Newman, comments: “In my mind, the full digital service provider owns the customer relationship, but in a platform scenario telcos don’t necessarily own it. Given their history, could network operators ever be truly happy with that model?”

We think many operators are missing a big opportunity. Regardless of who owns the relationship with customers, the platform owner is always the biggest winner in a platform-based business model (see Platform Revolution – How networked markets are transforming the economy and how to make them work for you) because they are involved in and earn from every transaction. They also have opportunities to provide additional services and support for their core businesses, offering exclusive deals to their customers such as cross-product discounts.

Post-pandemic priorities

We asked respondents for their views on how telecoms priorities have changed in the wake of the pandemic. Digitization of customer experience held its top slot from last year but the gap to the second most important priority, digitalization of operations, has widened.

It could be that CSPs are moving from “emergency mode” for transacting and interacting with customers when normal channels were not an option, cementing new approaches and practices into operations and business as usual. This could also explain why “operational efficiency or cost reduction” (although the two are not mutually exclusive) has overtaken “stronger customer relationships, brand and intimacy” as the top driver of digital transformation: It has been reframed as operational, with greater reliance on automation, analytics and AI.

Another post-pandemic shift that gels with the increased digitalization of customer experience is a big swing (16%) towards CSPs’ rationalization of physical retail presence, which we feel is long overdue. The move away from CSPs expanding into TV services is also no surprise: It has not proved a successful new revenue driver or business model, as we have mentioned.

The fall in 5G deployment as a driver of digital transformation is surprising, particularly given the GSMA’s Mobile Economy 2021 Report, which predicted that many mobile operators will dedicate 80% of their capital expenditure to building 5G networks between now and 2025. Perhaps this can be attributed to 5G now being seen more as “business as usual” rather than urgent and new. Also, 5G Standalone is all about core networks, which also fits into the survey option of “adoption of cloud-native technology”.

It’s no surprise to see an increase of importance attached to deploying fiber to customers’ premises (we looked at the renewed emphasis on building out infrastructure and different business and operational models in some detail in DTT 5). But a 13% drop in the level of importance attached to the digitalization of operations since 2021 is less expected, as is the fall in expansion into new lines of business such as ICT services and bringing greater value to verticals. These are some of things that most upset investors and other influencers.

Most important drivers

In this year’s survey we again asked CSPs about the biggest drivers for digital transformation. For the first time since we started our annual surveys six years ago, “stronger customer relationships, intimacy and brand” is not the top priority. At 64% it has lost its crown to “operational efficiency and cost reduction” with 69%. This is a narrow margin, and we do not think it shows a shift in priorities. Rather, customer experience is typically the first element that CSPs work to transform and so has greater maturity and perhaps less urgency in respondents’ minds. This is not necessarily a good thing, however.

Business agility and revenue growth opportunities are down from two years ago (by 7% and 1%, respectively), with product and service innovation languishing in last place at 46%. The difference of 23 percentage points between the leader (operational efficiency or cost reduction) and the laggard (product and service innovation) tells its own story. The leader is all about doing what CSPs do already but better, while the laggard is about doing new things or using existing assets in imaginative, new ways. It reflects CSPs’ short- to mid-term preoccupation with building out physical infrastructure, the fact that innovations like network slicing are yet to hit the mainstream, and CSPs’ long, ongoing struggle to adopt new business models.

How optimistic are CSPs?

We also asked survey respondents how optimistic they are about telecoms business in the short term (one to two years) and medium term (two to five years). Operators continue to be overwhelmingly optimistic, and although the reasonably optimistic response in the shorter term fell this year (from 55% in 2020 to 43% in 2022), the percentage that are very optimistic rose by the same margin of 12% since 2020 to 30%. This means that in the shorter term, the optimists accounted for 73% of responses.

Respondents are even more optimistic about the two-to-five year timeframe, with reasonably optimistic respondents rising by 2% since 2020 to 51%, while the very optimistic rose by 6% since 2020 to 27%. So, overall for the mid-term, the optimists accounted for 78% of responses.

CSPs’ rising optimism for the longer term is matched by that of their vendor partners. In 2020 (DTT 4), 76% of vendor respondents chose either “very optimistic” or “reasonably optimistic” about the shorter timeframe, while 75% in total chose one of those two “optimistic” categories. This year 88% of vendor respondents indicated they are optimistic about the next one to two years and the same percentage for two to five years, but the number who are “very optimistic” is up by 10%.

Read the full report to see more analysis of our findings.