NFV/IT Transformation

Are we there yet? Investors shift on innovation

Mark Newman, Chief Analyst, TM Forum, talked to three “money men” about how you inject innovation into a telco and see opportunity grow. This was part of the keynote panel at TM Forum Live! Watch the video at the bottom of this article to see the full discussion.

Nick Pomponi, Managing Director, Software and Services Sector, Goldman Sachs, said that investors are more excited than they’ve been since the early days of mobile about opportunity and disruption. They see there is more opportunity ahead than behind, although they are a bit cautious.

“They need to see different but sustainable business models over three, five and 10 years because it’s going to need a lot of CapEx.”

Newman asked if the caution Pomponi describes means that telcos should keep put their digital efforts to one side, outside the core company? Pomponi was not convinced by this proposition: “That’s what a lot of folks tried to do with their digital efforts, but there is the realization that to capture real value this way is too hard to do, it’s got to be integrated into the main organization, although there is real risk there [because]it needs a big cultural shift in way the business is run.

“You need to look at the time frames for investment and how long will it take. Telcos need to show they have the right stuff in place rather than start then take two steps back, and that ops are not siloed.”

Now our customer is the CFO, not the back office

Andrew Feinberg, President & CEO, Netcracker, agreed that the billion-dollar question is how to do all this without cannibalizing current revenues. He said, “We’re talking to investors and supporting our customers in negotiations with them. Seven years ago, we were back office – now our customer is the CFO. Investors want to know about funding with CapEx, not OpEx, and what does it do to cash flow etc.”.

Newman commented, “Seven years ago the advice was to set up standalone units for dig experience and they were not too successful, so what should telecoms do now?” Duarte Begonha, Expert Partner, Business & Technology Office, McKinsey & Co., acknowledged that this approach of setting up a new channel or business had failed because, “It was too separate from the core business, so it didn’t leverage the core assets.

“The last couple of years have seen the need to transform the core business, means taking the customers’ perspective into the way you manage channels and operations, and being more agile in how you work. This includes changing out silos, automating the back office to gain speed and quality of service. The Forum has been helping telcos to become much more open and integrate new business models. If [you don’t take this route], it’s too hard to reap benefits of digitization.”

Transformation means breaking boundaries to attack

Newman asked if a telco, having transformed itself with relation to its customer, provided a springboard to new revenues.

Begonha said, “We need to segment the quality of service on data and beyond to see what business models we can develop and break some boundaries with other industries. Telcos have been attacked by a lot of other industries, now we need to attack and not think too carefully. We need to address new revenue streams and realize the competition is not from other telcos, but from digital natives who are going after same revenues and the same markets. Regulation is not as important as it was.”

This remark was against the tide of the overall sentiment at TM Forum Live! where the consensus was we need to work out how to partner with digital natives to provide new services, rather than seeing them as the enemy.

Feinberg said he had seen three cycles of approaches to growth and innovation that had not changed businesses. He said, “They have been interesting journeys with a least $3 trillion brought in and wiped out. Opportunity today is at an inflexion point. Telcos can redefine their place in supply or value chain. If they can leverage their position at the point of sale, they will be very successful – the higher up the chain [away from the customer], the less profit there is. Few will leverage the opportunity. The industry has been redefined in terms of what a service provider is and what it means in the market, as Begonha said.”

First (and second) mover advantage

Newman said to Pomponi, “Lots of people in this room work for, and own stocks in the telcos you work for. Any advice?” Pomponi replied, “Over the next two to three years we need new business models – technological innovation – but we often more failures than success. There needs to be a lot of refinement, which it will take time, but the opportunity is there for those who will get it right first and second in the market. There will be more activity, whether it’s consolidation through M&A, the vendor-side is very bullish. They have an opportunity to increase the top and bottom line, not just improve profit, but improve revenue growth.”

Again, this was an interesting insight that was at odds with many other opinions expressed at TM Forum Live! – you can find an eye-opening selection here. We are also about to publish the findings from our groundbreaking study based on primary research – 5G: Is platform the killer use case – which suggests vendors and telcos are not on the same page about what is needed for telcos to move forward. Email author/analyst Dawn Bushaus if you’d like to know when the research is available. It is free for members to download.



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About The Author

Senior Director, Editorial

Annie Turner has been researching and writing about the communications industry since the 1980s, editing magazines dedicated to the subject including titles published by Thomson International and The Economist Group. She has contributed articles to many publications, including national and international newspapers such as the Financial Times and International Herald Tribune, and a multitude of business-to-business titles. She joined the TM Forum in 2010 and is responsible for overseeing the content of the Research and Publications portfolio.

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