Aaron Boasman-Patel, Vice President, AI & Customer Experience at TM Forum, and Brian Smyth, Accenture’s Global Comms & Media Innovation Lead, undertook extensive research for their recently published white paper 'The tech-driven telco'.
In this podcast they draw on their conversations with C-level executives to discuss why traditional telcos need to become techcos, how they go about it, communications service providers' current thinking on transformation and how to measure success. (A full transcript of the podcast is available below.)
Read the white paper The tech-driven telco.
Q: Telecoms is still a profitable industry. Why is there a need for telcos to become techos?
Brian Smyth (Accenture): It's very true that today telcos remain profitable. It's also worth calling out how resilient the sector has been over the last 18 months. Despite surge in traffic loads, which effectively doubled during the height of the pandemic when everyone was working from home, the service continued to be resilient. What we do see is very low or flat growth - particularly in Europe - on the revenue side, and shareholder returns continue to disappoint at a time of tremendous growth in the indexes like the S&P 500. At the most basic level, the world has changed since the telco business model was introduced. As part of the paper, we spoke to a lot of executives in the industry and I remember Coleman Deegan, the CEO of Vodafone Spain, saying that we really need to replace this traditional telco business model. There is a lot of appetite out there for something new and then obviously, from a global perspective, the world has changed -- how we're living and how we're working communicating with one another. At Accenture we see three mega trends, the first one being the customer - so how we live our life, how we engage with civil society and government, how we work; the second being business model reinvention, as Coleman outlined, how technology transforms not only customer experiences, but also how customers buy into products and services. We're seeing within this also a big focus on partnership and partnering together with other organizations to offer new services and experiences. And then finally, it's the technology revolution. So, in telcos a lot of talk today is around 5G, edge networks, and a lot of this is the confluence of these three points of customer imagination, reinvention and the technology revolution I think are all leading to this transformation from the traditional telco to a telco.
Aaron Boasman-Patel (TM Forum): If you don't evolve, then you're not going to be able to take a slice of the pie - the 700 billion worth of new revenues which are out there today. And Brian's absolutely right. Telco has been massively resilient, empowered lots of new industries. But the disappointing thing is shareholder return during this time. If you think about, what we've seen through the pandemic, telecoms shares have increased by about 4.8% compared to other industries like semiconductors and electronics up by nearly 50%, media technology, high 35%. We've got to be able to raise that share price, be able to leverage it to get more money to invest in the new infrastructure of tomorrow. 5G is expensive. So, to get that 700 billion of the revenues that Brian's talking about to deliver those new, great customer experiences, to expand the footprint of the telco, we've got to be able to increase revenues, and that's absolutely critical. Delivering connectivity might be okay for some CSPs. That might be a business model they want to take but for longevity, they’ve got to learn to evolve. A very good example of this is the Blockbuster video rental stores. Now it's all digitized and you're watching Netflix or Disney+, or whatever, and the same could happen to a telco. So that's why businesses have to constantly evolve, look at those new opportunities, and go and grab them.
Brian Smyth: Maybe just to add a little bit about changing consumer behavior. I think what's been interesting is Covid as this great accelerator. So, what we've noticed, for example, is that 85% of consumers in a survey that we did in Accenture actually used the digital channel for the first time. So maybe these are customers that typically call down to the store to get support with their phone or product or service and they were exposed to these digital channels. We've seen this shift in consumer behavior that is sticky ... and the fact not many people are talking about going back into the office full time ever again. So, these are long term significant trends that provide a great opportunity for the industry. But if telcos are structured in a traditional siloed, telco business model, they will not be able to capitalize on them.
Q: How can you tell when a telco has become a techco?
Aaron Boasman-Patel: There are a number of measures that you can put in place. I think a lot has got to be around diversification of revenue. The majority of CSP revenues today are still from those legacy revenues around data, voice, etc. What we need to think about is new service revenues and what they're coming from: They're coming from new cloud and security IoT revenues. We've got to get those measures in and say what is that new business percentage of growth and most telcos are averaging less than 5% in terms of their revenues coming from additional services other than connectivity, and that's going to be a key measure. I think when you get above 20% of revenues whether in industrial manufacturing, or sensor management or whatever it may be, that's where you can start to say you have become a true techco. Other measures can be more technical, looking at their underlying foundations: Are they a platform-based business? Do they have a platform where they can do things like zero touch partnering? And like many things, sometimes you could invest in the technology before the revenues. So, you can look at an underlying technology infrastructure- have they gone to a cloud native open digital architecture, which is API data driven, using AI giving that zero-touch partnering? Are things getting easier on the backend so developers can come in and launch those new services? And then it will have to translate through to percentage of revenue.
Brian Smyth: Aaron you really hit the nail on the head with those two points. What gets measured gets managed. And what was interesting is a lot of the executives we spoke to talked about how they are beginning to reconsider the traditional business KPIs. So, for example, one of the largest European telcos actually incentivized leadership across regions around application downloads and engagement. And that was a big shift from historically just evaluating the performance on things like revenue or profitability. So, pivoting towards these new measures for organizations is incredibly important. And the other piece that Aaron mentioned is the shift of platforms and scale. The challenge for our industry has been to actually build these scalable platforms across markets for some of the larger CSPs that have operations in multiple countries. So actually building that cross-market presence and those cross-market platforms and consistent customer experience around that is incredibly important. And that's only possible by shifting to this techco business model and using things like Open Digital Architecture.
Aaron Boasman-Patel: I think that is a key point about scale. The first part of digital transformation was about virtualization, it was about lift and shift. Now it is about truly becoming cloud native and getting that scalability because with scale comes those new revenue opportunities.
Q. In your white paper you call for wholesale transformation across strategy, customer and partner connectivity, culture. People, organization, technology, operations, outcomes and data - the whole shebang. Are any areas harder to transform than others and why?
The underlying one is culture. And one of the big things that we identified in the white paper is the need to change the DNA of a telco to be more innovative, to be able to fail fast. And culture is very, very hard. We've seen telcos take different approaches to it. We saw them 10-12 years ago set up Silicon Valley spin-offs and try to buy start-ups and they bought them into the company and killed them because the culture wasn’t right, and they didn’t have the innovation and the freedom. Technology is not the hard part. You can often go buy technology; you can often integrate it. I'm not saying it's easy, but actually [it’s important to consider] the way that you function with that technology and expose the technology to a number of capabilities – what we call the business capabilities within TM Forum – what capabilities are available to stack up and launch new products and to do it quickly and securely. The telco is so used to spending 18 months to three years to get a new end-to-end service which is fully reliable. But going to a software model really does change the way you think: People are used to upgrading. My iPhones already twice this past week, for example. It's a fundamental shift in the way that people have to think, so I would say that DNA is the number one prohibitor, which is stopping telcos really becoming this techco.
Brian Smyth: Adding on that, I think mindsets are really important here to drive that change. A really interesting example is Microsoft. When Satya Nadella took over Microsoft in 2014 at that point they were hugely profitable as an organization, but not very exciting. And Satya talked about actually wanting to build an organization and products and services that customers would love. And they had missed big trends at this point. They had missed things like search and mobile, and a lot of people were questioning whether Microsoft's best days were really behind it at that point, where he came in with this focus on building this growth mindset. And it comes from a book written by Carol Dweck, which is a fantastic book called Mindset. The growth mindset is actually ... about shifting from the sort of know-it-all to the learn-it -all mindset and being hungry and open to change and collaboration. And what we've seen since is a 10x growth in the market cap of Microsoft. And an incredible performance and a complete refresh of the brand, attracting young talent, attracting the next generation of sort of leaders across new technology domains and re-cementing their position in future technologies, whether it's cloud, or now looking at the metaverse. So, I think this is the great challenge and opportunity for CSPs right now is actually to adopt this growth mindset and look at areas in the organization: Another example being R&D. So, typically CSPs spend about 2% of the revenues on research and development and innovation. For a software or platform company that would typically more than 15%. So, we see a big variance there. I think being a bit more open to risk and having this growth mindset, breaking down the silos, and looking at kind of some of the magic that Sasha brought to Microsoft is a great strategy in order to realize the potential of techco.
Q: Are there any strategies or technologies you've seen help create a snowball effect when it comes to driving change across the industry or within individual CSPs?
Aaron Boasman-Patel: I think we have to take it back to what the foundation of the white paper says and if you take a look at what everybody said from ... the CIO for Verizon, going through to Orange to Deutsche Telekom ... everybody we interviewed fundamentally said that we are a connectivity business, and I don't think we need to get away from that. And I think sometimes we get carried away, talk about all these new revenues and I'm very excited about that. But you can only build new revenues. As they rightly say, you've got to be the very best at delivering connectivity, because everything you build on top of that is going to be based around that connectivity and services on top of that. And delivering on what 5G promises which is the ultra-low latency, the massive types of connectivity and delivering a cost point that the market requires. You've got to get your fundamental business proposition right. So, I think CSPs are very rightly concerned about that, very rightly investing in that infrastructure to build on top of that. And then I see that the AI the automation and that intelligence to deliver those new types of services with 5G -- delivering new OTT services, whether it's a smart city, health, industry 4.0, relies on getting ultra-low latency out of the network. That massive type of connectivity, managing billions of devices, the only way you can do that is by deploying AI and automation. And we're seeing a huge amount of investment from CSPs doing that. So you can do things like detect anomalies in real time; you can improve that customer experience; make sure you've got that network resiliency. You can't go and become a digital business if you haven't got that resilience in your network. I would say the big focus of the industry now is kind of shifting from the cloudification, which is important and it's still going through. But that next phase has to be the automation and the deployment of AI which we're seeing globally, across majority of telcos to enable new business models and to become that tech.
Q. Would you agree with that, Brian? Is that what you're seeing -- a shifting emphasis towards AI and automation?
Brian Smyth: Absolutely. I think a big driver of that is where we're seeing traditional IT and network really come together. We're looking at software defined networks, we're looking at AI powering your organization. We're also seeing, obviously this big focus on cost reduction, and efficiency and customer experience and AI lends itself so well to all of those things, as well as the scalability that we talked about earlier. How do you really build easy customer centric scale solutions? You need to be powering that with AI. I think the big opportunity for CSPs here is also to really engage the business and commercial teams in this change, and actually translate some of these standards in ODA and it's one of the reasons why we actually set about writing this paper was how do we bring in the business audience upon a topic like Open Digital Architecture. Many of these senior tech leaders that we spoke with, for example, Jonathan Abrahamson, who's a Senior Vice President at Deutsche Telekom. He talked about it really being no longer acceptable for commercial and business not to have an understanding of technology. I think we are beginning to see that change. I was speaking to another client and another very large telco last week, and he talked about their new strategy and he said 10 years ago the strategy was written by the business and then basically emailed to technology and they were told you need to implement that. Five years ago the business came and said do you have any feedback on the strategy? And right now, that strategy is actually written and led by the technology organization. So, we are seeing technology pervasive in the industry -- and across all industries -- for many years and in Accenture we've said all companies are technology companies. But it is important to bring the business and the commercial leadership on the journey and get their engagement they get them to see and experience the benefits of technology in powering the journey to techco. Q
. CSPs today use pretty similar technology to deliver pretty similar services. As tech teams take more of a lead in strategy does that mean we'll see greater divergence in product services and partnerships between different CSPs?
Aaron Boasman-Patel: People like Ruza Sabanovic of Telenor have really been talking about the importance of the telecom industry working together and that's why here at TM Forum we create standards and best practices because if telcos are going to survive and thrive, they've got to be able to operate. As Brian very well articulated, scale and scalability means you’ve got to have common standards and you've got to have a common approach and you need to be able to work together. That becomes important when you want to partner whether it's through the hyperscalers or co-opetition and if you if you want to go into things like industry 4.0 telcos can't do it all on their own. If you think about the role of cloud and edge computing and federated edge and the role that we're going to have about services migrating across potentially different edge workloads and sites ... that requires partnerships and partnerships means you've got to have common standards. Some telcos may excel in industry 4.0, some may excel in connected vehicles, but that technology is fundamentally the same. It can be based on location based services or based on image recognition all using AI to power this, the cloud, the edge. So, we have to have a common approach. Where we can really differentiate ourselves, I think, is more things like the customer experience. That's what's going to be the winner; how do you operate your business and how to do it differently and what is your approach to your customers. And we're starting to see people taking different approaches and do that, whether it's on different types of offers, whether it's on self-serve, ... the availability and the ease of partnering, that's where the differentiation will be. Underlying it has to be the same technology and it has to be a common standard set. And I think that is very much what Ruza really [communicated] in that white paper and I couldn't agree more with a common approach to be able to get the scale that is needed.
Brian Smyth: So, I would agree absolutely on the common approach and consistency and building standardization, which the industry so badly needs in order to help drive scale because remember, there's a wide variety of different CSPs out there. There's some CSPs that operate only in one market. There are others that are in multiple markets. And then even the ones that are in one market, some of them are very large. Other ones can be very small. And so I think having consistency at a platform level and architectural level is incredibly important. The experience layer can be differentiated. I also think, looking at industry verticals so as we now look at 5G and various use cases, whether that be in health care … or advanced manufacturing, where we're doing a lot of work with clients today, we see that as a great opportunity for the CSPs to actually really differentiate and offer something new in those specific verticals and really build depth of expertise and relationships with the customers in those areas, co-creating new solutions. So, I think they can absolutely differentiate as brands and as organizations and have specific skills and expertise. But to Aaron's point, there needs to be alignment on the technology and partnership on the sort of platform level, so that there can be easy integration, and we can shift faster towards marketplaces and with some of the tools like ODA and open API, which of course, the TM Forum are driving at an industry level.
Q: Aaron, did you have anything to add on Brian's point about verticals?
Aaron Boasman-Patel: Verticals are going to be a new area, but fundamentally the underlying technology will be the same. So, as I said, maybe someone at a CSP looks at Industry 4.0 and another one looks at smart, autonomous vehicles. It doesn't really matter. There may be specialists but … with technologies we are saying we're going to be able to operate in all those different markets and I think it's that approach. I'm delighted to be able to work together again with Brian on another white paper, which is going to be exploring the differentiator around customer experience. That is where the battleground is. I think that's where CSPs have a huge amount to learn, a huge amount to grow. All verticals are not going to be for everybody and you've got to be able to partner. I’m married to a doctor. Is my husband going to say, yes, we're going to give all the medical records and ... work with a CSP? I don't think it's the top of his mind. Would it be something like a Microsoft and IBM, who are very experienced in the area? Probably. But how can telcos partner and get in that space? That's what I think is really interesting and to give that confidence and that end customer experience. And I think that's where we have to start thinking a bit differently. And I'm so excited to work with Brian, and Accenture again to think about what is that next step. How do we expose ODA, those common standards to give that that that different perspectives and to get deeper? I think Brian was spot on with that. There's going to be some industries you've got to get much deeper and I think healthcare is a really good one because you've got people's lives at risk. It's not going to be something you can just say, oh, yeah, we'll play with everyone.
Brian Smyth: Just to add to my point, there's demand from these industries and an appetite for co-creation that loops back a little bit into the mindset conversation we had and when you think about the operating model and investments in R&D, but there's a demand from industry to actually partner and collaborate with CSPs to build out these new services. And as Aaron said, we're writing this paper now. It's quite interesting from some of the initial feedback we're hearing there is a desire on the CSP side to really just offer connectivity solutions, sell connectivity. So, I think what industry is looking for is support in solving their business problems. And I think there's great opportunity for CSPs as they're building the scalable platforms to actually go in and partner and co-create with industry to build solutions.