Is Telco Digital Transformation Making Any Real Progress?
In my last book ‘Transforming the Telco’ I shared my views of the 10 transformation journeys the telco must go through. There is little doubt that the industry has embraced transformation and you would be hard pressed to find a telco that doesn’t have an active transformation program underway.
But let’s be clear, while there has been substantial progress across many parts of the industry, there is still a huge distance for the industry to travel before we can consider it ‘done’! In recent months I have been attempting to quantify the industry’s progress in digital transformation, measured against the 10 transformation journeys. Below is my summary of the progress in each journey and the areas that are either being avoided or are simply too difficult for the industry to progress. I have applied my own (x out of 10) marking mechanism for how well the journey has progressed relative to what I expected 3 years ago when I first envisioned the 10 journeys.
Journey 1: Virtualized, autonomously managed infrastructure
7 out of 10
Areas with good progress: This journey is well underway, and 2020 was the most active year yet in terms of virtualization of infrastructure with literally hundreds of announcements of telco trials throughout the 3rd and 4th quarters of the year from telcos across the world. More importantly, there were real practical implementations by companies such as Rakuten of virtualized, cloud-native infrastructures – with more on the horizon for 2021/22 with Dish networks and others. There is also a much better understanding of the many hurdles to overcome before virtualized infrastructure is an economically viable option. These include availability of low-cost white-label radio units, power consumption compared to traditional network equipment, seamless integration and support across 3G, 4G & 5G, and cost comparisons with traditional networks in dense urban settings. There has also been excellent progress in the understanding of the potential of EDGE cloud, and there have been many examples of telcos working with hyperscalers and suppliers to roll out EDGE with tight integration into the 5G network.
Areas of Weak Progress: The effort and focus on autonomous management of this virtualized infrastructure is less impressive. While there are many projects in the public domain in this area, the reality is that the supply side (including standards organizations) has not really cracked autonomous networking yet and so the telcos are restricted to trials and proof of concept initiatives in this area. While there is a lot of use of the phrase ‘cloud-native’ there is less evidence of the cultural, operational and skills changes needed for this to become a reality. Finally, the business case for virtualized infrastructure is not yet clear and this will determine whether it ever hits prime time.
Journey 2: Moving from Reactive to Proactive Security
5 out of 10
Areas with good progress: The direction of this digital transformation journey has been particularly interesting. Telcos have immediately identified this as an area where they can grow/expand a B2B business. The telco reputation in security is reasonably high and many have discovered that they can leverage this into reasonably sizeable new revenue streams, offering security services to their enterprise customer base. This has been done by Orange, Verizon and others. The scope of these security offerings is relatively mundane and covers designing security policies and onboarding the right partner solutions to meet the enterprise security needs. Furthermore, these new businesses have grown through a combination of ‘productization’ of internal functions and selective acquisitions. Nevertheless, this move into security as a new ‘digital service’ has proved valuable to the telco and will continue to progress.
Areas with weak progress: However, I’m not seeing a lot of evidence for how the telco is addressing the fundamental security challenges that digital transformation presents – i.e. how to secure the telco as it evolves from a discrete physical network to a cloud based network, and from tens or hundreds of millions of consumer devices to hundreds of billions of IoT devices. This part of the journey is critical and may prove to be the Achilles heel of the telco as it tries to shift to being a large scale new digital services provider. There are plenty of suppliers vying to offer services in this space and this is an area that will demand ongoing investment over the coming years.
Journey 3: Becoming a Data Centric Enterprise
7 out of 10
Areas with good progress: This is not a new journey and in many respects the telco has been progressing on this journey for the past decade. In recent years there have been any number of data-centricity projects implemented by telcos. In a survey I carried out in 2019, this was one of the top 3 journeys where telcos were putting their digital transformation resources (the other 2 were virtualized infrastructure and culture change). The interesting projects in this area include both ‘process’ level projects that look to draw all the data sources in the organization together and make it accessible to everyone who needs it; and technology level projects that are layering AI solutions on top of the data so that the organization can operate more effectively and identify new opportunities that had previously been hidden.
Areas with weak progress: While the telco is well focused on capturing data to improve efficiency, I still see a gap in the telcos efforts to build the data monetization culture and systems that will be needed in the future. There is a palpable fear in Telcos with regard data monetization. This is partially due to a number of telcos being burned by clumsy early efforts over the past decade, and partially due to a lack of knowledge within the telco ‘gene-pool’ on what can and cannot be done with data. Apart from this the biggest risk to the successful progression of this journey is the availability of sufficient skills to the telco. Everything ranging from data mining to data analytics to AI skills are becoming increasingly sought after and telcos are finding it difficult to evolve their skill base to reflect the sort of organization they wish to become. The emergence of new tools are going a long way to help upskill the telco staff. For example, tools such as GPT-3 which simplify AI development possibly provide some light at the end of this skills tunnel!
Journey 4: Becoming an API Driven Organization
6 out of 10
Areas with good progress: The TMForum is certainly leading the way here for the telco industry. The extensive list of APIs that the TMForum has developed certainly helps, but more importantly is the leadership they have shown in recent years in getting telcos to commit to using these APIs and demanding them from suppliers. There are several examples of how telcos are opening themselves up to a wide community of suppliers and developers through embracing APIs.
Areas with weak progress: While embracing API technology is a major step forward for many telcos, the area where telcos are continuing to lag is in developing and marketing the business models that support API adoption across the ecosystems the telcos work within. While many excellent API implementation have been put in place, getting the ecosystems aware that the APIs are needed and then creating the business models that make it attractive for the developers to use the APIs are as important as the quality of the technical implementation.
Journey 5: Developing New Digital Services
6 out of 10
Areas with good progress: There are hundreds of examples to draw from in how telcos are beginning to address this journey. With the rollout of 5G the telco has realized that B2C services are unlikely to create sufficient new revenue to balance the books and that emphasis has now shifted onto B2B services in associated vertical industries. Much of this focus has been on the enormous opportunities presented by smart manufacturing, healthcare, agriculture, ports, mining, smart cities, etc., and many telcos and suppliers have developed an impressive library of 5G use cases that have strong potential for the telco in each of these areas. We have also seen lots of IT and Cloud players engaging with the telco (e.g. Facebook and Reliance Jio in the retail industry) to offer complementary solutions that may be important in bringing these to market.
Areas with weak progress: It might be a bit facetious to suggest that the only thing missing in this journey is substantial financial success! Without exception, every telco digital transformation initiative has in part involved the creation and launch of some new digital services. But there are few examples of a new digital service that has done anything to shift the top or bottom line of a telco. The new B2C digital services are really there to convince people to switch over to 5G or fiber broadband services, while the new B2B digital services have yet to be sufficiently compelling to achieve scale. This area is now a topic of huge urgency in telcos and will need to be addressed in the short to medium term if the telco is to survive. And this probably means that the telco needs to stop avoiding the key question of whether it is going to commit the resources necessary to (as Geoffrey Moore would say) Cross the Chasm with some of these new B2B digital services. And this relates directly to how much effort the telco is going to invest in the next 2 journeys – ecosystem development and business model flexibility!
Journey 6: Becoming Ecosystem Centric
4 out of 10
Areas with good progress: The concept of ecosystem engagement is widespread in the digital transformation projects of the telcos of recent years, and there are some good examples of how telcos are getting their minds around working within other ecosystems. A number of telcos are explicitly recognizing the importance of the vertical-specific systems integrators as the gatekeepers to these ecosystems and beginning to build relationships with them. There are also examples of how telcos are looking back inside their own supply chains and rationalizing them with an openness to new ecosystem partners. Finally, as the telco begins to embrace new virtualized network concepts, they are discovering a whole new ecosystem of partners (many of whom are hyperscalers) that they are engaging with in order to create their new network concepts.
Areas with weakprogress: I have mentioned in other posts that there is a quite specific definition of a business ecosystem (as distinct from a hierarchical supply chain, etc..) and this is important. While the telco uses the word ecosystem liberally and has many ecosystem projects underway, in fact what many are really doing is rationalizing their supply chains or adding a few new partners. This is not just an issue of semantics. While improving the efficiency of your supply chain is important, the essence of this transformation journey is opening the telco up to the true benefits of existing in one or more vibrant ecosystems that will provide both suppliers and customers to the telco, as well as sources of innovation via communities of developers and vertical industry experts etc.. Engaging with multiple new ecosystems and growing some brand new ecosystems from scratch is extremely complex and will not happen without a well-planned and well-funded series of initiatives. So, while there has been some progress with the telco attempting to engage with new partners, there is a long way to go for the telco to really embrace life as a flexible participant in multiple complex and fast moving ecosystems.
Journey 7: Operating New Business Models
3 out of 10
Being focused on: In my previous book I talked about the concept of a business model being essentially about value creation and value capture. While the telco has always been good and innovative at value creation, the essence of this journey is about flexibility in value capture. And there have been some examples of telcos adopting new approaches to value capture that involve revenue sharing and success-based pricing. Furthermore, there has been a sea-change in the telco attitude to the importance of platform business models and multiple telcos have made efforts to operate platform business models around a number of services.
Areas with weak progress: The important point to understand is that only a small part of this journey is about identifying and trialling new business models. The majority of this journey surrounds altering the fundamental business and financial processes within the telco to enable it to flexibly adopt whatever new business models will be required to make a new digital service successful. While telcos are increasingly flexible around the concept of revenue sharing B2B2C customers, in general their internal processes still cannot conceive of launching digital services with more aggressive business models (i.e. services that will monetize via customer data, or ones with 5+ years before anything but nominal revenue). This not only requires a change in business objectives for the executive team, but a change in mindset for the investors. And if the telco is to compete with the OTT and hyperscalers in the battleground of new digital services, this is exactly the sort of flexibility that this journey demands. I give this journey a very low rating in terms of overall progress, as at the heart of the telco there has been relatively little change to date.
Journey 8: Making Culture Change Happen
5 out of 10
Areas with good progress: As I mentioned earlier, in a survey I carried out on the main areas of focus in telco digital transformation, culture change came out as one of the top three. There have been many examples of how telcos are looking at this challenge. Projects that look at how to turn existing valuable employees into the skilled resources that the new company will require. And projects that look at how to build new sub-companies with radically different cultures within the existing telco. There are even projects from the likes of Telstra that seek to do this cultural transformation in the full glare of public scrutiny by explicitly stating their targets and publishing progress against these targets on a regular basis. And of course, there are the new entrants that don’t have the baggage of the established telcos and can put in place the cloud-native culture they require from the get-go. There are yet others who have created new cultures around new digital services that they hope to eventually use to seed a new culture across the organization. And there are those that have the political and labor law flexibility to look at major downsizing and rehiring to get rid of unwanted skills and on-board new future skills. There are other aspects of this journey that are evident in a range of telco transformation projects. For example, we are seeing many telco cultural transformations embracing the theme of simplification – either through process rationalization, or robotic process automation. And we are seeing this simplification being applied to diverse areas from the procurement process, to cross-company simplification of big data organizational silos.
Areas with weak progress: I hesitate to talk about aspects of this journey that are failing to progress. In truth most companies are trying valiantly to tackle this journey head-on. I have yet to meet a telco who does not recognize the existential importance of this journey. But the reality is that many consider it to be a doomed venture. I have had quiet conversations with telco executives who despair at ever resolving this issue. Many companies feel that the combination of the size, cost and average years of experience of their workforce, combined with the political and labor regulations in their countries, make this task almost impossible to achieve. Some are looking at ways to side-step this by spinning out new ventures with new cultures and ultimately hope to transfer some of the main lines of business into these new ventures and hope to off load the remnants. A long way to go yet on this journey!
Journey 9: Develop new Channel Strategies
5 out of 10
Areas with good progress: I think progress in this journey naturally follows progress in journeys 5 & 7. Until the telco has put itself in a position to aggressively launch new digital services as part of a new ecosystem it will be difficult to make progress in opening up new channels to market. In the B2B world these new channels may rely heavily on vertical-specific systems integrators as a channel for selling into enterprises. However, we are beginning to see some good examples in specific verticals of how telcos are beginning to form those relationships. In the B2C world there are also new relationships forming around new channels in new specific consumer segments such as smart stadiums and home gaming. The telco relationships with hyperscalers is also a good example of how new channels might evolve over time.
Areas with weak progress: While the telco is still experimenting in this area it’s hard to definitely point to areas that are failing to progress. But I can certainly predict that one of the main challenges the telco will face is in how to pivot its business model to embrace the different demands of different channels.
Journey 10: Driving Customer Experience Management
9 out of 10
Areas with good progress: Transformation of the whole customer experience is one of the areas the telco has been comfortable with from the start. In reality, the telco has been transforming this area for almost a decade. Much of the interesting digital transformation work has centred around the concept of digitizing the customer journey. Some of these transformations have focused on the prosaic challenge of improving the telco’s online experience, shifting away from an in-shop/on-phone experience. In more advanced telcos this has focused on implementation of chatbots to tackle call center congestion and resolution of the less complex issues. There are also some more sophisticated transformation projects that have applied AI to the customer experience, both to improve the overall customer journey, to significantly reduce the costs of customer experience management and develop a valuable resource of data that can then be used for proactive maintenance and up-sell/cross-sell activities.
Areas with weak progress: The future of Customer Experience in the transformed telco will depend greatly on the intelligent application of the right AI, aligned with the right business processes within the company. If there is an area where the telco is failing to progress in this journey it is in how well the telco is developing the AI skillset and expertise within the company. This needs to move rapidly or could become a blocker in the near future.
I’d love to hear your views on the progress of digital transformation. Am I being unnecessarily hard on the telco or are things worse than I imagine!
Disclaimer: Any views and/or opinions expressed in this post by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Huawei Technologies.