Telcos that invest in innovation and collaborate reap the returns

16 January 2017 Consultancy.uk

Telcos, while continuing to do well on core business offerings, are facing the heat of innovation – a new report finds. Innovation, or a lack of it, is correlated with lower business financials, potentially heralding a slow decline and fall of incumbent players. Leveraging startups, many of whom are keen to join with telcos, may provide a means of increasing relevant innovation.

Digital enabling technologies, such as the internet and smartphone proliferation, have created a hotbed for rapid innovation. Startups are able to, from humble beginnings, quickly scale operations, to disrupt industries – syphoning off market share from incumbents or quickly capturing newly developed market spaces. 

The effect of innovative companies on traditional telecommunications companies has not been without effect, for instance, startups like Skype and Whatsapp have been able to pick off potential customers from calling and texting.

In a report from Arthur D. Little, Match Maker Ventures and the TelecomCouncil Silicon Valley, titled ‘Innovation Quest for Telecom Operators: the heat is on’, the partners explore the prevalence and effects of innovation within the telco industry, as well as the relationship the industry is building with startups. The report involved two surveys, one focused on the traditional industry, involving 128 responses from 86 corporates representing 82% of the worldwide telecom revenues, while the other focused on the startup scene, involving 108 responses of which 32% were from start-ups at an “early stage” and 38% at the “growth stage”.

Innovation priority and satisfaction level

The research asked telco respondents to identify where innovation stood within their wider set of business priorities; 67% of all participating telcos ranked innovation as the top or a top-three priority among their main strategic objectives. 

However, the firm notes that strategic intent and the practice of implementation can, and in this case do, stand relatively far from each other. Of the two thirds that place innovation in their top 3 priority list, 4% say that they are highly satisfied with the results, 35% say that they are satisfied, 46% say that they are somewhat satisfied, while 15% say that they are not satisfied with efforts.

When it comes to telcos that place innovation among the top five, or not in the top five, satisfaction with on the ground efforts were revealed to be generally lower – highlighting that strategic planning, does have some impact. 24% of respondents say that they are satisfied with efforts, 56% say that they are somewhat satisfied, while 20% are not satisfied.

Innovation’s impact on financials correlation

The research also found that telcos face considerable challenges in greenlighting, or creating impetus for, innovation efforts. Shareholders, focused on driving short-term profitability, tend to see the current core business of telcos as cash cows – unwilling to take a longer term perspective on the sustainability of the business. 

In a bid to better understand the implication of short-termism, in relation to not investing in innovation, the firm considered the correlation of innovation priority on key business metrics. Revenues CAGR 2012-15 for companies with innovation in their top three priorities saw a median increase in revenues of 1.9%, compared to a median revenue loss of 1.8% for companies with innovation in their top five priories or lower. EBITDA CAGR for the same period stood at a median 3% for companies with innovation in their top three priorities, compared to a 0.5% decrease for companies with innovation in their top five priories or lower. Companies with innovation in their top three priorities did see a smaller availability in free cash flow generation, at -3.8% and 1.1% CAGR respectively.

According to the authors, shareholders and telcos risk losing out in the long term (slowly dying) unless more focus is placed on innovation (transformation).

Telcos’ top 5 key innovation challenges

The reports also considers some of the barriers that telcos face, in their innovation journeys. One key problem is ‘identifying the “right” topics’, cited by 84% of respondents, followed by ‘having the “right” team’ in place (79%). A ‘long-term adherence to strategy’ came in as a problem cited by 76% of respondents, while ‘ensuring alignment between innovation activities’ was cited as problematic by 73% of respondents.

The problems faced by organisations in developing innovation, according to the firm’s analysis, reflect that they tend to be focused on short-term targets, and lack a strategic vision for where the market as a whole is heading.

VC and CVC investments per sector

One way forward is by partnering, supporting or integrating startups. Such moves provide telcos with a way of leveraging up-to-date trends, from often highly skilled individuals with entrepreneurial mindsets. Many telcos have seen the effects of successful startups on their businesses, including the likes of Skype, Whatsapp, Google and Facebook. Current market trends see organisations increase their focus on courting potential upstarts, by providing, among others, corporate backed venture capital. The number of startups seeking to compete with telcos’ core business propositions has been on the increase, with VC and CVC backed startups in the mobile and telecommunications game – as well as internet – rising sharply between 2014 and 2015. 

The report notes that collaboration with such entities, whether through financial backing or different partnership models, remains an open possibility for many of the startups surveyed. 36% of all responding start-ups have stated that collaboration with telcos is “essential” and 41% assess it as “helpful”. The research also found that, in general, there is alignment between the innovation activity of the telcos themselves and that of startups, reflecting considerable scope for collaborative engagement.

Startup vehicles used by biggest 26 telcos

The report notes that activity in the collaborative space has been on the increase at the 26 largest telcos surveyed. 'One-off events' jumped from an average of 1 in 2014 to an average of 2 in 2016, with a similar increase in 'corp-up activity'. The leveraging of 'incubator/accelerator' too has seen relatively stable use over the past two years at 2, while 'CVC' has stayed steady at an average of 0.5. 

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5G internet impact underestimated by business

27 March 2019 Consultancy.uk

The UK rollout of 5G mobile internet is set to get under way in 2019, with a growing number of telecomms providers stating they will launch their next-generation coverage by the end of the year. Despite the increasing buzz surrounding the new technology, however, a survey of executives has found a business community which holds rather downbeat opinions about the transformative potential of 5G.

Every decade or so, a new generation of network technology comes along that promises more speed, more capacity and more uses. With each generation, network operators invest capital to upgrade their infrastructure, with the firm belief that those investments will lead to more satisfied customers and reinvigorated revenues and profits. Following on from the launch of 4G in the 2010s, the next decade is set to see the rise of the 5G generation of new mobile technologies. EE, Vodafone, O2 and Three UK are among the telecomms providers to have already announced they will launch 5G services in the UK in 2019.

While previous generations have been understood in almost universally positive terms, the often complex definitions as to precisely what 5G consists of often causes confusion and, in some cases, cynicism. Indeed, a recent study found that 53% of business leaders see no near-term business case for the technology. While the leaps to 3G and 4G were more noticeable, 5G New Radio speed in sub-6 GHz bands is said to be ‘modestly higher’ than 4G, meaning many still believe networks can do well enough leveraging 4G, while implementing 5G is likely to invoke hefty movements of capital.

In response to this lingering scepticism, George Nazi, Global Lead at Accenture’s network practice, has argued that businesses are missing the point about 5G. Commenting on the state of play following the release of a new study on 5G by Accenture, Nazi said that breakthroughs in three-dimensional video, immersive television, autonomous cars and smart-city infrastructure are set to unleash opportunities that are difficult to imagine today, but will soon be transformative. If companies fail to plan for 5G, they could well miss out on these opportunities.

Nazi added, “The reality is that 5G will bring a major wave of connectivity that opens new dimensions for innovation and commercial and economic development… Telecommunications companies will play a pivotal role in bringing these prospects to light.”

Underestimating 5G disruption

Despite these apparent opportunities, the majority of the 1,800 executives Accenture polled remain unconvinced. 53% of respondents from the mid-sized and large businesses canvassed across industries in ten countries said that there were ‘very few’ things that 5G will enable them to do that they cannot already do with 4G networks. Meanwhile, less than two in every five executives expected 5G to bring any sort of  ‘revolutionary’ shift in terms of either speed or capacity.

There were notable differences in opinion across different sectors, however. According to Accenture, over half of respondents from the energy sector believed 5G will have a revolutionary impact with its ability to reach new places – like remote and inhospitable areas – something which can further boost innovative new techniques in the renewable sphere in particular. Compared with just 41% of all executives surveyed, this suggests that specific sectors likely have an altogether more positive outlook for 5G.

Slow uptake

One factor which might be hindering enthusiasm for 5G is that executives may simply not know much about it. While it is true that these same executives are unlikely to have truly understood 4G either, the fact remains that simply improving the product’s name to the power of one has ceased to impress business leaders enough to invest in the technology. Accenture found that almost three-quarters of executives needed help to foresee future 5G possibilities and use cases.

If the upgrade is to take off, then, its champions will need to work hard to address this. This need is further underlined by the fact that roughly six in every ten survey respondents blamed their lack of knowledge on communication service providers. These providers were subsequently slated by executives, who said they had not been made aware of specific challenges in different industry verticals.

Pivotal role for telcos with 5G

At the same time, around a third of respondents noted a number of other perceived barriers for 5G adoption, which they need to be convinced are worth facing. 36% of respondents predictably said upfront investment was their biggest hurdle to get past – the most sizeable minority of those surveyed. 32%, meanwhile, said security was a concern, and understandable qualm in an environment where many still struggle to protect data under tried and tested 4G systems. Employee uptake was also mentioned as a cause of concern to that end, with 30% of responses.

Despite this, Accenture’s survey still found significant cause for optimism on the subject of 5G. Anders Lindblad, Accenture’s Communications & Media industry lead for Europe, contended that despite the knowledge gap, there is excitement among business leaders about the value that 5G can bring to enterprises.

Lindblad added, “This value is currently trapped within the perceived risks and uncertainty around 5G, which can be unlocked by organisations that understand customer needs, can overcome barriers to adoption and can drive collaboration among service providers.”

Looking ahead, the analysis suggests that 5G service providers have a lot to be upbeat about, especially from 2022 onwards. As many as  70% of survey respondents said 5G applications will give them a competitive edge with customers after that point, suggesting that while uptake will initially be sluggish, it will pick up rapidly in the next three years.

On top of that, respondents also related that they were optimistic with regards to 5G coverage. Three fifths of all those surveyed said that they expect 5G to cover nearly all the population – presumably in their own national territories – by 2022, something which would give them rapid access to new markets across the globe in ways never seen before.

While only 46% of survey respondents thought 5G will be making its mark on speed by 2022, and 42% thought the same about capacity, there is a clear belief that eventually the technology will become indispensible. It just may take some time to do so.