Facebook & WhatsApp mount increasing threat to traditional telecoms

Technological disruption and changing consumer behaviour continue to affect telecommunications players, finds a new report. The industry has seen revenues border on stagnation over the past decade, at 0.4% annual growth since 2008. While the industry is keen to develop new digital services and models to meet market challenges, they face a range of barriers – from legacy technologies to a lack of vision from executives.

The telecommunication industry continues to face considerable headwinds in the face of technological advances that have cut into their respective revenue streams. In particular, telecom providers are seeing the encroachment over-the-top (OTT) competitors into their market, with Whatsapp and Facebook Messenger just two examples of companies leveraging data to offer a richer texting experience – undercutting the traditional SMS.

In a new report from accounting and consulting firm EY, titled ‘Digital transformation for 2020 and beyond’, the current conditions for telecommunications are considered in light of rapidly changing technologies and business environment. The report it based on interviews with 83 interviews with 76 organisations across the globe.

Telecoms have faced a challenging decade, with revenue between 2008 and 2016 growing at a compound rate of 0.4%. Fixed revenues have suffered, while the rapid proliferation of mobile technologies hasn’t resulted in a large upswing in revenues for the industry – largely due to OTT providers being able to better leverage their respective market positions to win over consumers.

The industry has, in addition, found itself no longer able to charge hefty roaming fees for services, as key markets begin enforcing laws to ensure a level playing field. The market has also faced uncertain economic conditions – while new technologies and competition has driven considerable investment requirements in the latest generation of network connectivity.

Prashant Singhal, EY’s Global Telecommunications Leader, said, “OTT communications players such as WhatsApp, Facebook and WeChat have redefined the customer experience in messaging and video services, luring traffic away from telco offerings such as SMS. These trends are playing in response to a market in which consumers and enterprises increasingly see value in multiservice packages, with quad-play and cloud packages driving new opportunities."

The respondents were asked to identify the three main challenges facing the industry in the current environment – the firm then compared the results to the same survey two years previous. The most highly rated challenge for the industry, by far, remains disruptive competition, cited by 74% of respondents in the latest survey and by 73% in the previous survey. Lack of organisational agility too was found to be a challenge, as cited by 47% of respondents compared to 45% in the previous study.

The area that has seen the largest shift in concern is an ‘uncertain regulatory environment’, falling from a challenge to 64% of companies in 2015 to 32% in the latest survey. A ‘poor ecosystem relationship’ too has seen a fall in concern, from 15% to 8%. ‘Changing customer needs and attitudes’ has ticked up somewhat in concern, from 24% to 32%.

In terms of the strategic priorities for telcos for the coming three years (respondents were able to pick their top three), ‘digital business models and services’ ranks number one, cited by 71% of respondents, followed by ‘improving customer experience’, cited by 61% of respondents, while ‘cost control and business efficiency’ followed at 53% of respondents.

The areas of least concern, were found to be ‘network upgrades and modernisation’, M&A, joint-ventures and partnerships’, ‘product simplification’ and ‘growing and retaining talent’, at 24%, 13%, 13% and 3% respectively.

While digital business models and services rank as a key business strategy for the firms surveyed, the report notes that many telcos say that they face barriers to implementing such changes. Top among them is the ‘burden of legacy IT platforms and architecture’, cited by 65% of respondents, followed by a ‘lack of skills and expertise in digital domains’, cited by 51% of respondents. The survey also found that ‘continuing pressure on overall budgets’ and ‘leadership focus on tactical considerations’ are creating barriers to transformation, at 41% and 38% of respondents respectively.

The survey also asked respondents to identify the technologies that would best enable long-term operational excellence at the respective company. Top of the list is process automation, cited by 71% of respondents, followed by pervasive and predictive analytics, at 51% of respondents. Cloud-based IT and integrated customer care and support systems followed at 46% and 43% of respondents respectively.

Commenting on the results of the study, Adrian Baschnonga, EY's Global Telecommunications Lead Analyst, said, “Looking ahead, all players will have to strike a balance between more proactive support of the customer experience and more dynamic business and operating models to thrive in an OTT world. The rise of the software-centric operator, where IT is interwoven in the fabric of the business, will determine the winners and losers.”