Unlocking the Telco Industry's Potential for a Stronger Future

Reinventing the Integrated Telco Business and Operating Model

When an industry's long-relied-upon model fails to deliver consistent growth and profitability, it's time to innovate. Telcos have two main approaches: boosting efficiency and effectiveness, and pursuing growth at scale.

Boosting efficiency and effectiveness involves leveraging digital technologies, organizational rethinking, and investment sharing. Telco survey respondents consider these the most important levers for future value creation. A comprehensive, digital-driven redesign of the operating model can lay a new foundation for success. Digital, AI/generative AI, data, and automation should be at the center of all business activities, enabling a flexible and resilient organization that benefits all stakeholders.

Investment sharing can reduce the toll on return on invested capital (ROIC). Network sharing has shown promise, saving 10 to 25 percent in operating expenses and 15 to 40 percent in capital expenses. Other approaches include establishing a new independent entity or attracting third-party investment. For example, in Malaysia, a separate wholesale network operator was created, and in Italy, an Open Fiber joint venture was established.

Pursue Growth at Scale

Instead of focusing on maximizing earnings from the existing portfolio, telcos can expand by tapping new revenue sources. B2C and B2B products can help sustain the core connectivity business.

In the B2C space, areas like fintech, home security, gaming, travel, and advertising have been fruitful. For example, Spain's Movistar launched a home security product, and UK's Sky debuted a home insurance product. In the B2B space, network APIs hold great potential. Successful APIs could create new applications and unlock significant revenue for telcos.

Green energy is another opportunity. By investing in net-zero goals and sustainability offerings, telcos can improve their bottom line and attract stakeholders. Some telcos have already partnered with energy companies to offer integrated solar distributed generation products.

Delayering: Separation into Multiple Independent and Agile Entities

The economic and financial challenges telcos face have led many to believe that a dramatic transformation is needed. By delayering, telcos can unlock hidden strengths and become more efficient and effective.

There are different ways to delayer, such as delinking the services and infrastructure sides. One operator in the Middle East and North Africa created five new verticals. To succeed, certain elements are essential, like creating independent units focused on growth, collaborating where appropriate, and enabling performance transparency.

The payoffs of delayering can vary. For example, Turkcell spun off its digital services into stand-alone platforms and generated significant revenues. However, delayering is not without challenges. It takes commitment, time, and capital. Some worry about losing preferential treatment or inhibiting cross-entity product bundling.

Shifting to a Utility-like Business and Operating Model

There is a broad consensus that the telco industry needs to make a fundamental shift. Close to three-quarters of surveyed telcos believe their organization would benefit from changing its archetype.

This shift involves increasing emphasis on efficiency over growth, reducing capex intensity through investment sharing, and pursuing regulatory support. Telcos need to streamline processes, align infrastructure investments with national strategies, and prove their status as critical assets.

In practice, shifting to a utility-like model is complex. Telcos need to make a series of moves to attract investors and ensure sustainable growth. Despite the challenges, the telco industry still has valuable assets and opportunities for a new era of success.