Making Connections—Industry Focus: Telecom

Telecom’s in a major transition and  “Communications Service Provider Consultants” find themselves confronting many new challenges for clients. And there’s also ample opportunity—especially in the areas of compliance, competition, consolidation and cost.

How do you consult to an industry changing so rapidly that it eludes a standard definition?

It’s a question that telecommunications consultants—or “communication service provider (CSP)” consultants; or even “integrated digital service provider (IDSP)” consultants—are currently grappling with, very happily.

If you ask 10 different consultants to define today’s telecommunications industry, says North Highland Vice President Kyle Anderson, “you’d get 10 different answers.” (You’d also hear a lot about the promise of Internet of Things (IoT) opportunities.) Anderson, a long-time industry veteran who leads his firm’s communications international network and specializes in telecommunications, offers an interesting comparison. “The telecom industry today is like the PC industry in the early ’80s,” he adds. “It is exciting, it is expanding, and most of all, it is constantly changing.”

The magnitude and pace of change explains why IBB Consulting Group Co-Founder and Managing Partner Dr. Imran Shah uses the phrase “post-cable era” to describe the current state of telecommunications. It also explains why Accenture Managing Director, North America Communications Industry Lead Shahid Ahmed says that “CSPs of the future will need to be very different from those of today.” (It’s noteworthy, and appropriate, that some firms have lopped off the “tele” prefix in describing the industry and their practices.)

Thanks to increasingly connected digital consumers, new competitors (e.g., Sling, Hulu, Netflix and other over the top—OTT—companies) and other drivers of rapid change, CSPs risk becoming a commodity network infrastructure if they are not careful. But traditional carriers can combat these challenges, Ahmed notes, by leveraging their “cross-platform, cross-device and cross-service involvement to transform themselves into IDSPs.”

Transformation is overflowing in the communications industry—as the industry itself spills over its traditional boundaries—thanks to shifting regulatory stances, new competitors, changing customer expectations (driven by technological advancements) and consolidation. It has become very difficult to scan The Wall Street Journal each morning without seeing an article on record-breaking merger (AT&T-DIRECTV), a scuttled marriage (Comcast-Time Warner) or a newly announced deal (Verizon-AOL).

All of these disruptions pose new challenges and opportunities for the carriers, cable companies, content providers, OTT companies, wireless upstarts, unlicensed LTEs, old-school media companies, technology behemoths, CSPs, IDSPs and other entities streaming into the communications industry.

Challenges: 4 Highly Disruptive ‘C’s

In the past three years, the Federal Communications Commission’s (FCC’s) shifting stance on net neutrality and competition has produced some “wow” moments (for example, redefining “broadband” and scuttling the Comcast-Time Warner Cable merger). The consequences of these and future regulatory decisions will lead to additional surprises and far more long-term implications throughout the industry.

“Net neutrality is a big one, and it will have unintended consequences,” Shah says. “It remains to be seen whether those consequences are negative or positive, but it will have significant consequences. The FCC’s stance toward mergers also will have significant consequences on the ability of companies to scale. If you’re a local company and your competitor is global, you have to scale up. But if you’re not allowed to scale up that will have consequences. It’s a momentous issue.”

And it figures as just one of several other momentous forces disrupting the industry, including:

1. Compliance

Net neutrality and spectrum availability reflect ongoing and potentially dynamic regulatory concerns that could have a big impact on the industry, not to mention many other sectors that rely on the mobile broadband ecosystem. “While recent spectrum auctions have made additional bandwidth available, consumers’ continued consumption of massive amounts of data may again present challenges in the near future,” notes Craig Wigginton, Vice Chairman and U.S Telecommunications sector leader for Deloitte & Touche, LLP. Future spectrum auctions and any changes to federal policy on spectrum availability “could have a profound effect on the U.S.’ ability to meet consumer and business demand,” Wigginton says.

For the time being, different types of communications companies will need to “find their place in the new net neutrality regime,” says Florian Groene, a Partner at Strategy& (formerly Booz & Company) who works with telecommunications and technology companies.

2. Competition

By empowering consumers and lowering barriers to entering the industry, digitization is rewriting rules governing competition. Price wars continue to rage among carriers. And Groene points to a “new set of born-digital competitors,” such as Facebook (via mobile messaging), Microsoft (via mobile messaging as well as voice and video collaboration, particularly for businesses) and Google (e.g., Android, Google Fiber, and Project Loon, to name a few). Accenture’s Ahmed holds to the emergence of alternative models and companies, such as cable companies that offer wi-fi-based voice and data services, and non-traditional communications companies that offer wi-fi-based mobile virtual network operator services. Not only has competition intensified, its nature has changed. “Competition has gone global,” Shah says, pointing to Netflix’s comments that it would like to operate in 200 countries (soon). In the past, small and mid-sized telecommunications companies tended to compete against other SMBs; today, they can find themselves suddenly going toe-to-toe against global giants.

3. Consolidation

The pace of M&A activity has been hectic in the past few years and that should continue throughout the world. “The communications industry landscape will undoubtedly change over the next three years,” says Strong-Bridge Consulting Principal Ken Simpson. “As a result of price wars, profitability pressures, the need for new revenue sources, and a growing digital ecosystem, carriers will explore M&A options.” M&A decisions and post-merger integration also pose risks. “Related M&A challenges could include lack of clarity on competitive positioning, brand confusion, and negative impacts to customer trust,” Simpson adds.

4. Cost

Despite the price wars, many communications companies are battling to reduce costs and to make sufficient (i.e., massive) investments in networks and innovation. Balancing these objectives marks an ongoing challenge for carriers. Groene says that carriers are trying to achieve a lean cost structure and a “fit-for-purpose operating model” that can support profitable growth going forward. This will be extremely challenging because these companies will need to protect profitability amid a flurry of competitive incursions and find the cash to fund network upkeep and build-out—“all while meeting financial markets’ considerable demands,” Groene adds. Ahmed notes that carriers in a continual state of “cost-take-out mode,” not only reducing costs but also managing price cuts. “And now, because they have overturned virtually every single rock to identify initiatives to take out cost,” Ahmed explains, “they are turning to software based network architecture.”

 Internet of Things and Other Opportunities

“The industry,” asserts Groene, “has arrived in the digital age.” Data is disrupting everything, which means that companies in the industry are hungry to sniff out and exploit opportunities, including three notable areas:

1. Internet of Things

Some industry consultants turn to literary comparisons when describing the fantastic nature of the Internet of Things (IoT) opportunity. “What we can do today seems like science fiction compared to what we could do 10 years ago,” Anderson says.

Communications consultants are busy helping clients exploit this rapidly changing opportunity. Wigginton agrees that IoT is a ripe opportunity for a number of ecosystem players. “Many businesses have the potential to derive high value from IoT,” he says, pointing to one estimate that has IoT-related products and services generating nearly $15 trillion in economic value via efficiency and productivity gains, cost reduction and increases to the customer base. A Deloitte surveys also indicates that 55 percent of consumers are currently interested in connected-home technology despite the fact that IoT is relatively new. And the news is good on the consumer side as well; although IoT is a relatively new concept to consumers.

Ahmed agrees that IoT represents a “huge” opportunity, so long as the industry recognizes and addresses the technology’s challenges. One of the most notable issues telecommunications companies must address relates to data loads on connected appliances and machines—which are quite small compared to the amount of data delivered to smartphones. For example, a sensor on a train’s brake pad provides status information such (e.g., temperature, friction and other metrics) only when certain exception events occur, Ahmed explains.

As a result, “the marginal revenue or yield is substantially lower than, perhaps, video or other content sent over the smartphone,” he continues. “If they want to get into the IoT market in a big way, carriers will have to substantially drop their cost-basis to operate a network in order to on-board and manage millions of these types of ‘things.’” Software-defined networking (SDN) and network functions virtualization (NFV) could help carriers address this challenge, Ahmed adds, by enabling them to launch new IoT-related services with relatively small, even negligible, marginal costs.

A broad range of device connectivity should drive significant growth opportunities in the coming years as the number of on-line devices and sensors increases exponentially. “These devices and sensors span a broad spectrum of uses, from animal and fleet tracking, to inventory monitoring, to home appliance and thermostat management, to wearable devices such as Samsung and Apple connected watches,” notes Simpson, who, like Ahmed, notes that new business models are needed for these low-margin, high-volume transactions.

2. Customer Expectations and Experience

Companies within the expanding communications industry manufacture, enable and/or improve a magical device that consumers look at more frequently and rely on more heavily than almost any other consumer product.

According to Deloitte’s “Global Mobile Consumer Survey,” nearly 90 percent of U.S. consumers check their smartphone within one hour of waking up, and about 25 percent check their phone more than 50 times a day.

The exceedingly high and rapidly changing expectations consumers and businesses have regarding their smartphones—as well as the activities they support—is reshaping the industry. “The need for a superior customer experience will continue to be paramount,” Ahmed asserts. As more and more customer experience takes place on smart phones, digital consumers are forming new expectations about the ways communications companies should interact with them. One notable change relates to the notion of a “seamless” customer experience.

“We’ve seen an increased focus on improving the customer experience from start to finish, providing an easier and more seamless set of interactions between carriers, for example, and customers,” Simpson reports. “However, despite the prevalence of customer experience rhetoric and some progress, driving true cross-channel experiences that absolutely delight customers remains a great opportunity for many consumer-facing companies.” Carriers that successfully enhance customer experience can reduce churn and increase earnings (a blessing when pricing plans are at a relative low point).

As download speeds increase via LTE and, soon, 5G as well as through more convenient (and, yes, “seamless”) switching between cellular and wi-fi networks, consumers’ appetite for high-quality streaming video has intensified. Asked to describe consumer patterns, Wigginton responds with one word: more. “Consumers have an insatiable desire to watch, hear, share, connect and discuss via mobile devices,” he says. “We are obsessed with our smartphones and tablets—they have become an indispensable part of our daily lives.”

Besides wanting more of it, consumers also want their content everywhere. Consumers have become “untethered,” Shah observes. Previously, we had to sit down to watch HBO on TVs connected to cable boxes; that’s no longer the case, which creates a new set of challenges and opportunities.

Deloitte research shows that most consumers use more than a gigabyte of data per month for audio and video streaming via their smartphones; the survey research also shows a double-digit increase among U.S. consumers streaming television or film over the past year, along with 30 percent year-over-year growth in streaming music. Younger viewers spend more time watching TV shows on mobile devices than on television screens.

“Millennials are influencing product and service functionalities,” Wigginton notes, “and [they] are eager to adopt the next big thing—with wearables being a new trend.” All of these trends mark ripe opportunities for companies in the industry, so long as many of them accelerate their evolution from engineering-based cultures to experience-based consumer-centric cultures. This evolution involves the organizational culture and the talent base, notes Groene.

He says that carrier and the industry’s original equipment manufacturers have a growing need to develop a more nimble, agile, customer- and user-centric mindset” that embraces experimentation, rapid launches (and learning from them) and other qualities of innovation traditionally associated with fast-growing technology companies. While doing so, these companies also need to protect and retain “the virtues of engineering excellence,” Groene adds.

3. Innovation

Although the evolution toward a more customer-centric organization has been underway for some time, new competition and changing customer expectations have driven many carriers to seek consulting help to stimulate innovation in several different areas.

The knowledge and experience base of the traditional telecoms differs significantly than the knowledge and experience within upstart competitors, such as OTT providers, notes NorthPoint Group Chief Operating Officer Rich Iler. “The culture within the over-the-top companies drives innovation that is buried in the traditional telecoms,” he says, noting that traditional telecommunications companies also possess great troves of data that they have yet to fully harness. They can, Iler adds, by creating “unique business models that provide meaningful analytics for uses outside of the telecom’s existing business model.”

Anderson agrees that “fast innovation” marks one of several key challenges many traditional communication industry companies confront. Ahmed says. “CSPs of the future will need to be very different from those of today.” As consumers become even more connected, “they will begin to realize that their experiences are highly fragmented,” Ahmed continues. “They will notice the relevance of OTT players that have the ability to offer services and experiences on any connected devices, without having to worry about location and technology infrastructure.”

This type of realization could help relegate CSPs to commodity status. Of course, traditional telecommunications companies have no desire to be “dumb pipes,” which is why they’re aggressively seeking assistance in becoming more innovative.

This search four outside expertise should sustain for a long time, barring any unexpected global financial disruptions—and provided consulting firms continue to attract, develop and deploy the quickly changing skills and expertise necessary to help companies in the post-cable era. Of course, these capabilities always change—and likely always will. As Anderson notes, current IoT breakthroughs seem like science fiction compared to a decade ago. However, he adds, “The same will be true 10 years from now.”

 

Sidebar: Four Crucial Communications-Consulting Skills

“Even more switch-hitters.”

That’s what IBB Consulting Group Co-founder and Managing Partner Dr. Imran Shah says he looks for when recruiting and hiring communications consultants. Shah wants consultants who can think strategically and execute. It may be more accurate to say that Shah recruits switch-hitters who can hit for power and average to fit into his communications and content firm’s unique structure. This structure, which Shah designed to avoid silos of any kind, features three “special interest groups”—cable, mobile and data—that integrate with strategy, technology, operations and execution management service lines under a single P&L.

Other consulting leaders emphasize a similar desire for multi-faceted talent. At Strong-Bridge Consulting, Principal Ken Simpson points to four skills and experience areas, in particular, that will become more important to hire in the near future:

Brand and Customer Experience Strategy:  Simpson views this expertise as a potential competitive differentiator as consultants field more demand for clarifying clients’ brand promise and then define and deploy the right strategies, processes, technologies and people to help them live up to that promise.

Complex Program Leadership:
Strategy is critical, but execution is often more difficult.  Simpson expects demand to increase for consultants who can plan and lead complex transformational enterprise programs for their clients.

Architecture:
Given the complexity of IT and network systems in the communications industry, application, mobile, and integration architects remain highly valuable.

Security Specialists: The proliferation of connected devices increases security risks. For example, “sports bands wearers may be unwittingly transmitting personal data through unsecure connections,” Simpson adds. “Security architects and specialists will continue to be in demand [because] security models must evolve.”

 

Sidebar: Q&A with Accenture Managing Director Shahid Ahmed

Accenture Managing Director Shahid Ahmed, who leads his firm’s North America communications industry practice, expects communication service providers (CSPs) of the future to look very different compared to how they currently look. Ahmed took time to discuss how the industry and its growing number of participants are changing.

Consulting: How do you define the telecommunications – or ‘communications’ — industry? What types of companies does your company/practice serve?

Ahmed: Simply put, the communications industry is the convergence of networks and devices to transmit content (audio, video or digital information) over a distance. But today’s communications industry has come a long way from this basic premise. Now, communication service providers (CSPs) looking to reimagine themselves in a technology-driven world are striving to become digital businesses. A digital business connects people and things to the Internet, using technology as a competitive advantage in its internal and external operations. The growth of digital businesses is resulting in a tremendous amount of disruption for CSPs.

Consulting: What are the sources of this disruption?

Ahmed: We are seeing alternative communication service providers emerge. For example, some cable companies are offering Wi-Fi -based voice and data services and non-traditional communications companies will be offering Wi-Fi-based mobile virtual network operator services. Other mobile communications firms are using both Wi-Fi and cellular networks to provide low-cost communications services. Then on the wired side those same non-traditional communications companies are disrupting the broadband markets. In the near future, we will also see ”wholesale” wireless service providers emerge, especially as demand for Internet of Things (IoT) connectivity rises.

Consulting: How is your practice helping clients amid these changes?

Ahmed:  Accenture’s communications industry practice serves leading CSPs in this increasingly-evolving and dynamic competitive environment. Accenture helps communications industry clients face the challenges to connect with the digital consumer, increase revenues, develop and launch innovative products and services quickly and optimize network performance while reducing costs. The combination of our consulting, technology and outsourcing experience, paired with our deep industry knowledge, helps us verify that we bring the right solutions and resources to enable our clients to unlock profitable growth, improve operations and achieve high performance.

Consulting: How has the industry evolved?

Ahmed: The communications industry has seen new, converged competitors enter the value chain. As a result, CSPs are now facing the challenges of connecting with the digital consumer, driving revenue and quickly developing innovative products in order to grow revenues. Subscriber penetration is close to 100 percent in many developed markets. Price wars abound, and over-the-top (OTT) services eat away at traditional carrier revenues. Furthermore, new technologies such as Wi-Fi and unlicensed LTE is compounding competitive pressures, combined with regulatory changes on the horizon—all of which is stressing the ecosystem

Consulting: What are other notable challenges?

Ahmed: The communications industry is facing challenges with mobile data revenue, competitive pricing, and escalating costs. In many markets, mobile data revenue has proven insufficient to make up for the decline of legacy services such as voice and SMS, which are being rapidly supplanted by OTT applications that can generate 50 percent to 90 percent less revenue for CSPs. Saturation is increasing competitive pricing pressure, even in many growth markets. Fixed-line prospects may be similarly constrained by cord cutters and shavers, especially for services facing increased OTT competition, such as voice and video. Finally, while revenue growth remains challenged, mobile data consumption is expected to grow, accelerating demand for network investments. The network investments needed to keep pace with demand could top $2 trillion over the next decade, according to the GSMA. While new technologies such as cloud and digital offer some cost savings, [current network investments] are insufficient to cope with the pace and magnitude of escalating costs. Everything I’ve mentioned—cost pressures, price wars, increased competition caused by OTT, and new regulations—will continue, and even escalate.

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