How Robust Integrations Can Deliver New Telco Value Propositions
Telecom firms are transforming their business models to create value beyond selling connectivity. Returns from traditional telecom services show diminishing returns. A 2024 survey by PWC reveals that 52% of telecom CEOs believe their current approach will not be viable in ten years.
To move into alternative markets, telcos need a fast and low-cost approach to developing new services. Enterprise middleware integration platforms offer a possible solution, reducing the burden on internal tech teams while accelerating time to market.
Read on to understand the challenges facing the telecom industry, examples of new business models, and how telcos could improve their development processes when entering new markets.
The Fundamental Flaw of the Telecom Business Model
Tech companies are thriving by leveraging telecom infrastructure to deliver cutting-edge digital services. However, the telecom industry's own business model has remained largely stagnant for the past two decades. Selling connectivity, maintaining and upgrading network capacity for diminishing returns.
As data usage across the world continues to accelerate, telecom firms have to make significant CapEx (Capital Expenditure) investments to meet rising demand. But, across large parts of the world, consumers now view fast and unlimited internet access as a basic commodity.
They see little difference between service providers for both fixed-line and mobile connectivity and simply opt for the cheapest option. This restricts pricing power and creates a race to the bottom where Telcos have to offer low prices in order to maintain their customer base.
The cost of data is dropping, but the cost of providing data isn’t.
The commoditisation of connectivity forces the telecom industry into a cycle of investments that produce dwindling returns. With each new technology and CapEx investment to upgrade the network, telco margins are squeezed further, with most of the value created going to edge players and over-the-top services.
Analysis by Capital IQ, presented by McKinsey, shows how the industry is underperforming compared to others, with ROI dropping significantly in recent years. The MSCI TSR (Total Shareholder Return) percentage from the telecom sector was just 28% between 2015 and 2022, compared to 111% for the overall MSCI index.
With limited opportunities for growth through the traditional business model, telecom firms are entering verticals and developing cross-industrial partnerships to launch new services that offer greater pricing power.
Transforming their business models allows telcos to diversify revenue streams, break the cycle of network upgrades without profit upgrades, and offer products that differentiate themselves from the rest of the industry.
Alternative Telecom Business Models: Top 5 Examples
SK Telecom
South Korean wireless telecom operator SK Telecom operates the eCommerce brand 11Street, which has grown to be one of the largest in the country. Revenue from 11Street accounted for 5% of SK Telecom’s annual revenue in 2020 while also allowing the firm to provide discounts and benefits to customers on its network.
However, running an eCommerce platform is a significant development challenge. The company had to integrate a vast array of services, from managing customer data and providing payment systems to network analytics, supply chain logistics, customer services, and mobile and web applications integration.
02
UK telco 02 has a significant business presence selling concert tickets and sponsoring venues around the country. By partnering with venues and ticketing services, the telecom firm offers customers exclusive benefits when it comes to accessing concert and event tickets before they go on general sale.
This promotes customer loyalty and differentiates the company from its competitors, with consumers choosing 02 for reasons beyond just mobile and fixed-line connectivity. To deliver these services, the company had to develop a ticketing platform with digital integrations, including payment systems, queueing, and more.
Turkcell
Turkcell, a Turkish mobile operator, offers a portfolio of digital services, including leading messaging apps (BiP), payment platforms (Paycell), and food delivery services (Getir). BiP also serves as a super app providing gateways to the company’s other services related to news, entertainment, and gaming. In 2021, Turkcell reported its digital and financial services accounted for 8% of total revenue while helping to reduce mobile churn.
Examples of Turkcell using its digital services to attract and retain new customers include cross-functionality between Paycell and Getir, which delivers a range of payment options. This includes solutions targeting elderly users who may be suspicious of digital services. They can receive Getir deliveries by making payments over the phone and receiving an invoice rather than having to use a credit card online.
Telkomsel
Telkomsel, an Indonesian-based telecom firm, has built a data analytics business based on understanding how its customers interact with its network. This includes products related to geolocation insights, predictive analytics, and credit scoring targeting partners in the retail, gaming, and banking space, as well as other telcos. Telkomsel developed a B2B platform that includes customer engagement insights and analytics as well as functionality for online surveys and tax management.
Netomnia
While these examples represent dramatic shifts in product offerings, other firms are looking closer to home and leveraging existing assets to pivot their telecom services. For example, the CEO of Netomnia, a fixed-line internet service provider providing full-fibre broadband in the UK, recently announced plans to become an MNO (Mobile Network Operator).
How to Transform the Telecom Business Model
Even as the telecom industry’s business model struggles to remain viable, the companies themselves have a rich set of assets to unlock value. Whether it is their existing customer base, data on customer interactions, network infrastructure, or distribution channels, Telecom firms are perfect candidates to offer a range of products in higher-margin verticals.
To follow others and transform their business model, telcos need to understand their position in the market and how they might thrive in different markets. A prerequisite for success and delivering value to modern consumers is an agile IT team that can rapidly deliver high-performance digital services.
However, developing new products requires experimentation and trying different ideas. Telcos need to find ways to achieve this while minimising the cost of development and time to market. All this without sacrificing their core telecom operations.
Thankfully, this development burden doesn’t have to land solely on the existing IT team. Enterprise middleware integration platforms are lowering the barrier of entry to new markets.
Accessing Higher-Margin Markets with XME.digital
XME.digital is an enterprise integration platform offering out-of-the-box components to help telecom firms think outside the box. Telcos need robust integrations to launch new services and work with cross-industrial partners. However, maintaining existing telecom services in a competitive industry leaves little resources for innovation.
XME.digital's API Builder simplifies the development of E2E (End-to-end) process development through third-party integrations. Leverage a library of connections to external systems and popular SaaS services and reduce configuration complexity to quickly bring new services to market at a fraction of the cost.
The Next Step to a New Telecom Business Model
As data consumption soars and returns on telecom CapEx continue to decline, it’s clear that the industry must explore new revenue streams. The value is there, but the existing telecom business model fails to capture it.
Rather than being confined by the limitations of a commoditised market, telcos are exploring alternative paths. Enterprise integration platforms like XME enable telecom providers to quickly and affordably develop new, innovative digital services.
Discover more about the future of development through robust integrations on our website, or get in touch to schedule a personalised demo.
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