To Boost Wholesale Profits, Look Beyond Connectivity
How do cinemas make money? You might think they earn a good chunk of revenue from screening the latest movies and films.
But that’s not the case. For example, the average cinema in the United Kingdom makes only 37 percent of its revenue from selling tickets. Most of it comes from selling popcorn, beverages and other snacks.
This is the model that is developing in the telecom industry. Operators are generating less and less revenue (and, particularly, profit) from connectivity. So, they need to make money from the value-added services provided on their networks. Continuing our popcorn example, the connectivity (the movie) gets customers in the door, and the services (the popcorn) make it worth their while to stick around.
Operators are already seeing revenue growth from non-connectivity services. For example, Vodafone’s Global Enterprise business unit has seen a six percent increase in revenue over its last fiscal year. But making money beyond connectivity, especially in wholesale telecom, has proven difficult. According to BCG, operators’ overall B2B market share has declined by five percent or more every year, and CSPs’ wholesale businesses report the same percentage reductions.
To offset losses in their traditional wholesale business, operators will need to look beyond simply selling connectivity. The real profit potential lies in the digital services that can be delivered through their network. And capturing that digital profit potential will require new partnerships and business models.
Firstly, let’s talk about the fundamentals of digital partner ecosystems. Services like fleet management or smart lighting in smart cities will be delivered by multiple parties. These services will be delivered over operators’ networks, from the sensor to perhaps an edge network, to a cellular network and into the app provider systems. This involves many partners across the digital partner ecosystems, and within an individual service. And they need managing. Efficiently.
Any partner management system needs to automate the calculation and payment of settlements across the parties of the supply chain. And revenue settlements will ideally at least mirror the cost structure of the product. Settlements can be one-off for activations and terminations, discounted when tier thresholds are met, per unit, per usage, or any other parameter that applies to the service.
The key is to be able to map all these relationships, partnership agreements and contract terms to deliver the service and share revenue.
New Business Models
According to the World Economic Forum, operators could earn about $142 billion in profit from consumer digital services like video, entertainment, healthcare and mobile financial services, and roughly $50 billion from enterprise digital services like unified communications, cloud services and analytics.
When you think of the thousands of companies that will offer digital services and the platforms they will need in place to deliver those capabilities, it is incomprehensible that they will all be able to efficiently build the capabilities the need. It is not hard to imagine that in the same way they invest in third-party ERP and CRM systems today, they will need to do so for their digital services to be competitive.
The opportunity for operators lies in building on their strengths across device management, connectivity, security and network know-how among many others. One key area is monetization. For example, as IoT moves from simplistic subscription models to more complex business models, monetization will be key to market differentiation, financial integrity and revenue generation.
Once operators and their wholesale partners work out where the full “value” is in IoT and other emerging technologies, then it will be important that they have the sophisticated monetization capabilities in place to enable them to extract the most value from that “popcorn.” Not only do operators need to identify their value-add, but they need to be able to generate full revenue from it.
My teams have been talking with operators about where the full “value” is in IoT and other emerging technologies, and the importance of sophisticated monetization capabilities to enable them to extract the most value from their “popcorn.” Not only do operators need to identify their value-add, but they need to be able to generate full revenue from it. Reach out to CSG to engage in the conversation.