Why Platforms Are Key for Telco Monetization
Written by Paul Budde, CEO of Paul Budde Consultancy
The telecoms industry was right at the forefront of the digital explosion, but for a long time telcos concentrated on protecting their very lucrative incumbent voice businesses. And so companies such as Google, Apple, Facebook, Amazon and many others in the internet market had free rein to develop over-the-top (OTT) business models, using the existing telecoms infrastructure to build their own platforms from which to distribute their own services to end-users.
The nature of the telecoms business, its culture and its business models has not been very well-suited to a more vertical approach that can be provided through platform-based models. Key reasons are that their financial, technology and business models are not well-suited to starting a platform and taking the risks involved in setting them up.
But let’s say that telcos were to pursue a platform-based model. They might be able to do it better than the companies that are now.
For example, let’s look at the massive transformations that are taking place in transport, cities and energy. What is needed is a holistic approach to these developments. Telcos could take control of such a platform, rather than just being a supplier to some of the underlying elements of new smart models.
Looking around the globe we see the car industry, cities and energy companies trying to take charge of the platform. As they often lack in-house ICT skills, the success of these platforms is a hit-and-miss situation. In other cases, IT companies are taking charge. The problem with these latter organizations is that their clients have become increasingly wary of proprietary solutions.
Telcos quickly become partners in such projects but most of the time they are relegated to providing basic telecoms services; and often these services are tendered for by the project leader, and competition makes sure that the margins for the telcos remain rather subdued.
Looking at the very upbeat messages that the telcos are sending out regarding 5G, the situation will become even more complex. In order to deliver the applications that the technology promotes, such as IoT and the much-promoted connected car business, platforms will require cooperation between telcos. Such applications can’t rely on one supplier alone. You cannot have a driverless solution that only uses the Telstra network or the Optus one.
But telcos are not used to partnering with competitors. Often the message is “let’s partner, but you have to do it my way.” Car manufacturers in Europe have already indicated that they are not going to build the roadside IoT platforms and are looking at the telcos to collaborate. So who will develop the “build it and they will come” business model?
If the telcos do want to better monetize their network, they will have to move up the value chain—and this will require a totally different, platform-based business model. Most likely this will require setting up structurally separated new companies, each individually specialized, based on the markets they are selecting. The platform would largely be built around a virtual “telco” model – mainly operating in the cloud. They should be open to external developers and partners securing an ongoing development of new and innovative offerings.
In such a model, the telcos’ unique skill sets allow them to take a greater controlling role. Rather than being asked to be a partner they should set up the ecosystem for the platform, select the partners, develop the financial models around the platform, and be in control. Their independent position also allows them to scale this business model and replicate it where opportunities arise.
There is no doubt that such an approach holds significant risks. Some initiatives will fail. Of course, such a model should be thoroughly assessed through scenario design but that shouldn’t lead to procrastination. If done well the rewards will be large.
The telcos arguably have the deepest insight into customers’ behavior, but if they are to move up the value chain, they will need to use this insight to move out of partnerships and establish themselves in a controlling position.
Paul will be addressing this topic at the upcoming CSG Asia-Pacific Summit in Brisbane. Register your interest to attend the summit here.
Paul Budde is the CEO of Paul Budde Consultancy, an independent advisory company. Paul specializes in the strategic planning of government and business innovation and transformation around the digital, sharing and interconnected economy, resulting in the building of smart cities and smart communities (including e-health, e-education, smart grids, smart transport and digital media). He has been involved as an adviser in discussions on the national interest concept of smart infrastructure during meetings in the White House and with the FCC, the United Nations and governments around the globe.
Any opinions expressed in this blog are that of the author and not necessarily reflective of the views of CSG.