For some years now, telecom experts—including us—have been hammering home a point: telcos need to embrace new ways of working, new business areas, and new technologies if they are to adapt to, and thrive in, a changing world. Maybe 2020 hit the nail a bit harder than anyone needed. But the world has changed, dramatically, and the question is, are telcos ready? Are they prepared not only to adapt to a new reality but to help lead the way?
These questions are at the heart of this year’s telco IT benchmarking study (TeBIT)—a survey of European operators’ IT spending and performance that was completed in December 2020. While TeBIT takes a deep dive into a different topic each year, at its core the benchmark is about adaptation: how telecom operators are reacting to new trends, new market challenges, new customer preferences and behaviors. COVID-19 has all of that, supersized, and has put telcos’ adaptation skills to a tremendous, unprecedented test.
As a group, telcos have risen to the occasion. They’ve ensured robust connectivity when customers needed it most, provided enhanced services to critical institutions like hospitals, and helped governments use movement data to inform, and improve, their mitigation efforts. They’ve played a new role and are perceived in a new light: as crucial players in keeping economies, and society, resilient.
But we also saw that some operators adapted more successfully than others. Operators that stayed close to their customers—proactively reaching out with information and enhancing digital channels when retail stores closed—experienced a smaller revenue decline than their less digital, less customer-centric peers. Some telecom companies were able to respond quickly and effectively to rapid shifts in how customers, and their own employees, work. And as digitization accelerated, some telcos were well positioned to support new kinds of solutions and capture new kinds of customers.
Why were these telcos able to adapt so well? Enablers were key. Telecom operators have increasingly, if not always wholeheartedly, embraced digital transformation, agile methodologies, and data and analytics. In a highly digital world, where requirements—and expectations—are evolving, these enablers are no longer optional. Mindset is important, too, however. Telcos have to define their place and purpose in a postpandemic world. They have an opportunity, sure, to strengthen and differentiate their core businesses. But with their expertise, infrastructure, and data, telecom companies also have opportunities to expand beyond the core, into areas like health care; to become vital players in all layers of the ecosystem.
Moves like this will take telcos in less familiar and perhaps less comfortable directions. But sometimes you need to embrace change in order to adapt to it.
Going into 2020, telcos appeared to be holding steady in the face of familiar challenges, such as competition from over-the-top players, price pressure, and the increasing commoditization of their traditional fixed and mobile offerings. On average, ETIS members saw just a 0.3% drop in revenues for 2019 while TeBIT participants notched a hair of a gain with a 0.2% increase. And improvements in customer experience and efficiency, driven largely by digitization, appeared to be paying off: even in a challenging market, 38% of ETIS members were able to increase revenues and EBITDA margin. (See Exhibit 1.)
The majority of TeBIT participants—83%—boosted their IT spending in 2019, the increases driven by IT capex investments, particularly in digital transformation (including system renewals and automation) as well as infrastructure consolidation and renewal.
Then COVID-19 arrived. First-wave lockdowns led to a median revenue change of –3.4% for ETIS members in the second quarter of 2020. Yet the third quarter, when many countries dialed back their mitigation policies, saw considerable recovery. The median was just a –0.6% drop compared with the same period in 2019.
A few points about these findings. First, while the pandemic impacted revenues, telcos do not appear to have been hit as hard as some other industries. GDP for the European Union declined by 13.9% in the second quarter and 3.9% in the third quarter—sharper drops than operators, on average, experienced.
Second, the correlation between national mitigation policies and telco revenue development was a bit more nuanced, perhaps, than expected. As a point of measure, we used the Oxford COVID-19 Government Response Tracker, which, for a given country, assesses the stringency of policy responses and aggregates them into an overall score. We found that maximum stringency did not necessarily translate to maximum revenue impact. Rather, the stronger indicator was the number of days a country maintained a stringency score greater than 70.
We also saw that certain types of revenue were hit harder than others. With travel substantially reduced, revenues from roaming dropped sharply. Data from TeBIT participants and members of ETIS’s Network and IT Transformation Working Group reveals decreases of up to 75%. That added still more pressure on traditional offerings—and more pressure on telcos to reinvent themselves.
When retail stores shuttered, digital channels became essential to business continuity. Most TeBIT participants saw a surge in online device sales in March and April—the height of the lockdown. Yet once stores reopened, sales via digital channels returned quickly to their prelockdown levels.
This suggests that, at least when it comes to purchasing devices, many customers still have a preference for in-person interaction. A BCG survey of telco consumers, completed in June 2020, lends support here: a not-insignificant proportion of respondents, 26%, said they preferred to make their postlockdown mobile purchases in a physical store.
But there are signs that digital is—perhaps gradually rather than dramatically—gaining ground. When the BCG survey asked respondents to note their preferred pre- and postlockdown channels, digital saw a slight uptick on the “after” side of the comparison: 2.5% more respondents now consider it their channel of choice.
Customers also seem to have valued the “proximity” that digital can create. TeBIT participants that were able to stay close to their customers during the crisis—through online, mobile apps, call centers, and so on—experienced less revenue decline.
The takeaway: if telcos develop these channels in ways that emphasize and enhance closeness to customers, they can accelerate and sustain a shift to digital. Innovation is often born in crisis, and already we are seeing some promising ideas. One TeBIT participant, for example, is using its mobile app to offer customers free data and minutes, among other things, to make life a little easier during the pandemic. (See “Getting Closer to the Customer.”) The offers do double duty. They meet emerging needs but also serve as a gateway of sorts: spurring customers’ interest in using the app and discovering other features, like bill payment, and even new add-on services.
An Interview with Branimir Spajić of Hrvatski Telekom
Connectivity is the lifeblood of a world in lockdown. With much of Europe shuttered in the early months of the pandemic, telco networks became a critical enabler—fueling the remote working, distance learning, and e-commerce that would keep economies, and society, running. While network usage increased, it also changed in important ways, creating both challenges and opportunities for telcos.
Data compiled from TeBIT participants and ETIS working groups reveals the shape and shifts of usage patterns. During the first-wave lockdown, in March and April 2020, all forms of traffic peaked, with fixed data, fixed voice, and mobile voice up sharply from prepandemic volumes. (See Exhibit 2.) Mobile data, however, rose more modestly. This makes sense: with in-person activities restricted, telco customers increased their use of videoconferencing, video streaming, and voice calls. And with much of their usage occurring over fixed broadband networks at home, customers placed comparatively less demand on mobile data networks.
Once restrictions eased, fixed voice usage declined sharply, but fixed data remained well above pre-COVID-19 levels. And mobile data usage remained relatively stable, maintaining a slight uptick from prepandemic days. These usage patterns also follow, as many people continued to work and learn remotely, either fully or in hybrid models. (At the time of this report’s preparation, Europe was in the midst of a second wave of coronavirus—prompting new lockdowns and restrictions—and first-wave traffic patterns were reemerging.)
As the world adapted to virtual interactions, telcos kept pace. When Europe locked down in March, telcos immediately started sharing their experiences in ETIS working groups, and it quickly became apparent that no operators were facing serious issues with their network. One factor working in telcos’ favor: the network loads, while high, were not unprecedented. Even during lockdown, daytime traffic increases did not reach the evening peaks seen in more normal times, when streaming, calling, and web usage typically spike.
Telcos did, however, take steps to reduce outage risks. They put planned but noncritical network and site work on hold. They also developed prioritization and throttling strategies, though they did not ultimately need to apply them (over-the-top players like Netflix and YouTube temporarily lowered video quality in several countries). And to ensure that critical functions were not interrupted, operators provided additional capacity to health care facilities and other essential institutions.
Indeed, the link between critical functions and connectivity demonstrates just how vital telcos have become to resilience and economic stability. Telco infrastructure keeps countless processes—in health care, logistics, education, and many other areas—running. And many new behaviors and preferences depend on robust and dependable networks.
For telcos, there are some clear messages here. Operators need to ensure the reliability of their infrastructure. This means increasing the use of network automation and optimizing for low-latency performance. Telcos should also invest in new technologies and network capabilities: 5G and fiber to the home are key enablers for accelerating digital transformation and making the new reality a thriving reality.
But perhaps the biggest takeaway for telcos is that they have new opportunities. Across industries, the pandemic has jump-started digital transformations. Telecom operators have a chance to expand deeper and wider in the digital ecosystem, playing a role that goes far beyond network connectivity—and touches on application development and enablement, analytics, security, and end-to-end solutions. At the ETIS Virtual Gathering in October, participants ranked health care, government, and transportation as the three most promising verticals for digitization. Some telcos have already started down this path. (See “Adept at Adaptation.”)
An Interview with Henri Korpi of Elisa
While telcos managed the additional network traffic well, a larger issue, it turned out, was the supply chain. A drop-off in production in China, a major source of equipment, was particularly concerning. In some cases, operators had to scramble to find alternative supplies within Europe. For at least one ETIS member, supply chain management became a key component of its crisis program. (See “Telcos Take Center Stage.”)
An Interview with Paul Slot of KPN
At the same time, telcos needed to manage an offsite workforce. Many telcos lacked sufficient laptops and licenses for using collaboration tools and other solutions remotely. And in some instances, teams found it challenging to maintain previous levels of productivity and performance. For instance, kicking off a project in traditional waterfall ways of working was much harder during lockdown.
Operators were quick to unblock some of the key bottlenecks. By modifying budgets, for instance, telcos were able to buy more licenses or give themselves increased flexibility in purchasing laptops. Work styles, however, are not so quickly transformed. Today’s waterfall does not become tomorrow’s agile. But the crisis may act as a catalyst to speed the process. TeBIT participants reported better results from their agile teams.
It’s especially important to perfect remote working, as it’s likely here to stay, in one form or another. After the initial lockdown, many telcos shifted to a hybrid model, and much of their workforce is still working remotely. Looking at data from operators participating in TeBIT or in ETIS working groups, we found that telcos had, on average, just 37% of their workforce onsite in August. (See Exhibit 3.)
Cash management—another focal point for telcos’ initial response—was complicated by tradition: in some regions, such as Eastern Europe, many customers still paid their bills in retail stores. Telcos needed to move these payments to digital channels, but to do so successfully, they had to make the online experience smoother and more intuitive. Operators also had to make it easier for customers to sign off on contracts and interact with sales agents and customer support in a virtual way.
The most successful strategies required changes to the digitization roadmap: prioritizing simpler interfaces and customer journeys (making credit card payments easier, for example) as well as tools like chatbots and digital signatures.
For telcos, the pandemic has been a crisis but also a call to action. Telcos have reinvented themselves, working and serving their customers in new ways. Now they have a chance to expand their impact even further.
Already, telcos are assisting with application development and enablement, and with data and analytics, in areas like health care. But they’re just scratching the surface of possibilities. Small and midsize businesses in particular will need help if they’re to become more digital, fast.
So how can telcos speed their journey to becoming more diversified and more influential players? The first step is to apply what they’ve learned from the pandemic. Double down on digitization and customer proximity. Fast-track upskilling to create a digital-ready, digital-centric workforce. Pursue agile at scale, expanding more flexible and more collaborative ways of working throughout the organization.
One more element is key: purpose. Businesses, individuals, and vital institutions no longer see telcos as simply connectivity providers, but as critical enablers for the adaptation and resilience that the new reality requires. So it’s not just about applying the lessons of the pandemic. It’s also about telcos embracing and building on their new role and new momentum. By doing so, they can drive real change. They can move economies, society, and themselves forward—if they so choose.
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