1 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ) Seven Drivers for Innovation in Communication Industry Author: Gaurav Johari @GauJ
Aug 18, 2015
1 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
Seven Drivers for Innovation in
Communication Industry
Author: Gaurav Johari
@GauJ
2 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
Contents
Current Investment Scenario ....................................................................................................................3
Transform Data-Centric to App-Centric Innovation ..................................................................................5
Support Open Source Innovation .............................................................................................................6
Analytics-driven Innovation ......................................................................................................................7
Hyper-Spectrum Efficiency........................................................................................................................8
Lean Service Portfolio ...............................................................................................................................9
Service Delivery Optimization ................................................................................................................ 10
Invest in R&D for Innovation-led Growth .............................................................................................. 12
Conclusion .............................................................................................................................................. 13
References ............................................................................................................................................. 14
3 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
Current Investment Scenario
For more than a decade, communication industry has been growing exceptionally both in terms
of subscriber base as well as revenues. The focus of the industry giants has been driven by huge
investments in adoption, expansion and enhancement for wireless technology to propagate
telephony services especially in data-led growth.
Global CAPEX levels in the telecommunications industry have soared from $50Bn to $325Bn, in
real terms, over the last thirty years#1. Below is the Global CAPEX Spend of Telecom Industry
Interestingly, in a recent survey#2 of Communication CEOs reveals that most CEOs will be
focusing on growing customer base, enhancing customer services and M&A. We have observed
the same in previous
years where
communication
industry focused on
customer acquisition,
geographic expansion
of network coverage
and adopting newer
cellular technologies
to enhance customer
services. At the
current levels of
industry maturity,
most operators have
hit a plateau in terms of subscriber growth, data-driven consumption and service delivery.
4 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
These pillars of hyper-growth have settled in with competitive differentiation being a luxury for
communication service providers. Therefore, the mindset of most CEOs seems fixated on the
past glory (which have yielded strong financial and shareholders’ performance). Of late, some
quarters in the industry stewards are getting worried about a wave of OTT players whom they
believe will threaten future of entire communication industry, despite OTTs’ invincible
dependency on Telecom Operator for their existence.
Given the pace at which industry and industry-dependent substitutes are evolving (Whatsapp
offering voice calls to 300+million subscriber hitting voice service revenues of Telcos#3), there
needs to be strong focus on innovation on customer services, revenue generation and
operational efficiency. The next wave of growth for Communication Industry will be enabled by
innovation and strategic investments in creating value assets for operators which will help
them grow faster, enable service differentiation and meet the growing threat from substitutes
(of traditional telephony services like voice and SMS). The story of business innovation in the
industry will be accelerated by the following drivers:
5 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
Transform Data-Centric to App-Centric Innovation
In last few years, Telecom companies have transformed itself from Voice-based to Data-centric player.
In the process, they have invested heavily in upgrading their Network, IT and Business to gear up for
higher data-driven services like
1. Upgrade to IP based Network
2. Roll-out of 4G/LTE Network across the nation
3. Transform BSS applications to meet Data-centric billing and service assurance
4. Focused marketing effort to take-on cable companies and ISPs
5. Acquisition of additional spectrum (800Mhz – 1900Mhz) for data capacity expansion
These efforts resulted in creation of huge capacity for delivering data-based services including mobile
broadband, IPTV, Telematics, VoIP, Home Networking, WiMax etc. At the same time, OTT players took
the advantage of the growing data capacity, data accessibility and lower data prices to launch customer
centric services based on the growing need for connected people, connected machines and connected
services. While OTT players filled the gap between data-as-a-service to data-as-an-enabler, Telecom
players lost the battle on riding consumer demand for service which adds value to their lives.
Having lost the first wave, lot of Telcos are coming back with concentrated effort to win-back lost
customer preferences by creating their own apps and ancillary services. India’s largest operator Airtel
has launched Whatsapp-like messaging service HIKE with
added advantage of free data used offers as well as WYNC
Music app. With the large customer base on smartphones
and data services, propagating these apps will be easier and
lucrative for consumers who can use them at either lower
priced data plans or get additional benefits like free credits
or free SMS for using them. This will open-up the doors for
App-based innovation in the World of Communication!!
Source: Hike.in
6 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
Support Open Source Innovation
For a long period of time, Communication Industry has been surviving on multiple standards and
protocols built by multiple equipment manufacturers, product vendors and software vendors. With the
growth businesses, consolidation in the industry and multi-vendor approach, this strategy is no longer
working in their favour. In fact, complexity in protocols and standard is now a major deterrent for Telco
to rationalize their vendor-dependency.
Given the complexity and high level of investments, it’s time for Telecom Industry to demand and
propagate standards across technologies, systems, tools and software to make them inter-changeable
with seamless integration, flexibility, upgrades and discards.
Once the industry adopts or defines their protocols / standards, they can further drive co-creation of
open source assets which are either crowd-sourced or proprietary with limited control for new player to
join the ecosystem. This process will help create the environment or platform for value-providers to
provide innovative solutions across the spectrum leading to better solutions for operators to adopt,
enhance and monetize.
7 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
Analytics-driven Innovation
One of the most important assets for Telecom Operator is the vast resources of customer
information collected over long period of time. Today, operators know most about their
customer demographics, behaviour, experiences, preferences, network, paying capacity, credit
history, online activities, competitive information, etc. All this enormous pool of data is
available for Analytics/Big Data-driven innovation for increasing revenues, optimizing cost or
enhancing customer experience for stronger loyalty and effective word-of-mouth.
Areas where analytics-led innovation is adding immense value to operators:
1. Monetization of customer data for alternate revenue sources
2. Know-my-Contract to Know-my-Customer
3. Effective up-selling or cross-selling
4. Location-based analytics
5. Optimization of business operations
6. Prediction of fraud or revenue leakages
7. Enhancement of QoS
8. Improvise Asset Efficiency (Track and Manage)
9. Lead management
10. Federated business intelligence
8 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
Hyper-Spectrum Efficiency
With the ever growing cost of spectrum acquisition, there is an extreme focus on increasing the
throughput within the constraints on the spectrum available. This is leading to technology-innovation
for delivering better data services within the resources. Also, tap additional resources for data services
like ‘Whitespaces’ and ‘Micro / Pico Cell-Sites’. All because of the fact that data service consumption will
increase exponentially in the coming years.
Data consumption is expected to
increase exponentially from 2010 to
2017. Data access through mobile
phoned will grow at the faster pace
over the same period. Data access
through mobile PCs and tablets will
be of equal quantum as that of data
access through mobile. Voice will be
the laggard with stagnant growth
and diminishing percentage on the
overall scale. 3G in India is expected to cross 100m by 2015 with 190% CAGR
This is leading to introduction of 5G services using a very high frequency part of the spectrum above 6
GHz. This could support a variety of new uses including holographic projections and 3D medical imaging,
with the potential to support very
high demand users in busy areas,
such as city centres. 5G mobile is
expected to deliver extremely fast
data speeds – perhaps 10 to 50
Gbit/s – compared with today’s
average 4G download speed of 15
Mbit/s. 5G services are likely to
use large blocks of spectrum to
achieve these speeds, which are
difficult to find at lower frequencies.
9 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
Global Mobile Data Consumptions Trends, 2012 - 2017
Source: Ericsson Data (June 2012)
Source: Cisco Data (2011 –12)
Lean Service Portfolio
Globally, as per the survey conducted by E&Y, most users use mobile data for browsing, social media
(through apps), IM and VoIP. App downloads, music streaming and mobile video has high potential of
uptake. Therefore, operators needs to simply their service portfolio for consumers to have flexibility as
well as value-addition to meet their needs.
Source: E&Y Customer Survey
The focus on innovation should be around browsing, apps and videos
The estimates indicate an explosion of data
consumption over the period. Mobile video
contributes the most of data consumption
which is going to increase at 66%. This is
followed by mobile web / data usage.
Interestingly, file sharing and M2M will
increase its share of data consumption.
Mobile video usage across Europe and Asia is
the highest indicating higher data
consumption. Web browsing (including app
usage) is another driver for data consumption
Source: E&YCustomer Survey
10 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
Service Delivery Optimization
Telecom operators need to transform their service delivery framework by adopting other stakeholders
to drive innovation.
Differentiated charging for data services will also help in driving service-led innovation.
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Telecom operators are trying to solve the input-output equation for data services where they can
measure the correlation between investments and value. The key is Customer Experience
Operators need to make huge investments to meet the growing demand for data services
Developer communities are thriving on the open-source phenomenon and open-APIs for developing customer-centric applications and tools
Over-the-Top (OTT) players are leveraging the growing need for connected mobility and connected services from ever exploding digital consumers
Consumers are getting hyper connected ,consuming more digital
services and demanding better experience on the more
DataIs King
O2 fixed broadband plan tiers differentiated by quality of experience customer can expect from key applications (i.e. OTT video and Bit Torrent)
Swisscom introduced a new pricing model in attempt to protect its position as the dominant national communications firm. Subscribers were offered unlimited voice, SMS and data, but presented with differing pricing options according to their desired download speed.
HKBN provides data services as commodity to subscribers looking for high-quality, cut-price broadband access Though its low-ARPU operating model, HKBN makes “decent margins” on its subscription charges which it levies as subscriptions for using specific OTT application
T-Mobile (DE)charges additional prices VoIP traffic to protect against the OTT revenue leakage with specific devices and rate plans that support VoIP services on T-Mobile network. E.g. T-Mobile minimum VoIP plan is €9.95 per month for 90 days
Vodafone (UK) have certain price plans which doesn't include VoIP service access (Skype, Gtalk...) while subscribers can add mobile data allowance for opting VoIP at £15 per month for 30 days and an option to opt out any time
Singtel offers priority data access for premium plans wherein customers can enjoy faster and reliable internet connectivity on their devices and gets priority for their data traffic when the network is heavily loaded hence ensure better experience
BT performs traffic management of time insensitive applications to smooth out usage into off-peak period
Speed based pricing
OTT Subscription based pricing
OTT specific charging
OTT specific charging
Premium charging for priority
Tiered pricing for differential exp.
Network control and optimization
12 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
Invest in R&D for Innovation-led Growth
One common thread between world’s most innovative companies is their R&D Spend as %Sales. There
is a direct correlation between innovation and R&D
spends by these companies. Interestingly, no
Telecom Operator gets a berth in the top 10. The
reason is simple; Telecom industry is one of the
lowest spenders of capital in Research and
Development. In fact, it is the lowest in most core
industry contributing to GDP. Below illustration
provide a glaring gap in the industry with respect to
R&D impacting innovation-led growth:
# Industry R&D Spend
1 Electronics and Computing 25.9% 2 Healthcare 21.1% 3 Automobile 16.2% 4 Industrial 10.7% 5 Software and Internet 9.2% 6 Chemicals and Energy 6.5% 7 Consumers 3.3% 8 Aerospace and Defence 3.3% 9 Telecom 2.1% 10 Others 1.7%
To couple with that, Telecom sector posted the steepest decline (-7.5%) in the R&D spend from last
year. To drive innovation in Telecom, CEOs need to focus in IP creation by spending more on R&D.
13 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
Conclusion
In conclusion, Communication Industry is at the cusp of innovation-led growth provided its re-aligns its
strategy toward creating an eco-system to generate value assets which are required for growth and
sustainability. In this context, Telcos needs to leap their R&D spend from current 2.1% of revenues to
20% share in order to infuse the required capital, investments and strategic focus. The important
question remains: Where these increased investments should be placed for ROI maximization.
Below is a quick assessment of the increased investment and its likely impact on shareholders' value
# Driver Impact Rationale
1 App Driven Innovation (Content Centric)
High Content and app-based approach will enhance subscriber uptake of services (data) and additional value (content)
2 Open Source Innovation (Standards)
Medium Adopting open-source standards and protocols will help reduce vendor-dependency and ops. Costs
3 Analytics Driven Innovation (Data Centric)
High Enhanced value creation from data monetization, customer experience and customer longevity
4 Hyper Spectrum Efficiency (Network Technologies)
High Increased efficiency will ease pressure on spectrum acquisition, enhance capacity (at lower CAPEX) and future readiness of advance services (healthcare)
5 Lean Service Portfolio Low-Medium
Simply service portfolio for better uptake, flexibility in billing and ease of roll-outs (faster time to market)
6 Service Delivery High-Medium
Create right ecosystem for partners, value-providers, communities to provide differentiate service offerings
Invest in R&D
App / Content Centric
Open Source Centric
Analytics Driven
Spectrum Efficiency
Lean Service Portfolio
Optimal Service Delivery
14 Drivers for Innovation in Communication Industry Author: Gaurav Johari (@GauJ)
References
#1: Source: Bloomberg
#2: Source: Bloomberg
#3: Report on Telecom Companies losing revenues to OTT (Source: Fortune.com)
#4: Source: Bloomberg data, Capital IQ data, Strategy& analysis: