Neeraj Arora, Partner and National Leader-Digital, Ernst & Young, India
Digitization is driving significant market disruption, particularly in the telecom industry, with telcos as service providers looking at launching new revenue streams to capture the exploding data opportunity in consumer and, lately to a large extent, in the enterprise segment.
Over the last decade, telcos have exhibited cyclical - but, on an average, declining - revenue growth patterns. Overall, the momentum has fallen from about 10 percent growth rate in 2008 to less than half that rate in the last few years. This trend has been observed in both developed and emerging markets. Had it not been for data, with telcos relying only on voice, they would have seen much lower growth rates. On the other hand, data revenue growth rate steadily increased from 4.5 percent in 2008 to over 7-8 percent recently. The implication is that data has helped generate a significant portion of the telco growth.
Till late, telcos have not taken the lead in offering digital services; that claim belongs to OTTs. However, a few breakaway telcos are beginning to realize the value of offering digital services. The next digital battleground is shifting to the enterprise space, where telcos are considering becoming total solution providers, an area traditionally held by IT services firms.
Embracing Enterprise Opportunities
Market attractiveness, integrated customer experience, and core business protection have been among the key drivers for enterprises looking at adopting new digital products targeted at enterprises. Most of the emerging enterprise products, especially virtual private cloud/hybrid cloud, IoT, disaster recovery-as-a service, vertical solutions, and IoT, offer high profitable growth (over 25-30 percent EBITDA margins over a five-year time period). Moreover, these products help plug the crucial portfolio gap, helping telcos expand beyond traditional areas (mobility and connectivity), while enhancing customer experience through integrated solution bundles.
On their part, telcos already have some of the critical control points around enterprise relationships (albeit often restricted to mobility), network and IT infrastructure, ability to ensure end-to-end SLAs, security and control, platform orchestration, billing and on-demand provisioning, etc. However, there are several considerations besides infrastructure and sales/marketing that restrict telcos' ability to capture full value potential. Clear demand segmentation, deep/domain-specific professional services as well as agile solution development are crucial.
Taking a lead in orchestrating IoT. As telcos consider new growth opportunities in an expanding digital society, the IoT revolution offers avenues for telcos to play an enhanced role and create value. In our view, number of IoT connections in India is expected to reach around 300 million by 2020. Almost 60 percent of these connections are likely to be in industrial, energy and utilities, financial services, and transportation and logistics sectors. These projections do not include smartphones, tablets, as well as actual IoT sensors, which will increase this number multiple times. Also, the Indian IoT industry (from silicon to services, including implementation, managed services and analytics) has the potential to reach USD 30 billion, accounting for 6-8 percent of the global IoT industry by 2020.
Selected use cases like telematics (particularly for fleet management), remote asset monitoring, predictive intelligence-based condition monitoring, connected cars, and physical safety and security are projected to contribute up to 70 percent of total value. To cater to this opportunity, a variety of players across the value chain are coming up. However, from the profit pool perspective, the value varies based on the use case and sector context; it is concentrated on the software/service delivery platform and services space as compared to sensors/end-points, hardware, or connectivity. Managed and analytics services, albeit small at present, would see a significantly high growth rate. While supporting a leading India-based service provider, we found that to move beyond their horizontal platform, roots required focused investment developing vertical knowledge, deep client segmentation, and ecosystem orchestration to capture a disproportionate share of IoT value. Depending on their control points (e.g., mobility versus integrated), telcos would need to determine specific use cases in priority verticals and back these by capability building and partner ecosystem orchestration.
Cloud and virtual managed services as a game changer. Cloud is not only changing the way large enterprises function, but it is also giving small and medium enterprises a chance to use best-in-class infrastructure in order to provide customized client service. A majority of enterprises find cloud computing attractive, since it acts as an accelerator that supports business agility and flexibility with increased elasticity and options to pay-as-you-go.
Overall, the public cloud services revenue is expected to grow four-folds by 2020. Several global players are already establishing data centers in India considering rapid adoption of these services. As providers of cloud services, telcos can manage connectivity, deliver cloud capabilities, and leverage network assets to enhance cloud offerings. Indian telcos are already offering cloud solutions such as storage, computing, e-commerce, and CRM packages on a pay-as-you-go model, which are particularly useful for both SMEs and large enterprises. One of the leading Indian service providers focused on vertical-agnostic products like consumer cloud storage, back-up archival and storage, virtual private cloud/virtual data center, DRaaS, etc., for initial wave of product launch. This was followed by vertical-specific use cases including tab-as-a-service, lite bank branch, etc.
Broadband highways lead the way to smart cities. India is urbanizing at an unprecedented rate - approximately 600 million people are expected to live in cities by 2030, which is more than double as compared to 2001. It is against this backdrop that the Government of India has unleashed the vision of 100 smart cities. Role of telcos in smart cities ranges from providing basic connectivity, which is essential for capturing data from sensors and delivering real-time information to consumers, to providing an overall solution such as by systems integration with other ICT and cloud services.
Turning big-data/analytics into new revenue stream. Telcos are considered to have a natural advantage in the Big-data arena due to a significant volume of data available with them. In order to gain insights into the avalanche of data that they have at their disposal, telcos are increasingly starting to adopt Big-data analytics solutions to turn their data into valuable business insights. Big-data provides benefits ranging from efficiency gains to incremental revenues. Location-based marketing, targeted advertising and vertical specific services are some of the revenue-generating opportunities, whereas it also helps in reducing churn, cross-selling services, offering personalized services, and improving network experience and operations. In India, the analytics market is expected to double by 2018 and telcos are looking to make the most of this opportunity.
Enterprise mobility and Unified communications - Rising workforce fuels demand. Unified communications (UC) has a significant impact on the overall business efficiency, since it enables business collaboration across boundaries, being device-agnostic and closely integrated with business processes. In India, the UC market is expected to double by 2018 and provide new revenue streams for telcos.
Building capabilities in digital services. For successful transformation into a digital service provider, it is imperative that telcos identify their specific assets and differentiating factors to carve out clear strategies. They need to outline core services that they should target in the near term and upon which complementary services can be built on in the longer term. Telcos are creating dedicated business units to build robust digital services offerings. Many have entered into strategic partnerships with players across the value chain to benefit from one another's core competencies. There have also been multiple adjacent market acquisitions, particularly targeting mobile-app and IT platforms, OTT players, technology specialists, content providers, e-commerce, and mobile advertising players.
The intersection of social, mobility, analytics, and cloud computing continues to influence enterprise communications, along with the underlying trends of IoT and increasing consumption of IT services. As telcos gear up for new prospects in the enterprise segment by leveraging their core competencies to build winning service portfolios, they need to pick relevant products that complement their existing capabilities and lead to profitable growth. Telcos need to re-position themselves as solution providers, widening their portfolios with personalized problem-solving for their enterprise customers.