Not 5G alone

New business models are emerging, evolving and growing. KPMG professionals believe this is a time of unprecedented opportunity for telcos. The key is in understanding the market trends, quantifying the opportunities and executing with pace.

You just spent millions (maybe billions) of dollars upgrading 4G networks to 5G. And you trust that your investments will enable new network capabilities and open up a wide range of valuable use cases for your customers. But you aren’t quite sure how to fully monetize the opportunity. And you are increasingly worried that the largest slices of the value will – once again – be captured by software solutions providers.

You always knew it would be a long road to value. Yet much-anticipated B2B opportunities have failed to materialize. Diversification into new sectors (such as media, technology or banking) has been slow and painful. Consumer revenues have plateaued, and mobile subscriptions have hit a saturation point. ARPUs and margins have been eroded. And amid all of this, people are starting to talk about 6G. 

Telco executives and board members know they need to transform the business within the next three years or risk becoming irrelevant. But they also recognize they face some institutional challenges that will be immensely difficult to overcome.

The reality is that most telcos have historically been keenly focused on building and managing the network. While a focus on the core competency is often good, it can also make organizations rather insular and unable to adapt to changes in their markets. Financial investments are channeled to the network versus growing new lines of business or building new capabilities. Cultures and risk appetites become conservative, prioritizing the preservation of the status quo over new ideas and innovation. Operating models become inflexible. Capabilities become stagnant.

Where telcos have made moves, they have often fizzled. For some, this speaks to a lack of skills, culture, scale or ambition which has precluded them from playing and competing in new markets. Where they have made moves, however, they often fail to properly demonstrate the incremental value that their customers could achieve through the integration (versus the bundling) of their connectivity services. Some of that is poor communication; more often, it is a result of complex legacy systems that make integrating new products a nightmare and lead to unsatisfactory experiences that result in customers switching providers. 

Don’t get us wrong; the vertically integrated telco was a perfect model for monetizing and delivering connectivity services. And it is, perhaps, somewhat unfair to expect a vertically integrated network provider to suddenly transform its business, adopt a culture of partnering and deliver solution-based products and services.

Put all of this against a backdrop of economic uncertainty, and the picture becomes even more complex. Indeed, over the past year, many telcos have reexamined their capital plans, and several aspects — from infrastructure upgrades to the deployment of new 5G capabilities — have been reassessed and reprioritized. At the same time, high interest rates have raised the cost of capital, potentially impacting telcos’ borrowing capacity and access to fresh capital.

Yet time is running out. The risk is that your business may quickly become commoditized, particularly in a world where vendors and existing partners are becoming competitors. Many are watching closely to see whether the big hyperscalers decide to get into connectivity – perhaps by offering private networks on the cloud or, more directly, by snapping up a number of Tier 2 and Tier 3 players to accelerate their own growth and opportunities.

Various avenues for future growth are emerging and evolving. For example, with customer expectations now rising, many telcos may find value in ‘delayering’ the integrated telco into horizontal value chains by separating asset-light innovations from assets that require intense and specialized networks. That could give rise to a set of extremely agile all-digital service providers which, in turn, could drive consolidation and standardization across passive and active networks, removing legacy telco problems such as interoperability.

Some telcos may decide that their primary, overarching strategic imperative is to fundamentally reimagine themselves as technology companies (or TechCos) as they try to move away from their traditional branding as network infrastructure providers. They are trying to move to a place where they can not only provide businesses with connectivity, storage and processing power, but also curated solutions and business applications, all wrapped with a privacy and cyber security line of defence.

Others may focus more narrowly on specializations. Network-as-a-Service (NaaS) providers, for example, will likely initially focus on enabling a wide range of enterprise applications such as generative AI (genAI), amart warehouses and autonomous mobility. But they will have an eye towards using those capabilities to drive new revenue opportunities in the consumer sector (by, for example, offering low-latency gaming). By monetizing their network capabilities for the enterprise segment, they could be helping build future revenues on the consumer side. 

Regardless of your path forward, KPMG professionals believe that a winning strategy to drive growth and create new value should backed by a robust and resilient operating model.

Easier said than done. The truth is that any operating model evolution will likely only be successful if telcos go beyond structural changes to encourage a more holistic transformation of the organization. Talent growth and new capability development are expected to be key. Technology simplification and modernization will be required.

Telcos should also learn how to create deeper relationships with strategic business partners (including hyperscalers) while continuing to protect their own economic value. And they should consider how they plan to roll out new go-to-market strategies, integrate into existing platforms, and encourage co-development and co-provisioning of solution bundles, marketplaces and infrastructure. 

In part, this is about becoming a more efficient and effective organization. KPMG professionals have been working with a number of traditional telco players to help them redesign their telco into a techco, enhance their back-office efficiency, uncover new cost savings and help to improve overall employee productivity through new technologies and processes. Others are reexamining their capital allocation and are setting up joint ventures (JVs) with competitors to share the costs of deploying costly network equipment and expand their reach.

What is clear is that the business environment for telco companies is rapidly changing. The signals of change are all around. And new business models are emerging, evolving and growing. KPMG professionals believe this is a time of unprecedented opportunity for telcos. The key is in understanding the market trends, quantifying the opportunities and executing with pace. Talk to your local KPMG member firm to find out how KPMG professionals can help your organization.

• Javier Maria Arenzana Arias
• Davide Di Labio
• Zi Yang Gan
• Mritunjay Kapur
• Yogesh Sharma
• Diogo Sousa