The telecommunications industry is changing. New business models are emerging, evolving and growing. We are convinced that these times open up many opportunities for telecoms companies.
The status quo is no longer enough
Executives and board members of telecoms companies know that they need to transform their business within the next three years - to avoid the risk of becoming irrelevant. But they also realise that they face some institutional challenges that will be very difficult to overcome.
In the past, most telecoms companies have focused heavily on building and managing the network. While concentrating on core competences is good, it can also lead to companies becoming too focused and unable to adapt to changing market conditions. Investment is channelled into the network rather than developing new lines of business or building new capabilities. Culture and risk appetite become conservative and prioritise maintaining the status quo over new ideas and innovation. As a result, operating models become inflexible and skills stagnate.
Network operators often fail to communicate the added value of integrating connectivity services to their customers. Complex legacy systems frequently make it difficult to integrate new products, lead to unsatisfactory experiences and cause customers to switch providers.
Katja Modder
Partner, Head of Technology, Media & Telecommunications (TMT)
KPMG AG Wirtschaftsprüfungsgesellschaft
New world requires new models
Against the backdrop of economic uncertainty, the picture becomes even more complex. Over the past year, many telecoms companies have reviewed, reassessed and reprioritised their investments - from infrastructure upgrades to the introduction of new 5G capabilities. At the same time, high interest rates have driven up the cost of capital, which can impact borrowing capacity and access to fresh capital.
Given the new market dynamics, there is a risk that traditional network operators will be challenged by start-ups and new competitors from the tech industry and lose market share. Cloud-based solutions are threatening the traditional telecommunications business. New connectivity solutions are also increasingly being offered by innovative tech companies and hyperscalers.
Dual strategy or technological specialisation?
There are various ways to position themselves in the new competitive environment. For example, telecommunications companies could expand horizontally along the value chain and position themselves as integrated full-service providers for communication and connectivity services.
Telecommunications companies could also redefine themselves as technology companies ("TechCo") - to move away from their traditional role as network infrastructure providers. As a TechCo, they could offer not only connectivity, storage and computing power, but also platform solutions and digital business applications - all combined with expertise in data protection and cyber security.
Another strategy is specialisation. Network-as-a-Service (NaaS) providers, for example, will initially focus on enabling a wide range of B2B applications such as generative AI (GenAI), smart warehouses or autonomous mobility. They can then utilise these capabilities to open up new revenue opportunities in the private customer sector.
Sustainable and resilient
A successful strategy to differentiate from the competition, drive growth and create new value must be underpinned by a robust, resilient and agile organisation. Further development of the business model will only be successful if telcos go beyond structural changes and promote a more holistic transformation of the organisation.
For many telcos, it is therefore a question of adapting the business model and integrating it into a more efficient and agile organisation. Technology is increasingly taking centre stage in processes, products and customer solutions. KPMG's experts have worked with a number of traditional telecoms providers to help them transform into tech companies, improve their back-office efficiency, identify new cost savings and increase employee productivity through new technologies and processes. We have also helped telco companies review capital allocation and set up joint ventures with competitors to share the cost of network infrastructure provision and extend their reach.
It is clear that the market environment for telecoms companies is changing rapidly. This dynamic is forcing network operators and other telecoms service providers to adapt their strategies, business models and organisational structures. Talk to us to find out how we can help your organisation transform.
