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As featured on BusinessMirror: Future of telco

Today’s market conditions are creating challenging times for telco players. Even though consumer revenue has been historically high, margins are being squeezed because of the massive infrastructure investment telcos made in 5G to meet the COVID-19 spike in broadband demand and anticipated explosion in demand driven by various 5G use cases. Competition has been heating up from both traditional and non-traditional players. Customer expectations and the market have been shifting. And a looming recession and regulatory pressures have been creating uncertainty.

To address these significant concerns, leading global telco players have been taking big steps to redefine their business and operating models. KPMG’s recent report identifies some of the key capabilities that KPMG professionals believe are required to succeed in the telco business models that are currently emerging around the world.

The telecommunications industry in the Philippines is also facing a rapidly changing landscape, where industry leaders acknowledge the need to anticipate and adapt to market conditions to survive.

To ensure that they thrive in the future, telco industry players must adopt key strategies which include taking a customer-centric approach to continually understand and act upon their demands and values. Additionally, telcos should explore and embrace emerging technologies like cloud computing, machine learning and data science to improve consumer experiences and operational efficiency.

Jallain Marcel S. Manrique
Technology Consulting Head
KPMG in the Philippines

Signals of Change

While change is constant in the telco business, the factors driving change are constantly shifting. In this section, we identify and drill down into some of the most significant market factors that should currently be on telco leaders’ minds.

1. Traditional business models are being Challenged

Traditionally, telcos have made their money by moving bits through the air and across wires in their networks. And while doing so is still central to their mission, telcos need to figure out ways to diversify and make their businesses more profitable, because continually investing in infrastructure can limit profitability.

Telcos have been trying to break into higher value-added services for years, including through massive investments in areas such as professional services, media/content, and digital advertising. But the track record for such investments has been decidedly mixed. Now, other options are emerging. For example, some in the industry believe there is much potential for telcos to offer private 5G networks for small and medium-sized businesses (SMBs), like car dealerships and hospitals. The telcos could then monetize different aspects of that system — from apps to cybersecurity to hardware maintenance. A primary concern with this idea is that hyperscalers could decide to do the private networks on their own given their deep pockets. 

2. Escalating customer expectations

Expectations for both consumer and commercial customers have been intensifying. For consumers, that means wanting better and more flexible service, greater transparency in billing, and enhanced ease of use. On the commercial/B2B side, clients are looking for increasingly sophisticated connectivity and data solutions without the traditional requirement to contact a call center or a sales rep.

3. Hyper-competitive hyperscaler

As the landscape evolves, there will likely be more direct competition between telcos and hyperscalers. This should be a severe concern to telcos given how much money these hyperscalers spend, their in-house talent, and their outsized ambitions.

The competitive dynamic between hyperscalers and telcos is changing quickly. To address this change, some telcos are forming partnerships with hyperscalers to help get the most out of their networks and services, as when Microsoft and AT&T came together to unite their 5G and edge computing efforts.

4. A possible global recession

Inflation and interest rates are likely to continue to rise and a recession is looming. In many markets, rising interest rates will likely raise the cost of capital, potentially impacting telcos’ borrowing capacity and access to fresh capital. For some telcos with weaker balance sheets, this could lead to a higher risk of potential financial distress. Not surprisingly, many telcos are reexamining their capital plans, and several aspects — from infrastructure upgrades to the deployment of new 5G capabilities — are being reassessed and reprioritized.

5. Technology can create new opportunities — and threats

In our view, the most important — and costly — technology investments will continue to be network upgrades. 5G has been central to telcos’ efforts to satisfy the bandwidth needs of residential consumers, but the cost of deploying it has been prohibitive. As for 6G, it requires the same massive investment as 5G and is still estimated to be 3 to 5 years off. In addition, telcos should continue to focus on how best to use evolving tools like AI and machine learning for service and operating improvements.

6. Fulfilling the ESG agenda

In our recent CEO survey, executives responded that the economic downturn required them to turn away from their ESG initiatives, with 50 percent saying they were pausing or reconsidering their existing or planned ESG efforts over the next 6 months. In our view, that move could backfire. As the financial sector moves to get behind ESG, we anticipate telcos will find that more significant proportions of their corporate loans and debt vehicles are tied to ESG metrics. 

7. Telcos likely can’t avoid stricter regulations indefinitely

Most carriers had to sink many millions into complying with the General Data Protection Regulation (GDPR) and other global privacy statutes. These policies will continue to mandate carriers to establish more robust privacy and cybersecurity controls across their networks, applications, and operations than they have traditionally cared about.

Making it happen

Keep close to what your consumers want

The ability to think “outside-in” is key in building a customer-centric business. Ensure you know and act on what your consumers want, need and value; keep continually looking up and outside of the organization and industry to help ensure alignment with some of the best consumer experiences in day-to-day life.

Do things in an agile way

Break changes down into specific steps, sequence and then implement them. Keep standing back to assess whether the change has been successful in a “test-and-learn” approach. It’s about a series of small changes that together can add up to a significant and impactful transformation.

Build in resilience

Take on today’s challenges with resilience and determination, and be prepared to expect the unexpected, fail fast and learn along the way. By developing a connected enterprise architecture, you will find that your ability to change course at speed can be significantly enhanced.

Keep it human

While embedding new technologies, such as artificial intelligence (AI) and automation, is likely to be critical in developing more seamless interactions for consumers, remember that you also need to keep the experience “real.” Many great organizations remain defined by the quality and passion of their people and their sense of purpose.

Make use of new technologies

Continually look at what new technologies are becoming available that could help you serve consumers better or connect your business more seamlessly. Experiment with the opportunities available through cloud, machine learning and advances in data science.

The excerpt was taken from the KPMG Thought Leadership publication: https://kpmg.com/xx/en/home/insights/2023/02/future-of-telco.html

© 2023 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more information, you may reach out to Technology Consulting Head Jallain Marcel Manrique through ph-kpmgmla@kpmg.com, social media or visit www.home.kpmg/ph.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.