The Struggling Telecom Industry and Critical Revolution with 5G

The Indian government has taken several measures, everything ranging from moratorium support to boosting FDI for the telecom industry.

However, there are more challenges to lift the sector that needs addressing before it succumbs to the doldrums.

For starters, there are high costs related to the spectrum, which can drag down their revenues. Notably, according to the GSM Association, Indian telecom companies shell out an enormous one-third of their revenues towards holding and acquiring airwaves (1).

There is a Double-Edged Sword for Indian Telcom, Facing High Spectrum Costs and Low Tariffs

Telecom operators owe about 1 trillion INR to the Centre for SUC-Related Payments and License Fee.

The Industry is Also Struggling to Bring Back Per-User Revenues to Pre-Jio Levels

Even though the government has now abolished spectrum usage charges, it is set to be prohibitively expensive (2).

As per research by Nomura (3), the four-year moratorium on adjusted gross revenue and spectrum-related costs offers the debt-laden industry a cash flow respite worth over 41k crore INR a year.

The government has also offered tele firms to convert the interest due at the end of the moratorium to equity. It even signaled taking up a stake in VI if it fails to put everything back in order.

In addition, the moratorium also improves prospects for Bharti Airtel, whose tower arm, Indus Towers, has VI as an important client.

However, if companies avail the moratorium, they will attract greater interest, about 8 to 10%, on the deferred payments, further increasing their debt burdens.

According to a report by Crisil, the industry can only sustain growth if it raises its near-term monthly ARPU to about 200 INR a month and eventually 300 INR a month.

So far, the government has been reluctant to set a stage for tariffs. And considering the industry structure at present, a tariff hike is only possible if the industry takes the plunge collectively.

In short, while several other reforms offer a temporary breather, the sector’s long-term sustainability will depend on the government making changes to its steep statutory levies and operators letting go of their traditional value pools.

2021 Has Been a Critical Year for Telecom Operators

First, let’s understand that the telecom service industry is made up of three key parts, digital infrastructure, including fiber, tele towers, data centers, and active networks, operators, including mobile and fixed broadband, cloud computing, and data centers, and applications, including broadband connections, video, telephony, e-commerce, and others.

The sector has been mission-critical to keep economies moving under the lockdown in three different ways:

Offering business-critical resiliency and connectivity
Facilitating remote work arrangements
Keeping societies and individuals informed and connected with financial, medical, commercial, and other essential services.

“The COVID-19 pandemic, perhaps more than any other event in our history, has indicated the critical importance of telecom infrastructure in keeping governments, businesses, and societies connected and running. Since the social and economic disruption caused by the coronavirus pandemic, people across the world rely on technology for social distancing, information, and working remotely.” – IFC, World Bank (4).

Over the last decade, as we mentioned, tele companies have been under repeated pressures, and new growth horizons proved to be elusive. And even though the telecom industry rose to the challenge of the pandemic, connecting people to school, work, healthcare, and their families, it accelerated trends that were already redefining the basics.

Today’s moment demands a future-back, holistic approach to transformation.

According to a McKinsey report (5), 2021 is a critical year for operators, offering them a unique opportunity to reimagine their business or risk another decade of downfall.

Consider this: each generation of business leaders believes that the challenges they face are more profound than those experienced by previous generations. And it is a reality, not a perception, for the current generation of the tele industry.

In addition, various past researches have demonstrated that businesses that take early restructure measures and make foundational changes during a crisis come out ahead in the following decades (6).

Therefore, we believe that the next generation of the telecom industry would be defined by leaders who act now and seize the untapped growth by risking short-term incumbency advantages.

Telecom Industry: Emerging Stronger From COVID-19

If we think about various generations of network functionality over the past few decades, you will realize that the world was fairly content with 2G mobile technologies during the 1980s and 1990s.

With SMS and voice, we could achieve the first level of communication, sharing important information. And tele companies found different ways to monetize the communication and add value to their businesses.

Fast forward to 2008, the internet was spreading to far corners of the world, and the information age was in its full swing. 3G and 4G networks empowered us to connect via the web and share our ideas and views with the world. Again, tele companies found ways to monetize that second level of communication – sharing thoughts and ideas and adding value to their business.

With the content, you understand that even though 5G is a technological revolution, we can say for certain that we are on a path to communicating more richly via our telecom networks (7).

5G could be the next step, enabling us to share our feelings and emotions. It is time for our telecom operators to start finding ways to monetize that communication and add value to their business.

And the move towards monetizing the same via 5G is already underway. For instance, viewers of the most recent Winter Olympics have certainly enjoyed the rich experience that came from many cameras worn by participants and competitors. Powered by a test 5G network, showcased by KT Corp, it is not only about offering another camera angle; it is about allowing viewers to experience, at the right time and high definition, what the athletes experience themselves.

And suddenly, the verbal and descriptions and even commentators that we have been so dependent on for the past many years didn’t seem to matter much since they could never explain what viewers can experience themselves via words.

And it all led us to ask these questions; how would people consume content in the future? What would be the next big consumer of the bandwidth that we are unlocking? How will viewers participate in the big sporting events of the next decade? Will telecom companies bring us even closer to the action and immerse us even deeper into the content and the experience?

Well, this is not about helping people enjoy shared, immersive experiences. While it is also a part of it, it is also about allowing consumers to interact with the growing ecosystem of connected machines. In reality, machines take over a huge part of our “cognitive load,” allowing us to focus our minds on other, more valuable things.

There are already over 10 billion devices connected and in use today. There are expectations that their volume will double in the upcoming years. And as these devices become connected with 5G, we will be able to put more of our present cognitive load into the hands of our smart devices (8, 9).

It will offer telecom operators even more data to mine, analyze, and monetize if they let go of their traditional view pools.

The Need For New Way of Thinking

The telecom operators will play a key role in enabling humans to share more deeply with telecom networks, both with one another and machines.

Unless we acknowledge it, we won’t be able to develop new business models. We believe that the upcoming few years will be revolutionary for telecom operators who take their time to visualize the future with 5G and start building their business cases accordingly.

A good place to start would be to understand the flow of people, their feelings toward machines and other humans via the network.

However, if you find that the numbers don’t balance in the short term, take a pause, think about what 5G will mean for human advancement, and ponder the potential opportunities that may not even exist yet.

In reality, 5G will play the catalyst to significant long-term changes in how we communicate and what gets communicated. However, the business fundamentals that underpinned 4G would not necessarily apply. And that means tele companies can’t use their 4G thinking to evaluate 5G ideas.

For instance, if we only thought about telegraphs in the 19th century, we would never have predicted the value of telephones. Over the long term, we will see 5G as a revolutionary step in our connectivity (10).

There are still doubts, though. Would the first movers recoup their investments? When will users take up the bandwidth sufficiently to make it profitable? What are the advantages of moving first and concerning the market?

All of these answers lie in understanding the needed structural shift and taking the right steps to achieve competitive advantage. And businesses that don’t actively play a role in creating this future are a risk of being irrelevant by a system that doesn’t suit them.

The winners in the telecom industry would be the ones who understand the power and opportunities of the next level of human communications – 5G and take the necessary steps to build the ecosystem.

Reimagining the Telco Future

To design a new value-creation role in a post-COVID-19 era, teleoperators must first define a detailed version of what the reimagine organization will look like.

From there, leaders will have to reverse engineer their vision and make bold moves to fundamentally change the DNA of their company.

And considering the extraordinary pressure the industry is facing, there is minimal regard for the starting point (11).

Therefore, you will need these five critical axes to paint a clear picture:

Operators need to change how they monetize their assets, moving from selling network services to selling outcomes.
Operators need to rethink their approach to serve, satisfy, and delight customers as digital natives set a new benchmark.
The success of telcos will hinge on their ability to leverage data and deploy advanced analytics, automation, and AI at scale to drive new sources of growth and change the broader economics of the business.
Unlike tech companies, most telecom operators still follow traditional business models, and only after the pandemic did they start establishing quick changes. Such shifts are critical for future success.
Telecom operators have an opportunity to engage stakeholders with their critical societal role by advancing education, public health, and connectivity across communities.

Below are some possible pathways towards a sustainable competitive advantage for operators:

Operational and infrastructure-led excellence. A classic telecom service provider that captures the value of data while also optimizing network TCO, the total cost of ownership, and the physical footprint of offering high-quality, reliable connectivity services. One can be successful with it either by a commodity-driven approach or a true-network leadership approach.
Service-centric operator. An agile and digital-first provider of telecom services that meet the digital natives’ expectations via fully digital experiences, including customer care.
Ecosystem provider and adjacencies. A digital-system first player is integral to consumers’ daily interactions by offering access to various digital services and products (12).

Each of these archetypes and several other permutations has the potential to deliver excellent returns on investment. Telco leaders can decide which one they should pursue over others based on their starting point, appetite for change, and market specificities.

Of course, business transformation is difficult. In fact, over 70% of all transformation efforts fail. Given that a telecom company’s future success relies on its ability to drive multiple large-scale transformations simultaneously, the risks are exponential.

And that’s why the industry needs to revisit its ambition and deliver multiple bold changes. Teams will also need to work across silos, with some changes in incentive models and considerable efforts in the middle management.

And to gain from such enormous changes, companies must translate their blueprint into a clear narrative for all their stakeholders, explaining how each piece of work can contribute to the company’s larger goals.

Finally, telecom leaders also need to be aggressive in setting the right course, where they bridge the difference between stakeholders, focus on long-term value creation, and their team to lead the way at a greater speed and effectiveness (13).

Wrapping Up

Transformation is not something new to the telecom industry.

Operators have reshaped themselves throughout the century to reduce costs, introduce new channels, and deploy new technologies.

And the next wave for change is more fundamental for teleoperators. It will be shaped by the extent to which today’s leaders can recognize the magnitude of change that is already underway. They need to act with speed and conviction to reimagine how their business can thrive in this new reality.