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How can telcos navigate the digital revolution?

Telecom providers face tough times as digitization disrupts traditional business models. In fact, the telecom industry is ranked second after media as most likely to experience major digital disruption, according to a 2015 survey of C-level executives from 15 industries. EITC, the parent company of ‘du’, has responded to the disruption of digitization by embracing it, launching a fully digital mobile service.

Emirates Integrated Telecommunications Company (EITC) officially launched the Virgin Mobile brand in the United Arab Emirates on September 5. It’s the first fully digital mobile service launched in the country. The new service offers “simple and transparent technology” and a “unique customer experience” through what the company describes as a fully app-based service.

The Virgin Mobile UAE app signifies a paradigm shift in the mobile industry, digitally designed to simplify life for customers, and the Virgin Mobile distribution model allows customers to download the app and have the SIM card delivered directly to their homes or office. The digital experience gives customers flexibility and convenience, putting control of mobile services back into the customer’s hands.

EITC’s move to create a fully digital service shows that digitization is not just a threat, but also an opportunity for operators to rebuild their market positions, revamp their business systems, and come up with innovative offerings for both existing and new customers. The growth of digital business and the Internet of Things (IoT), according to Gartner research, will drive large investment in IT operations management through 2020.

If telecom operators were to fully embrace digitization, advisory firm McKinsey calculates that it could improve their profits by as much as 35 percent. One of the ways in which telecom operators can bridge the digital gap, according to a McKinsey report, is to drastically revamp IT services. The firm said: “For most operators, streamlining their application landscape and automating their IT infrastructure will need to be a priority.”

Complex and out-of-date IT applications are a “major hindrance” in competing against digital rivals, McKinsey says. The company conducted a study of 80 telecom companies around the world and found that the most successful ones had “removed redundant platforms, automated core processes, and consolidated overlapping capabilities.” Following this method allowed one South American telecom provider to free up the equivalent of 31 percent of its full-time employees.

Another recommended approach by McKinsey, seemingly adopted by EITC with the launch of its new digital mobile service, is putting customers’ needs first and then working backwards by implementing services to meet those needs. Telecom providers need to focus on the customer’s entire experience of the company, rather than seeing customers as a series of touch-points, the report suggests.

The goal is not to digitize multiple elements of a customer’s experience but to deliver a “superior customer experience” with everything gelled into a seamless journey that flows across functions, channels and devices, and where the biggest pain points are identified and eliminated. It’s important for telecom operators to make use of digital technologies across the whole business to “combat declining growth, shrinking margins, and intensifying competition.”

EITC achieved this in the UAE by allowing customers to pick their mobile number without visiting a store, track their data and minute usage in real time, search and choose their favourite mobile number, and set up monthly spend limits, all via the Virgin Mobile UAE app. The subscription-based model means that there is no need for a contract, giving customers the flexibility to decide how they want to communicate without being constrained by specific time bound terms and conditions. 

A $2 trillion opportunity

The digital transformation of telecom companies is so lucrative, that a report by the World Economic Forum says it represents a $2 trillion opportunity for the industry. The next decade of digitization will look markedly different from the past, the report says, and companies across the industry will need to be “well-prepared” to take advantage of the “sweeping transformation taking place in consumer lives, enterprises and the broader economy.”

The 2017 report, titled ‘Digital Transformation Initiative Telecommunications Industry’, looks at the untapped potential for telcos in digital services. The industry has recognized the opportunity that digital services represent, but the players haven’t been able to capture significant value at the scale and speed of digital disruptors, the report says. This is despite the fact that telecom operators have access to several key ingredients, including millions of customer relationships and proprietary data.

Majority of companies have yet to overcome key inhibitors around talent, legacy IT systems and unfavorable regulation, the report adds, in order to compete effectively against digital native companies. Operators’ share of the industry profit pool has declined from 58 percent in 2010 to 47 percent in 2015, and is forecast to drop to 45 percent in 2018. Pressure on traditional revenues, the report claims, means that it’s increasingly important for operators to look at new digital business models.

Another report by AT Kearney says more than 80 percent of telecom executives from South Asia, Middle East and Africa (SAMENA) believe their future success and growth depends on making fundamental changes to their business and operating models. The report, based on a recent survey of C-level executives from the region’s leading telecom companies, highlights the importance of mastering customer retention and customer base value management to sustain returns.

In terms of new consumer revenue sources, less than one quarter of executives believe that content or digital services will be important, according to the report. For the enterprise segment, though, more than 80 percent of executives believe ICT-related revenue will increase, with the largest potential expected in mobility, cloud, and data center services.

Simultaneously, to sustain competitiveness, telecom operators will continue focusing on operational efficiency, in AT Kearney’s view, although commercial-related costs will be less under scrutiny. The key driver, the report says, is the understanding that significant investments are needed to bring commercial operations into the digital age with upgrades to the customer experience, such as support online sales, self-service via apps, etc.

“Telecom operators in the region are considering a wide range of changes to their operating model,” said Marc Biosca, Partner at AT Kearney. “The customer is at the epicenter of this strategy as most operators and executives in the region believe that a differentiated and superior customer experience is a top priority for long-term success. Providing a seamless customer experience across interfaces has never been more key.”

If there’s one consistent element throughout the reports by AT Kearney, McKinsey, and World Economic Forum, it’s that customers come first and demand digital services that are engaging and convenient. Customers today require an interface that’s simple to use across all channels, and desire efficient 24/7 service. Yet many operators struggle to meet these expectations due to slow design processes, ineffective data collection, and out-of-date IT systems.

To overcome these barriers, McKinsey points out, is to invest in effective customer-relationship-management systems to “track customers’ digital footprints, reduce costs, boost customer satisfaction, and improve brand advocacy and differentiation.”