Telecom capex will more than double, outpacing CSPs' forecasted revenue growth, and steadily grind down telcos' free cash flow if they continue to conduct business as usual, according to a new report by Arthur D. Little.
The consulting firm interviewed more than 100 telecom executives around the globe, combining information gleaned from those professionals with data, analytics and its own insight into the industry's investments, buying patterns and other factors to determine the importance and value of digital transformation on telecom.
Same old, same old
If CSPs continue business as usual, their free cash flow will face more pressure as they must increase capital expenditures and find only slight relief from limited operational payments, the report said. After all, operators will continue to roll out thousands of miles of fiber, both for gigabit-speed broadband and to support 5G. There are spectrum auctions and OTT competitors to consider. Each one demands a team, an executive, a budget.
To review digital transformation's potential impact, the consulting firm first considered providers' financial future if they continue along their current paths -- adoption, albeit typically slow, of digital transformation technologies from the network out, but often with inadequate funding, high-level executive focus or leadership necessary for success and lagging other industries such as finance or retail.
Arthur D. Little's team then reviewed the impact it believed true implementation of digital transformation solutions, mindsets and culture would have on operators, including the overall boost to the bottom line from savings on opex and capex, as well as increased revenue.
As it stands today, the consulting firm expects revenue growth to accelerate between 2017 and 2022 at a compound annual growth rate (CAGR) of 3% worldwide. Operators will see higher revenue from their fixed infrastructures due to the surge in data consumption generated from countless uses, ranging from video games and smart-home applications to next-generation wireless and machine learning. Emerging markets' demand for high-speed wireless data coverage and new use cases for 5G deployments also will positively impact CSPs' revenue, according to Arthur D. Little.
"Indeed, new revenues from 5G are expected to arise from new B2B and B2B2X use cases, as significant incremental revenues are not immediately expected from consumer 5G services," the report said. "Increasing wireless coverage and subscriber penetration will be a boom for telecoms revenues in regions with significant room for growth, such as Latin America and the Middle East and Africa (MEA). In those regions, we forecast total revenue CAGRs of 5.2% and 4.9%, respectively, from 2017 to 2022."
Those service providers that embrace and fully deploy digital transformation are more likely to survive, the team wrote. And they should thrive, the report said. Given the complexities of many providers today, the multiple lines of business in which they are involved (content, wireless, fixed, finance and banking, healthcare and security, for example), digitally transforming their business is imperative; CSPs must use technologies to shave opex and capex costs, increase revenue and profits, and figure out complementary services or new lines of business because of cultural changes that empower and encourage departments to work together.
"The result of the digitally enabled revenue acceleration and growth opportunities is a 1-2 percentage point uplift in our revenue growth forecast over the next five years," the report said. "Telecom operators also stand to realize opex savings across all facets of their businesses..., with opex CAGR over the next five years slowing to 1% from the base case projection of 2.7%."
Capex, despite the investments necessary for an organization's digital transformation (which Arthur D. Little defines as the "application of digital technologies and interfaces" to create new work to change the current business model to add opportunities to add more revenue, services and value) decreases with investment in these solutions, the report said. "Through digitalization, the telecom industry can buck the trend of weakened revenue growth and increased cost pressures to return to profit growth," according to the study.
In fact, when asked about things shaping the communications industry today, 26% said digital transformation was the biggest topic for the next 12 months, compared with runner-up 5G at 15%, the study found. And in the next three years, 32% of respondents named digital transformation as the key topic versus 17% for 5G.
"Digital transformation is a fundamental requirement not just for success, but also for survival, as it changes the ways telcos operate internally and engage with their customers and opens up new and incremental revenue streams," the report said.
On Jan. 23, Broadband World News hosts a Calix-sponsored webinar that explores several ways CSPs can enhance customer experience and find new business opportunities to avoid devolving into a speed race where nobody wins, not even the customer.
As the pool of savvy, fiber-rich operators across the US rural and regional landscape wanes, the financial community will grow even more interested in acquiring or investing in them, a CoBank report says.
It wasn't long ago that TV was ranked by subscribers as the most important service in the bundle provided by their communications service provider (CSP). Recent research indicates that for nearly three quarters of subscribers, broadband is now the most important service. Broadcast TV is the most important service to only 15% of North American consumers, replaced by OTT video streaming platforms like Netflix, Amazon Prime and Disney+. In addition, many different competitors are moving aggressively to stake a claim in consumers' homes.
In 2020, CSPs need to fight back by transforming their business models, which are becoming more reliant on a single source of revenue: fixed broadband services.
This webinar will focus on helping CSPs transform their business models by placing a firm focus on delivering a sensational subscriber experience and by offering compelling new services that generate value for subscribers. These actions will reinforce the CSP's strategic position in the home network and position themselves for growth in the next decade.
Key topics include:
Being the first to market with WiFi 6 technology, in response to consumer purchases of new devices over the holidays;
Having the insights needed to proactively resolve issues, often before your subscribers even know that there are issues;
Providing help desk agents with the visibility they need to resolve common subscriber issues more quickly;
Delivering a mobile app, in response to consumer demands for the ability to do some things themselves, rather than having to call technical support; and
Addressing consumer concerns around device security, privacy and control with enhanced security and parental controls.
In this insightful Light Reading radio show, Kurt Raaflaub, Head of Strategic Solutions Marketing, will outline the key service provider challenges, deployment considerations, next-gen Gigabit technologies, and service models to win market share in the rapidly growing MDU market.