Telecom revenue challenges, pre- and post-COVID-19

The COVID pandemic has exposed the challenges that the telecoms industry was already facing. Rupali Srivastava explores the issues the crisis has highlighted, and how telcos can insulate themselves from further troubles.

In 2020, COVID-19 changed the world order in an unprecedented manner. Just as we had started considering the world as a global village, suddenly we found it shrunk to the confines of our homes where ‘be indoors, be safe’ proved to be the mantra.

This made everyone realise the importance of and dependence on telecommunication systems like never before. Be it big corporates or e-commerce, most of the sectors that were telecom reliant could survive the pandemic while others struggled to survive.

As more and more companies started offering work-from-home scenarios to their employees to ensure business continuity, telecom operators found it an opportunity to up their game in terms of providing services and increasing revenues via various mediums.

In the pre-COVID era, the telecoms industry was facing a race to financial rock bottom with price cuts. Where other industries, such as aviation, were upping their revenues by implementing more granular charging models and offering à la carte services to their customers, telecoms was heading towards ever bigger bundles of services to stay afloat in the market.

For example, T-Mobile USA’s all-inclusive family plan was a game changer resulting in customer delight and no bill shock; however, it made its rivals inevitably follow suit. As a result, US mobile data revenue declined for the first time in 17 years.

To disrupt this downward trend, telcos need to follow the lead of digital services providers (DSPs) such as Google and Amazon, the latter of which bundled its unrelated Prime services in such a way that a single subscription would provide faster delivery, an OTT streaming platform, and cloud storage for their customers, at a cost of course.

Their revenue skyrocketed because of this bundling which also increased the cross-selling of services: for example, a customer who bought the subscription primarily for video streaming would then prefer shopping at Amazon’s store, as due to the subscription, they would also benefit from faster deliveries.

Telecom operators have become mostly connectivity providers, although of course without connectivity nothing in today’s world would work. But somehow the relevance of connectivity does not always translate into revenue. With bundling, although the services offered to customers are increasing, the telcos are not able to earn the desired revenue due to pricing competition.

Each telco is racing to offer bigger bundles at cheaper rates to entice customers, which is not a profitable or sustainable approach. To maintain the desired level of connectivity, telcos are required to spend huge sums of money on increasing network bandwidth to seamlessly handle the ever-growing volume of data.
In this double whammy, telcos must find some other way to make their profits, re-evaluating their business model and redesigning it to suit the current requirements.

One way could be to consider the basic telecom services as only the subscription-gathering medium, while the growth would come from other related models such as advertising, payments businesses, trusted identity managers or any other new-fangled business idea. Then by all means they can offer unlimited connectivity as a carrot to get the data they need to run their new digital services.

The other option is for them to cut the flab. Telcos must look at becoming leaner and more efficient and consider not just how they charge but who they charge for using their networks, maximising their return on network investment.

With COVID-19 changing the way the world functions for the foreseeable future, a third option is to provide extra services at a premium.

A good example is the way Zoom has upsold additional features and functions by identifying what customers really value. Its basic offering is free unlimited one-to-one video calling, but the moment that three or more parties are included, the call time is restricted to 40 minutes. This cap is obviously not suitable for business meetings, or even for multi-party family calls, so Zoom has found revenue generation opportunity, requiring a paid subscription for multi-party calling. They are also cashing in on other add-ons such as for webinars and breakout rooms. 

This more-for-more approach is being adopted by various telecom players to justify price increases and grow their share of household connectivity budgets, however the market dynamics need to work in their favour for this approach to succeed. For example, competitors must not be placed too far apart in pricing and the price point must not get so high that the room for smaller players increases.

The more-for-more strategy has also given rise to exclusive content; for example, AT&T has acquired content developers; some have created their own content, as with Telefónica; and others have formed partnerships with providers of OTT services.

Another way to increase revenue is for telcos to continue adding more services and products to their portfolios. Virtual reality and immersive experiences have already opened a new vista for the telecoms world, but now with the lockdown world order, the demand for delightful immersive experiences will need higher mobile bandwidth and low latency for uninterrupted services.

Other complementary services are also gaining traction in the market such as Connected Customer Assurance & Protection Services (CCAPS) bundles, packaging telco offerings with a suite of effective security features and cybersecurity capabilities to protect against online risks for a small incremental price increase.

With work-from-home, data collection and data privacy will also attract a lot of attention and possibly increase revenue opportunities. Be it customer profiling or anonymised segmentation for advertising or targeted services, data analytics will call the shots in the coming years.

The crisis has also highlighted the need for having more contactless sales and service modules, where expensive field engineer visits can be replaced by self-install procedures for customer premises equipment (CPE) and other services. Similarly, the use of chat bots and Robotic Process Automation (RPA) can replace human interactions for sales and service operations.

The COVID-19 disruption has ultimately proven to be an opportunity for the telecoms industry to swiftly move to a much more digital business model. Eventually, telcos will see themselves moving towards fully cloud-based operations that will support network functions and automated services over a cloud environment. All in the name of preparations for the next crisis!