Delayering the business: is breaking up key to telco growth?

The telecoms industry has gone through some massive changes over the past 30 years: think of the transition from the public switched telephone network (PSTN) to the Internet Protocol (IP), the evolution to software-defined networks and the introduction of over-the-top (OTT) content and digital services. Yet, in the face of all that upheaval, the structure of the telecoms connectivity business has remained largely unchanged.

Many countries have as few as two telcos and no more than five, each operating fixed and/or mobile networks regionally and selling services to consumers and businesses. Most communications service providers (CSPs) are also vertically integrated. They own and manage everything from the real estate their data centers occupy to the applications and customer premises equipment they deliver.

That vertically integrated model made sense when it came to monetizing legacy connectivity services because they were not very complex, did not change often and offered little variety by current standards. But by focusing on making such services as efficient as possible, CSPs’ businesses grew rigid, with layers of technology customized to support the model.

As the market for connectivity services has accelerated, with an emphasis on innovation and collaborative partnership, many CSPs have defended their connectivity businesses so closely that they have been unable to take up valuable positions in the new landscape. As a result, they have been disintermediated by OTT content providers that changed what the market values most, shifting the focus from minutes and rates to content, applications and an array of cloud services not offered by telcos.

At the same time, telecoms markets have matured, and services like mobile have saturated markets to the point that they no longer drive revenue growth. Many CSPs are sitting on massive capital assets in their infrastructure that are not producing sufficient returns to justify investment or maintenance. As a result, the telecoms industry is questioning whether the vertically integrated telco still provides the most efficient way to deliver connectivity and communication services.

This TM Forum white paper looks at how CSPs can "delayer" their businesses into Service Companies (ServCos), Network Companies (NetCos) and Infrastructure Companies (InfraCos) to improve competitiveness and overall profitability.