Telecoms are looking for ways to increase revenue since their income from traditional services is diminishing, with dramatic shifts in market consumption toward new competitive business models such as over-the-top (OTT) content providers. According to Juniper Research, voice and messaging traffic loss to OTT players such as WhatsApp, Facebook and Skype was expected to cost network operators $14 billion in revenues globally in 2014, up 26 percent from 2013.
And this is not a new trend. Telecoms’ voice service revenue has been declining since 2011 at an accelerating rate, with 2014-2015 revenues expected to be down 2 percent. Image credit: statista.com
So where will new growth come from?
In a word: data.
According to Juniper Research, there are a number of new revenue streams that have the potential to deliver to communication services providers (CSPs) cumulative revenue in excess of $66 billion over the next five years. The resulting revenues could more than offset the decline from core service revenues on an annual basis by 2018. Dr. Windsor Holden, author of the Juniper report, specifically cites big data and analytics as a way to help operators “achieve substantial revenue uplift by focusing on full-service provision rather than simple connectivity.”
We feel this assertion is further corroborated by recent Gartner research: “We calculate that an ‘average’ CSP (say, around $9 billion a year in revenue) could generate $300 million a year in additional margin from implementing internal and customer experience use cases (Gartner, Market Insight: Leveraging the Early Implementations of Data and Analytics From the Telecom Industry, Charlotte Patrick, June 82015).” Gartner elaborates that “In addition to this $300 million, we also analyzed the amount that this ‘average’ CSP might be able to generate by either monetizing its data with external parties or playing in the data and analytics value chain. To fully take advantage of the $200 million external monetization opportunity (this is a per-year amount in five years’ time), a CSP has to have very specific characteristics. It needs to have a strong, verticalized, B2B product and sales team, be in a region that does not have data privacy limiting opportunity, and have a statistically valid proportion of the total mobile handsets in the region.”
Bottom line: big data and analytics opens the door to significant revenue opportunities for telecoms that take a strategic approach.
Meet the Generation D organization
In a recent IBM Center for Applied Insight study, companies that infuse data and analytics into business decision making throughout their organization were given the name Generation D (D for data). According to this study, Gen D enterprises proved 4 times more likely to use prescriptive analytics, 2.9 times more likely to use predictive analytics, and 2.2 times more likely to use advanced data such as unstructured text, audio, video and mobile data than their peers.
And compared to other enterprises, these Gen D companies also reported better business outcomes. They were more likely to be extremely effective at: developing new revenue streams (3.7x), penetrating new markets (2.9x), operating more efficiently (3x), and improving interactions with their customers (2.5x). Not coincidentally, they also reported higher 3-year customer retention.
It should be no surprise that the Telecom industry, given its market motivations, leads with the largest percentage of Gen D respondents (36 percent), ahead of other runner-up industries including: Financial Services (20 percent), Retail (18 percent), Travel and Transportation (17 percent), and Consumer Goods (11 percent).
Reducing churn through customer and marketplace insights
Telecom Gen D enterprises are 2.4 times more likely than other Telecom companies to excel in developing insights regarding their customers and marketplace. For the telecom industry that means retaining their customer base, reducing customer churn and building advocacy. And as it turns out, Gen D Telecoms report 33 percentage points higher promoter/advocate scores than their peers. Although Gen D enterprises across all industries score higher on this key performance indicator, Gen D Telecoms report an even greater advantage.
For example, XO Communications is one of the United States’ largest communications service providers, offering a comprehensive portfolio of communications, network and hosted IT services through a 19,000-mile nationwide inter-city network. The company needed a way to identify customers who were at the highest risk of “churn,” before they switched to another carrier. The goal was to take preventive actions, contacting high-risk customers before they decide to make a change, and reduce churn.
By bringing together many different groups across the organization (Customer Care, Marketing, IT, Finance), XO was able to develop a data analytics solutions on one platform so that the entire organization could share the same holistic view of the customer engagement cycle. By using predictive analytics to embed a deeper understanding of their customers into operations and taking control of customer satisfaction, they could solve customer problems faster and serve their customers better. With the help of analytics, XO Communications has decreased its churn rate by 50 percent.
Improving efficiency through operational insights
Gen D Telecoms are 2.2 times more likely to be using analytics to improve operational efficiencies and 2.9 times more likely to be managing risk more effectively than other Telecom companies.
Bharti Infratel Ltd., one of the largest communications passive infrastructure providers in the world, is a great example of a telecom that is using advanced analytics to optimize their operations. The company pioneered the concept of communications tower sharing in India and manages 33,000 towers across the country. The tower infrastructure business is like a landlord-tenant situation: The more CSPs that rent space on a tower, the better it is for the company that owns and maintains the tower. An empty or sparsely populated tower means little to no revenue for the company and no one to share in energy and maintenance costs.
To increase tenancy, Bharti Infratel needed a consolidated view of its towers, but its business analytics systems sat in silos across the enterprise. By implementing company-wide analytics, it gained insight into how many towers overall had room for rent, guiding the sales and marketing teams on who to target with special marketing pitches and which current or potential customers might want to move in. Better insight into tenancy helped the company raise revenues, lower energy costs and helped its CSP renters extend or strengthen service in areas where it was needed most.
Transforming business models through cloud computing
Telecoms are gravitating toward cloud to help reduce costs and make their infrastructure more agile, which is critical given the industry’s quickly changing market dynamics.
However, Gen D Telecoms see an even bigger opportunity in cloud: 81 percent believe cloud is transforming their business model, compared to only 47 percent of other Telecoms. Cloud is also playing a key role in how Gen D Telecoms manage and use data and deliver digital services.
Cloud also opens the door to new revenue opportunities – like connected cars. As consumers continue to desire mobile connectivity in their vehicles, wireless carriers and automakers are teaming up on new business opportunities enabled by cloud-based platforms. According to Machina Research, 90 percent of new passenger cars are expected to have some form of connectivity platform by 2020. Machina forecasts that the connected cars market will reach $600 billion by 2020, the largest category in a $4.5 trillion market for connected devices and services.
Sprint has raced forward in wireless car technology to deliver a more personalized, responsive connected car experience. The company developed a new communications architecture that lets smartphones, tablets and other devices communicate with vehicles through the cloud. This new architecture enhances the Sprint Velocity platform by simplifying and speeding up the delivery of connected car services through the cloud. The result is increased flexibility for auto manufacturers and an improved driver experience that can anticipate needs and make consumers’ lives easier and more convenient.
For example, cars can be seamlessly integrated with drivers’ mobile devices and customized to their specific in-vehicle infotainment, security and convenience feature preferences. By accessing key fob information on the cloud, drivers can turn on the vehicle from their phone and blast the air conditioning before getting into the car.
Majority of Telecoms still have room to improve
Being data-rich or analytically ambitious does not necessarily mean you are a Gen D company. Even though the Telecom industry has the largest percentage of Gen D companies (36 percent), the majority of Telecom enterprises – the other 64 percent – have not made it this far. They are not yet driving their business through data and analytics – a missed opportunity to gain additional revenues.
Are you a Gen D Telecom?
Gen D enterprises are driving their business on data to create new revenue streams, penetrate new markets, or improve customer retention. Here are four questions to help you identify where you’re acting like Generation D or where you need to start growing faster.
- Does your enterprise use multiple data sources in combination with each other when conducting analytics?
- Is your enterprise using newer data sources such as location data, sensor data and natural language text as an input to analytics?
- Has your enterprise developed sophisticated analytics capabilities such as simulations and next-best-action modeling?
- Are the majority of strategic decisions and processes within your enterprise informed by analytics?