Operators have begun to implement elements of digital transformation. Tele2, for example, an integrated European operator is moving its network and IT functions to the cloud with network function virtualization (NFV). In France, SFR has deployed 4 million Wi-Fi hotspots, enabling the carrier to offload a significant share of its mobile traffic. Several carriers are working on data analytics applications that will help them monetize the movement and whereabouts of their customers.
There are three fundamental pieces of an end-to-end digital transformation: modernizing the network, embracing customer-centricity, and creating a digital culture
Modernizing the Network. One of the most effective ways for telecommunications operators to start an end-to-end digital transformation is to modernize how information is transmitted over networks and how networks operate.
- How Information Is Transmitted. For fixed networks, a variety of new technologies, such as Docsis 3.1 and XG-FAST, are improving transmission. Similar advances, such as 5G, LTE in unlicensed spectrum, License Assisted Access, and next-generation Wi-Fi, are becoming part of mobile communications. And in the transit area, advances in microwave and multiplexing technologies are occurring rapidly.
- The Way Networks Operate. Together, software-defined networks (SDN) and NFV are fundamentally changing network operations. SDN and NFV are two sides of the same coin; we refer to their collective use as software-defined virtualized networking (SVN). SVN can not only reduce networks’ capital and operating costs but also improve their flexibility and scalability. Its open-source architecture also fosters greater agility and innovation. (See “Telecom’s Twin Peaks: Software-Defined and Virtualized Networks,” BCG article, June 2016.)
Early SVN adopters expect to save 30% to 50% on capital and operating costs over five years. AT&T, for example, plans to have 75% of its networks virtualized by 2020. A word of caution: the transformation to SVN is a multiyear journey. It rarely makes sense to rip out equipment that still has several years of operating life.
Other innovations in network operations include small cells, automation (such as self-optimizing networks), and data analytics that dynamically manage network traffic.
Embracing Customer-Centricity. Retailers do it. Airlines do it. Hotels do it. Even banks do it. Yet most telecommunications operators struggle with it—or worse, do not even have a clear view of how to make it happen.
We are talking about creating compelling customer journeys and offering customers a connected-channel approach. Telecommunications operators are competing against digital attackers, such as WhatsApp and Snapchat, that understand, engage with, and delight their customers.
Customer-centricity requires active change management. Connected-channel retailing, for example, requires technical skills to manage an online and mobile presence, data analytics skills to understand customer behavior, automation capabilities to create seamless service, and inventory management capabilities to ensure the availability of “click and collect” purchases.
Soft skills are needed, too. The best connected-channel retailers train their store and call center personnel to perform a full range of sales, service, and follow-through activities. They also create common metrics so channels are not fighting one another for revenue credit.
The payoff for operators is tangible. Strong connected-channel performance can yield revenue increases of 3% to 5%, reductions in churn of 2% to 4% and in cost to serve of 15% to 30%, and improvements in customer satisfaction scores of 15% to 30%.
Creating a Digital Culture. The success of an end-to-end digital transformation rests more with leadership and people than with hardware and software. Leaders must be comfortable changing the core of their organizations, and they must play an active role in leading the change.
At the same time, operators need new ways of working. For example, SVN technologies require changes to organizational structure, capabilities, and behavior that reach across the value chain. Virtual development and operations teams need to work seamlessly across organizational boundaries. Open-source architecture teams and joint commercial and technical teams need to move customers systematically to new offerings.
The IT function must play a critical role in facilitating this transition. It needs to embrace greater technological openness and flexibility by creating accessible application programming interfaces, or APIs, by allowing greater integration into the network, by storing information in data lakes, and by encouraging agile development. Along the way, the IT function needs to start viewing itself as a source of value rather than a cost center.
Nowhere is the need for customer-centricity more apparent than in the B2B market. To succeed with business customers, it will not be enough just to offer connectivity. Revenues from connectivity are generally flat or declining. Meanwhile, Amazon Web Services has started to offer network functionality as a service, providing load balancing, firewalls, and routers on the cloud. Even B2B customers that are not yet comfortable with cloud-based network services have much higher expectations of the telecommunications operators than they did five years ago. At the same time, the procurement staffs of large commercial customers have become much savvier negotiators.
Operators can play a highly valuable role in B2B—especially with midsize companies—but only by transforming their operations so that they can compete against OTT and cloud companies able to create a compelling customer experience. The back end of operators often suffers from inflexible legacy infrastructure, while on the customer-facing front end, their user interface, pricing, and sales skills often lag behind the market.
Disruptive Digital Innovation
The goals of disruptive digital innovation are to create new revenue streams, barriers to entry, and sources of value creation. It’s a game of disrupt or be disrupted.