The Opportunities and Challenges of Digitalisation for CSPs

This article was first published in Connect World Latin America.

Across a variety of industries, many companies have started to build and implement their digital transformation strategies and launch new digital services in a bid to stand out and stay competitive in their respective markets. The strong consumer preference for more digital services with the likes of 24/7 self-service and other convenient easy to use services has changed the market landscape in many industries.

Many of the more agile and innovative companies in industries including finance, travel, entertainment, hospitality, and retail are already implementing significant changes to their digital transformation strategies and service offerings. Unfortunately, players in the telecommunications industry have traditionally been much slower to evolve and change their increasingly outdated business models and legacy systems. Often, one of the reasons for this slowness is the use of unnecessarily complex IT systems and processes.

Drivers for disruption and digitalisation

We can already see the positive results of companies, in various industries, who have gone digital or at least are digitising certain aspects of their business operations. One of the primary drivers of this is to cater to digitally-savvy consumers, and businesses who fail to do the same will miss out on opportunities to engage with them.

However, this is easier said than done, as selecting the right path or strategy for the future can be problematic - especially as the digital transformation projects required to achieve true digitalisation come with their own challenges (not to mention the high rates of failure). Some of these prominent challenges are often linked with complexities associated with existing legacy systems, the lack of internal expertise for driving major transformation, budget limitations, and the lack of complete buy-in from senior management to drive real business changes beyond simple IT system overhauls.

These challenges also present unique opportunities. For example, Communication Service Providers (CSPs), for example, America Movil, Telefonica Brasil, and Oi, who need to replace their legacy systems can approach the task with a phased transformation to get a competitive offer to market quicker. A new digital solution can be introduced to a specific market segment in the first instance (such as a parallel brand), followed by replacing and transforming the rest of the legacy system once the initial phase is proven to be successful. This way, the whole business can be transformed and achieve true digitalisation in separate phases.

According to a recent McKinsey & Company article, the difficulty of organisation-wide overhauls, traditional heavy-weight operators - along with “ascendant digital-native alternatives” - have circumnavigated the crushing complexity of transformation projects by implementing so-called ‘digital attacker’ strategies with notable success. McKinsey states that: “Within four quarters from launch, the typical digital attacker has contributed close to 25 percent of overall gross additional subscribers (gross adds) to the incumbent operator while showing total profitability that is more than five percentage points higher.” More importantly, the McKinsey study reported that “70 percent of these gross adds are new to the operator and not cannibalised from legacy parts of the business, with an acquisition cost that is roughly half that of the parent brand.”

Budget constraints are another overarching challenge, especially with it being one of the main obstacles to digital transformations. The bigger the project is, the longer it will take to complete and by extension, the more it will cost, which is why big-budget projects need appropriate justification. The value of results is often only available upon completion of the project, which means that there is the added pressure of the project succeeding once completed. For this reason, it is imperative that digital transformation projects have a solid plan for delivering value in the stages prior to completion. Having the right transformation strategy in place in the first instance is always ideal, but it is paramount that businesses continue to seek new ways of doing business in a more efficient, cost-effective manner. When customers are transitioned over time to new propositions with new price points, the business case works both for short-term and long-term competitiveness.

Traditionally, operators might evaluate transformation strategies of 1) replacing existing legacy solutions in one go (“Big Bang”), representing bigger risks, but also fast gains if successful – or 2) establishing a new parallel brand and solution for a new, modern digital business (e.g., purely digital business line where only digital sales and customer care are the way to serve the customers). Phased transformation of the existing ‘running engine’ is also an option but requires clever technical and transformation project management skills to get right.

What CSPs can learn from other industries

As relative newcomers to the world of digitalisation, CSPs can learn from studying best practices and successes from other industries and adapting those to their own unique market challenges. This is highly advantageous as they will be able to experiment with tried and tested methods that will enrich them with opportunities available to those that ‘get there first'.

As travel companies have learned, a large amount of business is driven by the ability to deliver highly competitive and targeted campaigns through connected channels that can be purchased with the simple click of a button. CSPs can learn something here from the travel industry in the sense that they can follow the same modus operandi by delivering highly personalised services and easy operator switching without heavy reliance on sales personnel or needing to visit a physical store. This would allow a steady departure from existing models that comprise phone call sales and in-store interactions, and shift to more digital and convenient services.

Going digital - The benefits of greater operational efficiency

Beyond the obvious improvements to customer experience, digitalisation can have just as much of a significant effect on the very core of business operations and sales methodology. Digital solutions can give businesses the capability of shifting their data mining tools, centralising business data from different departments rather than having it housed in individual siloes across different parts of the business. This enables more varied data to be collected and analysed with actionable insights available to customer service and sales personnel prior to any and every interaction, as well as personalising the customer journey in digital touchpoints automatically for superior customer experiences.

It also helps with introducing faster real-time offers and tailor-made deals based on personal data analytics gathered initially. Furthermore, deals can be modulated to trends and data gathered, which means that they can be rolled out across all channels rapidly and modified as needed to match its success and increase its appeal. Data-driven sales and customer service have proved effective in online retail for years now.

Future-proofing your business operations and digital transformation strategy is vital in keeping up with any additional incoming trends in the telco sector. The arrival of eSIMs is a testament to this, seeing as eSIM will likely replace the current system of operators needing to issue a new chip for on-boarding customers to the network, with a whole new digital system on the device that fulfils the exact same function all within the existing chip. This will be updateable remotely and will allow easy operator switching. Having a digital transformation strategy that enables this level of flexibility and convenience is what puts you at the front of the minds of prospective and existing customers.

Although digital transformation can at times be a daunting prospect with rather difficult challenges, if undertaken efficiently and strategically, it could not only improve but revolutionise your business processes. The drive towards digital transformation goes beyond business arguments as it is a catalyst for the inevitable reality that operators will need to change their business models and systems to meet the challenges of future consumers and their needs. Operators that do not make a step-by-step plan and begin these projects in good time risk finding themselves behind the curve and behind the competition.

Mahender Nandikonda
Co-Founder & CCO