The growth challenge

The digital transformation is creating gateways between once hermetically sealed industries. Telcos are seizing these opportunities to create value by leveraging their assets: millions of active customers and ‘phygital’ distribution networks.

Telcos exploring new markets

In the highly competitive environment that telcos inhabit, diversification is viewed as a means of creating new revenue streams and securing customer loyalty. This is by no means a new strategy. Telcos have been rolling out new products for years: pay-TV plans, mobile handset insurance and later video surveillance systems for the home. Changing regulations in markets such as energy and financial services have also opened up new diversification opportunities. In the telecoms market where the convergence of services inside the home has become a key strategic focus, stakeholders are setting their sights on adjacent markets. Providing electricity or gas is being combined with traditional access services. The introduction of more relaxed retail banking regulation in Europe (enabling the creation of e-money and e-payment establishments) is paving the way for new entrants. The change in user behaviour and the smartphone’s emergence as the centrepiece of the user experience are creating a gateway between the world of banking and the world of telecommunications.

A number of diversification enablers

Telcos can leverage several competitive advantages to successfully establish a foothold in these changing markets.

  1. An existing customer base that numbers in the millions, and regular contact with them.
  2. A billing system that can be used for new services.
  3. A PoS network enabling a ‘phygital’ approach.
  4. Access to fixed and mobile devices, and the ability to promote these new services.

Partnership, in-house development or acquisition?

The business model employed for these new services is crucial. There are three possible strategies here.

  1. Partnership
    Reduces the risks and the need for heavy investment. Financial margins can quickly move into the black, but can also quickly max out.
  2. In-house development
    This strategy can require massive investments and the need to develop substantial expertise. It carries high risks but it is also the strategy that offers the potentially highest margins.
  3. Acquisition
    This strategy enables the fastest entry into the targeted market. The acquired property may already have a customer base and licences for the desired business. Investments are naturally high, as they involve taking over a new structure. Resulting margins may be solid but depend on the timeline that the telco sets for itself.
 
Telcos have powerful weapons to enable their diversification
Telcos’ diversification enablers
Source: IDATE DigiWorld
The economy’s digitisation allows telcos to enter new markets
New market entry enablers
Source: IDATE DigiWorld