The disruption reshaping the telecommunications industry is so enormous and far-reaching that, if I ran a business school, I'd make it mandatory case study material. Change is happening in all directions, all at once--driven partly by technology and partly by the collision of a static, risk-averse industry with digital-age service models and players who don't know (or care) how things used to be done.
This past winter, Nokia worked with consultants at Oliver Wyman to study the various forms and 'flavors' of disruption unfolding in telecoms, and uncovered lessons applicable to any sector. First and foremost, the lesson is when the tides of disruption roll in, reinvent aggressively or be prepared to drown.
When the walls come tumbling down
Telecoms used to be tough to break into; costs were high and technology was hard to access. Digitalization changed that, opening the door for over-the-top (OTT) players like Netflix and YouTube to build lucrative services using other companies' networks. Suddenly, challengers with deep pockets as well as organizations with new business models had the chance to redefine the industry in markets around the world.
And they seized it.
Rakuten is a great example. In 2014, the e-commerce giant started offering its own mobile services using NTT Docomo's network, amassing 1.5 million customers. In 2019, it started building its own network and established a national roaming agreement with KDDI to become one of Japan's fastest-growing mobile network service providers.
What makes Rakuten different? First, it can deliver mobile services at a much lower cost. This is common with new entrants that can design optimal business processes and operations because they are unencumbered by layers of complex legacy systems that incumbent networks accumulated over decades of operations. Second, its mobile networking piece is just a platform to deliver a diverse mix of value-added e-commerce, fintech, digital content, and communications services--making Rakuten much more than a traditional communication service provider (CSP).
India's Jio didn't even bother going OTT first. The company spent six years and US $25 billion to build its own mobile network infrastructure from scratch, launching in 2016 and signing 50 million subscribers in just 83 days. The company's arrival on the scene upended the market almost overnight, forcing India's second and third-ranked mobile companies to merge so they could muster the investment to compete. The former top player, Airtel, dropped to No. 3.
Part of Jio's advantage is its highly automated digital business model that makes the company extraordinarily agile and cost efficient. For example, not only is it able to bring online up to a million new subscribers a day, Jio leveraged this advantage to establish the lowest price points ever in the market. The company also introduced a new business model by adding a diverse mix of digital services including payment, media, and e-commerce. Its low prices were actually designed to make these digital services accessible to a larger population than would have been possible at the previous higher price points.
Not every new entrant is competing by flipping old business models on their head. France's Free Mobile is a fairly classic CSP, but by achieving "quantum leap" process efficiencies, it was able to profitably and significantly challenge competitor pricing. By completely changing the game on costs, Free Mobile have taken a 20 percent share of the French market.
The old guard strikes back
Established players aren't taking these disruptions lying down. Airtel rallied against Jio by launching a new app, digitizing its storefronts, creating a new loyalty program and focusing heavily on content. It now boasts the highest engagement metrics in India with the top music streaming app, tens of thousands of movies and shows and hundreds of channels. And as the only Indian competitor, Airtel was able to defend its 30 percent revenue market share against Jio. In the US, T-Mobile's focus on customer experience yielded above market-average growth five years in a row, making it difficult for challengers to enter. Free Mobile's parent company, Iliad, tried to replicate its success in France when it launched operations in Italy. However, Telecom Italia was ready with a two-pronged strategy, first strengthening its brand's premium reputation by rolling out fiber in 73 percent of homes, more than any other competitor. It then uses that network to support strategic partnerships with content creators like Amazon Prime, Netflix, and DAZN. And to remain relevant with price-sensitive customers, it also launched lower cost plans via a second brand, Kena Mobile.
Some incumbent telecom players have responded to new competitive pressures and continued threat of commoditization by branching out, thereby disrupting other industries altogether. Softbank is now a global venture capital investment house with significant shares in Ali Baba, Yahoo Japan, ARM, and Sprint, and eclipsing the resources of traditional venture capital funds. AT&T is pivoting to become a media giant through its acquisitions of DirecTV, TimeWarner, and Nextel. These moves give the company vertical integration and ownership of the networks, the content running on them, and the distribution rights for that content. As a result, only 40 percent of AT&T's revenue now comes from mobile services. It's not a "telco" anymore; it's a media and entertainment company. (The jury on this strategy is still out; recently an activist investor has been very vocally advertising their view that AT&T is becoming a conglomerate and would fare better with a network-focused strategy.)
Software eats the world
With market regulations becoming less strict in various geographies, new business opportunities will continue to emerge. The mass rollout of 5G networks and services will push opportunities to a new level. 5G isn't just the next generation of today's wireless standard. It's the first generation of an entirely new kind of network, with radically evolved efficiency and flexibility.
Ultimately, what's taking shape is a highly dynamic "relationship economy" predicated on connections between companies and people. Enabling that requires a kind of agility the telecom industry has never possessed, and it will rely heavily on software. This, too, is a disruption, because software removes the physical networks' limits on what's possible and how fast things can be done.
With telecoms, we're seeing an evolutionary leap forward brought on by multifaceted forces of disruption. Because almost every industry today is in some way connected and digital, it's fairly safe to say telecommunications won't be alone in being disrupted this way.