Things are changing, even for Telcos….
For telecoms, making smart use of digital technologies calls for a wholesale digital transformation. Five steps are needed to make it happen.
Telecom companies face increasingly tough times as digitization reshapes the industry landscape. In fact, telecoms come second only to media in the ranks of sectors expecting moderate or massive digital disruption over the next 12 months, according to a 2015 cross-industry survey of senior industry leaders.1
In the past five years, the telecom business has entered a period of slow decline, with revenue growth down from 4.5 percent to 4 percent, EBITDA margins down from 25 percent to 17 percent, and cash-flow margins down from 15.6 percent to 8 percent.2Competitive boundaries are shifting as core voice and messaging businesses continue to shrink, partly under regulatory pressures, but also because social media is opening up new communications channels. Among US telecom companies, for instance, landline and mobile voice now account for less than a third of total access, down from 55 percent in 2010, while data revenue has risen from 25 percent of total revenues in 2010 to 65 percent today.
But digitization is not just a threat; it also offers telecom companies an opportunity to rebuild their market positions, reimagine their business systems, and create innovative offerings for customers. Not surprisingly, most executives consider digitization to be one of their top priorities,3but few companies are close to capturing its full potential. We calculate that digitization could enable telecom operators to improve their profits by as much as 35 percent, yet the average improvement achieved is just 9 percent.
So how can companies bridge this gap? We have identified five ways to come out on top of the digital revolution.
1. Reinvent the core
2. Pursue adjacencies
3. Build talent and capabilities
4. Revamp IT
5. Start with the customer and work back
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By Paul-Louis Caylar and Alexandre Ménard – McKinsey & Co