The Changing Role of Telecom in a 5G World
Traditionally, fixed and mobile telco operators have enjoyed particularly high EBITDA (earnings before interest, tax, depreciation and amortization) margins; much higher than those of other value chain players such as handset manufacturers, network tech and infrastructure players, and media/content providers. These high margins, however, have incentivized other value chain players to dip into this market and gain a share of the pie.
Digital native companies such as Google, Facebook, and Skype that form part of the telecom value chain are quickly disrupting the telecom industry and squeezing profits. These companies have been great at finding smart ways to monetize data and customer demand by building products that people want to use.
As it struggles to hold its ground in the new reality, 5G technology could provide a fillip to the telecom industry to make the transition from being a connectivity provider to becoming an ecosystem integrator.
5G: Limitless possibilities
People have begun to understand the tremendous potential of communication and its ability to disrupt industries. Slowly but surely, we are seeing communication/telecom make the transition from being just another industry vertical to becoming a horizontal. Communication now impacts industries across the board from financial services to energy to healthcare.
5G is rendering communication as a foundational industry that serves other industries. Let’s take oil and gas as an example. Drilling is one of the most expensive and resource-intensive processes in the oil and gas industry. Typically, the process begins with the drilling personnel getting the required download/ briefing regarding the drilling site in terms of terrain, depth, sensitivity etc. This briefing happens offline, possibly at a command center.
Post this, the drilling process begins on the ground, often using highly expensive, rented equipment. Frequently, the drillers find some discrepancy between the stored data and the actual situation on the ground. In such a situation, they need to head back to the command center, record the changes that they find and then draft the new plan before proceeding with the drilling. Needless to say, this is a highly inefficient process that often costs the company humungous amounts of money in the form of rentals, not to mention losses resulting from delays.
Given the volume of data that needs to be transferred, existing connectivity technologies simply could not handle the load. But with 5G, it is possible to ensure near real time connectivity between the driller and the command center, thereby facilitating an autonomous drilling process that is much faster and cheaper than existing processes.
Telecom as the Ecosystem Integrator
Telecom companies, by offering a stack of offerings beyond mere connectivity, can remain highly relevant and valuable to their enterprise customers. Currently, the switching costs are quite low for enterprises that would like to switch networks. If the telecom service provider takes on the role of an integrator, it has the potential to become a critical supplier in the ecosystem of customers, increasing stickiness.
Becoming an end-to-end integrator of solutions isn’t an easy transition for telecom players. The basic DNA of the business needs to change from being a connectivity business, in favour of being an ecosystem business. This means offering advanced services, networking slicing etc. and driving a much deeper customer engagement.
This is certainly not an easy transition. Coordinating with multiple partners can be very challenging. In addition, they will need to build the technical skillsets required to support the new business model, not to mention the mind-set shift.
The time is ripe for operators to look inward and review their own readiness in 5G deployment. What are the organizational changes required to introduce new business models? How can they operate in an ecosystem driving cross industry collaboration, consortium models, and platform opportunities?
The bottom line is that the telecom industry is set for a digital disruption, and 5G will lead the path for its transition into a new era.