Despite the imperative to digitally transform, telecoms are struggling with legacy IT systems and age-old corporate cultures. For communications service providers (CSPs) in particular, upgrading technology is critical. While digital transformation presents several challenges, there are valuable rewards by way of new revenue streams and the opportunity to partner with other organizations going through their transformation cycle.
While telecoms have embraced digital at a policy level, a lot of work remains to be done to implement it effectively. Many telecoms have websites, social media accounts, and even online chat functions to engage customers, as well as other customer-facing digital functionality. Yet they struggle with their internal systems and processes in trying to go digital.
The Challenge of Telecom Digital Transformation
In the last few years, advances in technology have allowed CSPs to evolve their networks and infrastructure into an entirely different paradigm that’s modeled on cloud computing, using new technologies such as network function virtualization (NFV) and software-defined networking (SDN). NFV virtualizes large number of network functions into a flexible building block system, while SDN is a network architecture approach that allows the network to be centrally controlled through software applications.
These technologies can revolutionize the flexibility of networks, allowing CSPs to respond nimbly and intelligently to changing customer needs. They also offer potentially huge cost efficiencies through scalability, ensuring that firms only run the network they need.
However, many telecoms have been slow to upgrade. CSPs are experiencing a huge downward pressure on average revenue per user (ARPU), while simultaneously being asked to upgrade their network virtualization and digitally transform their businesses-both massive investments. To become digital transformation partners, CSPs will need to spend over $100 billion a year on software and related services by 2020.
The Opportunity: Firms Need Trusted Transformation Partners
Across the industry, an overwhelming majority of digital leaders (97%) have acknowledged the role their network will play in achieving digital success, per an IDC survey. However, 77% of these leaders say that their organization’s digital strategy and initiatives are either lagging (39%) or only somewhat effectively aligned with broader enterprise strategy (38%).
Organizations need a trusted partner to overcome the obstacles of network inadequacy and technical complexity, and CSPs are in a prime position to fill that role. CSPs that invest in hybrid IT services enabled by these new flexible network technologies can help firms to integrate multiple cloud offerings and provide them with scalable security and network resources.
The Path to Transformation
Gartner predicts that by 2020, CSPs that standardize IT and network infrastructure and processes will improve their EBITDA (earnings before interest, taxes, depreciation, and amortization) by 10%. Large telecom firms are already partnering with organizations in areas such as digital transformation, security, and cloud services. Verizon and Telefonica both have enterprise solutions arms working with companies ranging from international manufacturer Komatsu to McDonald’s. Meanwhile, Vodafone offers managed network services worldwide, and AT&T offers a range of services from cybersecurity and networks to the Internet of Things (IoT) and cloud.
To stay competitive, and indeed, to survive, CSPs must digitize. While the process is challenging, it offers both the opportunity to increase ARPU through cost-efficiency, scalability, and flexibility, and new revenue streams by partnering organizations that are going through their digital transformation. While global firms like CSPs are notorious for their slow pace of change, with good reason-it is not easy to overhaul huge legacy IT systems or redefine a corporate-wide culture overnight-CSPs that are unable to make the change face the very real threat of obsolescence. Telecoms must drive digital transformation and embrace its new role, else disruptive digital interlopers will carve up this promising market between them.