Data demand is causing a big shake-up in telecom firms’ business models
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On 2 September 2009, The New York Times published an article headlined ‘Customers Angered as iPhones Overload AT&T’.
Calling the new iPhone 3GS a “data guzzler”, it went on to describe how the device choked up bandwidth on the telecom operator’s network, resulting in “dropped calls, spotty service, delayed text and voice messages and glacial download speeds”.
This is just one among several such instances of how telcos worldwide have been struggling to keep up with the burgeoning demand for data services. And much as they are trying, the demand surges keep happening in one or other part of the world (India being an apt case in point at the moment).
Telcos are fighting this battle on two counts. On the one hand, they have been upgrading their mobile networks from 2G to 2.5G to 3G to 4G. And, on the other, they have been deploying various information technology (IT) tools to operate more efficiently, reduce customer churn (customers migrating to other telcos) and to serve customers better.
The woes of telcos are not difficult to discern. From providing plain old voice telephone services up until the 1980s, operators now have to also provide text messaging, multimedia messaging, video on demand, gaming, music and several other value-added services on a mind-boggling variety of handsets.
In fact, the demand for data services is far outstripping that for voice services and causing major structural changes to the business models of telcos.
According to a report by Cisco Systems Inc., mobile data traffic will grow at a compound annual growth rate (CAGR) of 53% between 2015 and 2020, crossing 30 exabytes per month by 2020 (1 exabyte = 1 billion gigabytes or GB as it is popularly known. It is said that 5 exabytes of storage space will be taken up by all the words ever spoken by mankind).
One of the key factors in that data growth is the global popularity of smartphones to access the Internet, watch videos, consume news and other content, connect on social media or even plug into work-related applications such as email, analytics tools and customer relations software.
While much of the investments telcos are making goes into acquiring spectrum and upgrading their existing 2/2.5G networks to 3G and 4G, they are also investing significant amounts in their back-end systems that help them run those networks, including network-monitoring tools, billing software, customer experience management (CEM) solutions, etc. According to estimates by Analysys Mason, a research firm, CSPs will spend over $100 billion per year on software and related services by 2020.
In this context, India is one of the emerging market hotbeds where intense competition is playing out in the telecom market, especially for the relatively more lucrative and faster growing data segment. The latest salvo was fired in September by Reliance Jio Infocomm Ltd, the latest entrant in the country’s crowded mobile communication space. The company claims to have signed up 16 million subscribers in the very first month of the launch, touted to be the fastest such milestone anywhere in the world.
Among other things, one of the biggest competitive edges Jio has, as far as technology is concerned, is that its network is fully based on Internet protocol (IP), the same one using which all computing devices—from tiny smartphones to large web servers in data centres—connect to the Internet. Having an all-IP network allows a telco to use the same underlying infrastructure for voice as well as data and be more agile in terms of market offerings—which is why even voice can be considered just another app on Jio’s network.
Other telcos, in contrast, have a mix of IP networks and the traditional circuit-switched networks in the circles they operate in (India is divided into 22 telecom circles or geographically segregated service areas). From the vantage point of an all-IP telco, their operations would be more complicated and clunky.
That is not to say that telcos with a mixed network set-up are going to scrap their past investments in 2G and 3G technologies: instead, they will compete by optimising their multiple networks and invest in IT tools that allow them to be more efficient and agile.
According to Ekow Nelson, region head, IT and cloud, Ericsson India Pvt. Ltd, “Some of the telcos are looking for a radical transformation of their business in order to look like a digital enterprise. This is a complete transformation of their relationship with their suppliers and customers. Others are looking towards more incremental changes. There is a whole range of different approaches that the operators have and, of course, some of it is driven by where they see themselves (in the foreseeable future).”
“Part of the transformation comes from understanding that this is really about changing the way you approach and interact with your customers and changing the way you organize yourself,” says Nelson, referring to the digital transformation challenges for IT decision-makers at telecom operators.
For example, according to him, if a telco’s distribution channel is through shops and retailers, that is not digital. “A lot of young people buy services online and they want help online. So if you want to become a digital player, then most of your own operating model will have to shift: you need to build online capabilities that allow your customers to interact and operate with you in a way that is very different from walking into a shop.”
He believes that just as the music industry moved from buying and renting CDs to online audio streaming, so is the telecom sector shifting from buying recharge coupons to self-service portals and apps—that is, a digital distribution model. In the case of India, however, a hybrid model that optimises both physical and digital sales for different geographies and customer profiles looks more likely.
Given that roughly one-third (31.3%) of India’s population, according to the Census of India 2011, is in the age group of 18 to 35—a generation cohort more digital-savvy than the rest—telcos that build a greater connect with them can reap significant business benefits. And one tried-and-tested way to do that is to app-ify most of their offerings and throw as many customised pricing plans at them as IT agility allows them to.
An indication of the importance of an app-driven approach is the recent marketing campaign of Bharti Airtel Ltd, India’s largest telco with an India subscriber base of over 250 million. The ad shows how quickly the new and integrated MyAirtel app can be downloaded onto a smartphone.
Earlier, there were several apps for music, movies, money, news, etc. but the new app comes as an integrated bundle (Reliance Jio’s MyJio app, which launched before Airtel’s new app, works in a similar fashion).
According to Animesh Sahay, senior country director of sales (enterprise and telecom business), CA Technologies India Pvt. Ltd, a provider of enterprise software and services, “For telcos, it is becoming increasingly important as to how they can wrap the entire app in a fashion that they are able to record the customer experience. Today, if a customer has a bad experience with an app, they might give it a try twice or thrice, but after that they are just going to junk it.”
So it becomes very important to know what the customers are experiencing on the app and to get their feedback and tie it back to app development, he says.
A telco can install an app tool to have a view of exactly what the customer is doing, exactly where he had an issue, what the screen looked like when a particular transaction was happening on the app, etc.
In short, the tool allows the telco to replay the same series of steps the customer took and find out what went wrong and where.
Another thing operators need to do, according to Sahay, is to move away from the old, waterfall model of application development to agile development methods by embracing what is called DevOps. DevOps is the combination of development (Dev) and operations (Ops), referring to how the IT teams at most enterprises are divided.
Traditionally, there has been some friction or lack of coordination between the two teams that typically work in isolation. The DevOps movement calls for a greater cohesion between the two and the use of agile software methodology and tools that enable it.
The whole idea of DevOps and agile method is to release newer versions of software or apps as quickly as possible so that new features and benefits could be marketed to existing and potential users.
In addition, given the speed at which mobile technology is moving today, more and faster releases help fix multiple bugs and issues with the software.
The dynamism in the telco universe is causing many to move towards what is known as a catalogue-driven architecture, which allows a telco to dynamically serve up data plans and other service offerings (movie/music downloads, for instance) to customers even if third-party mobile valued-added services providers are involved.
Going forward, most telcos in India, including Airtel, Vodafone, Idea and others, will ramp up their digital transformation efforts to increase data revenue and stay relevant in a fiercely competitive market.