As we approach four months since essentially the entire world went on lockdown, telcos have gone through a very mixed experience.
On one hand, from what we’ve seen, core revenues from prepaid customers are down 20-30% as people have gone into lockdown. Whether this is due to economic shock hitting consumers or simply greater usage of Wi-Fi while people spend more time at home, top-ups are down significantly. In some markets, says Josh Gosliner, global head of Market Strategy at Juvo, governments have mandated telcos to make services free or at reduced rates. While this is likely exacerbating the revenue problem, this leads us to the good news…
While I haven’t seen metrics to support this, I suspect that telcos are going to be recording Net Promoter Scores (NPS) near or at record levels. In times of crisis and uncertainty, mobile networks provide a critical lifeline. Telcos employ humans as well, and these essential workers have been nothing short of rockstars in keeping networks up and running despite massive increases in network utilisation.
Some telco business growth
Telcos haven’t been dealt a brutal blow in the way that sectors like energy, travel & hospitality have. In fact, some areas of the business are growing. Digital payments, in the form of carrier billing, are reaching new heights. Whether it’s purchasing a new streaming service or video game, the payment rails that telcos provide are seeing more traffic (and revenues) than ever.
So, while revenues may be down, things could be much, much worse. So, let’s look to the future. The world will come back, hopefully sooner than later, but likely at some point in 2021. How can telcos position themselves to not just survive, but thrive as the world continues to change?
Possibly one of the most-read articles in business circles right now is Harvard Business Review’s 2010 piece “Roaring out of recession”. In it, respected academics explain how progressive companies emerge from recessions and thrive. This demands a balancing of defensive (cost reduction) and offensive (investment) decisions, the latter split into three: marketing, asset acquisition, and R&D (research & development) to create new services.
Start with cost reduction
Cost reduction is the most obvious place for companies to start. Events like COVID-19 present opportunities to re-evaluate and trim the fat from budgets, focusing on costs that contribute to revenues. This exercise must be taken with careful consideration; cost-cutting should be surgical. Cost reductions that are too deep will inhibit companies’ ability to properly roar when the time is right.
Far more exciting to discuss than cost reductions are the investments that have the ability to stimulate growth, to separate telcos from their competitors, and in several cases also reduce long-term costs. The most obvious place to start is with overdue digital transformation projects. These projects will not only provide better customer experiences, they’ll enable telcos to reduce costs now and into the future.
The three primary categories for investment that ‘Roaring out of recession’ identifies are all highly relevant for telcos as they think about where to place their bets for future success:
- Marketing – Marketing is often thought of as one of the first targets for cost reduction, and while that can be tempting, it presents a major risk in both the short and long term. Many telcos think of marketing within the context of their existing, core consumer business. The fact is, there is only so much more juice that marketing can squeeze from that orange. In many instances, telcos are sitting on monetisable resources that marketing departments can productise, generating incremental revenues.
Telcos can and should be looking to diversify revenues via business-to-business (B2B) customers that can benefit from the data, relationships, and rails of telco infrastructure to better enable their businesses. As 5G becomes more prominent, new B2B uses cases, most notably from the Internet of Things (IoT) are likely to emerge. Marketing will play a critical role in garnering market insights and bringing new IoT use cases to market for additional monetisation.
- Asset acquisitions – For telcos with a balance sheet to support it, now is a great time for acquisitions. Consolidation within the telco sector has been going on for some time now, and COVID should only help to accelerate this trend. Competitors in perilous financial positions can now be acquired for an even deeper discount. To that point, telcos who are engaged with smaller start-ups may be able to acquire and integrate those businesses. Again, smaller start-ups may find themselves without the finances to survive a pandemic, and can potentially be acquired at a discount.
- R&D – The next wave of telco innovation will require R&D investment today. Telcos need to double down on their own ability to innovate, creating the technologies, products, and services that have made them as big and successful as they’ve become.
The combination of monetising existing assets, acquiring new assets at a discount, and the development of new products and services through R&D are the formula for telcos to survive, thrive, and ROAR out of this recession.
The author is Josh Gosliner, global head of Market Strategy, Juvo.