Operator digitalization: What is it all about?

Digitalization or digital transformation has surely been one of the most talked about business topics in recent years. In a general sense, the terms refer to the application of digital technologies both in customer-facing and in internal parts of an enterprise. Mobile network operators (MNOs) have in the past not been at the forefront when it comes to digital business transformation, yet in recent years, they have indeed also begun implementing agendas and measures under the banner of going “digital”. However, while everyone is talking about “digitalization” in some sense, the concrete meaning of this term and the practical measures associated with it both vary heavily from company to company. This blog post therefore intends to shed light on what “digitalization” is actually about for operators and to provide considerations on how it should be carried out to increase the chances of success.

So, what exactly does “digitalization” entail in the operator context? Well, the short answer is: It depends. The reason for why this term is used so broadly within telecom is precisely because it can encompass multiple perspectives and even more actual activities. As mentioned above, operators’ digitalization measures can be directed outward and inward, respectively. Naturally, the external and internal angles are not autonomous, but rather intertwined and dependent on each other.

Typical external, i.e., customer-facing digitalization measures include, but are not limited to:

  • Internet-based sales channels
  • Online customer self-care tools and communities
  • Targeted advertising campaigns
  • Revenue-sharing partnerships with over-the-top (OTT) players
  • Introduction of own digital services such as streaming platforms, cloud storage, mobile payments, e-healthcare, etc.

Many operators have initiated these and similar efforts in order to diversify away from only being seen as connectivity providers and to ultimately tap into new revenues. The MNOs that have been the most successful in digitalization have furthermore realized that rather than just “sprinkling” in some digital products and services here and there, a true digital business model needs to be built on an agile company culture and centered around the customer experience. This is also where we can make the connection from external to internal digitalization.

Internal, i.e., organization-oriented digitalization efforts often encompass the following:

  • IT, most importantly business support system (BSS) transformation
  • Usage of big data and analytics
  • Product portfolio simplification
  • Transitioning the company from a waterfall-based to an agile way of software development
  • Establishing a Chief Digital Officer (CDO) function to coordinate cross-organizational digitalization efforts

Establishing a digital business model should not, however, end with IT legacy systems being replaced and the portfolio being slimmed down. For such efforts to have a substantial impact on the company, MNOs need to adjust their entire business mindset to the new, digital world. My colleague Joonas has recently laid this out in his comprehensive blog post on the steps required for moving toward a truly digital company culture. Operators have begun to realize that they need to go through a digital transition that is as fundamental as Joonas describes, and hence there is a lot going on in the telecom industry that has to do with becoming more collaborative, leaner and meaner. Some even argue that operators should become more like the usual suspects from Silicon Valley. But regardless of whether the aim is a “Google-like” future or one sets more modest goals, it is clear that a paradigm change is happening with telcos. They have recognized that revenues aren’t growing in the same ways as before, and are no longer willing to idly stand by while OTT players continue to generate incomes that potentially could have been theirs.

Moreover, putting the digital customer journey and experience in the focus of the new, digital business model has been argued to be a major building block for MNO digitalization by both industry analysts and operators (e.g., AT&T, Deutsche Telekom) themselves. This is to say that the digital transformation should be conducted not in a sprinkler-like manner, whereby one adds digital elements to one’s ways of working and portfolio here and there. Instead, operators should map out typical customer journeys for each of their key customer segments and subsequently design the technologies, processes and offerings that would be needed to sustain such journeys in the digital environment. The result of this is approach would then be a fully digitalized customer experience that is enabled by a digital, customer-oriented business philosophy on the inside of the operator.

Just this month, digital business intelligence service L2 ranked the digital competences of 29 MNOs in large European markets based on the dimensions of website performance, digital marketing efforts, social media capabilities and mobile experience. Orange in France emerged as the operator with the highest “digital IQ”, followed by Vodafone in Italy and the UK, while, e.g., Germany’s largest MNO O2 only scored rank 18. Furthermore, we recently have been seeing both AT&T and Verizon in the US make large acquisitions of different media companies in order to increase their revenues in digital arenas such as online advertising and video streaming. It will be interesting to see whether this type of inorganic approach will actually help those MNOs digitalize in line with the leanness and customer centricity aspects described above, or whether these takeovers will turn out to be merely additional bits and pieces added to the surface that will eventually not manage to change the totality of the customers’ experience with the respective operator.

To sum up, we can state that MNO digitalization is a hot topic within the telecom industry, buoyed up by operator needs to find new sources of revenue and the concurrently ongoing cost pressure. Applying digitalization as an approach to become leaner, more agile and thus more innovative and efficient can play its part in ensuring that these objectives are accomplished. Furthermore, choosing a digitalization approach that emphasizes customer centricity has the potential to introduce operators to new and more satisfied customers.

/Jewgeni

Jewgeni is an Analyst at Northstream

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