TELCOS: COULD THEY BE THE ‘WHITE KNIGHTS’ OF THE INTERNET OF THINGS?

Bain & Company finds telcos’ focus on developing IoT solutions to win end-customers stands in the way of pursuing more lucrative opportunities closer to their core

New York – Feb. 28, 2017 – Buzz around the vast potential of the Internet of Things (IoT) – a huge network of sensors and smart devices, combined with advanced analytics and cloud services to make sense of all the data – continues to build. Meanwhile, a less attention-getting, but equally important, question lingers in the background: who will actually support the complex infrastructure required to connect the multitude of technologies and devices in the emerging IoT ecosystem?

Telcos are uniquely positioned to address this challenge. Yet, new research from Bain & Company, Close to the Core: Telcos’ Competitive Advantage in the Internet of Things, suggests that when telcos look at where and how they can capitalize on IoT, they tend to take a too myopic view of the market.

Bain finds that most telcos are focused on providing specific solutions to commercial customers and aspire to create value from all the data these solutions generate. Given the potential of IoT, which Bain estimates will generate more than $470 billion in annual revenues by 2020 – a significant amount of which will come from selling industry-specific services – telco executives understandably see this as an enormous opportunity. However, because of their emphasis on vertical opportunities, telcos tend to underplay their hand in key horizontal spaces, where they enjoy the right to play and win.

“The telco industry is overlooking a huge opportunity,” said Herbert Blum, co-author of the report and head of Bain’s Telecommunications Practice in the Americas. “Few are thinking about – much less addressing – the scale of IoT devices once deployed and the massive effort that awaits in managing these billions of devices through their effective lives. Perhaps more significantly, no one else is able tackle these challenges and, at least for the foreseeable future, no one will be able to do so. The door is wide open, telco just need to walk through it.”

As telcos compete for share in lucrative and attractive vertical segments, many of which – such as smart homes – are getting crowded quickly, they miss out on even bigger opportunities that are much nearer to their core. Only telcos have the experience necessary to deliver scale connectivity solutions at the center of IoT. They are also the only players with experience in managing extensive directories and the lifecycles of millions of devices. And they have a strong position developing and managing analytics at the edge of the network across a range of industries and use cases. These strengths, combined with their trusted status, leave telcos uniquely qualified to facilitate the delivery of IoT solutions.

They also provide telcos with a three-layered opportunity as they develop their unique, differentiated strategies for the Internet of Things:

• Connectivity. Network connectivity is the starting point for building the IoT opportunity for any telco – and here, their deep expertise lays the foundation to take more than their fair share of business. Only telcos have the experience and capabilities to deliver carrier-grade networks that meet compliance requirements and governance demands across a global range of regulatory schemes. Telcos are building software-defined, virtual networks that can offer flexibility in terms of service suites and various security and performance levels. This flexibility will be essential in allowing clients to automatically self-provision when necessary or to allow integration with third-party systems through appropriately monitored APIs.
• Lifecycle management. The opportunity in lifecycle management stems from telcos’ deep expertise in deploying, maintaining and decommissioning the millions of devices on their networks in a way that ensures network security, device directory maintenance and rights management – often years after they have been installed, and across a universe of devices much larger than other suppliers are used to managing.
• Vertical solutions. Successful deployment at the connectivity and lifecycle layers supports success in the vertical solutions developed for clients in specific industries. But as with any broad new opportunity, telcos need to be thoughtful about where they choose to participate directly and where they facilitate the success of other vertical market solutions providers. Telcos that choose to build up their capabilities in only a few industries stand a better chance of succeeding than those that enter too many verticals at once.

Rebalancing towards IoT-enablement services – and away from excessive excitement over vertical solutions – should prove significantly more successful to telcos around the world. However, they must act quickly to fully leverage their expertise and capabilities.

“Time is running out, so it is important telcos begin prioritizing their investments,” said Paul Smith, a leader in Bain’s Telecommunications Practice. “Early movers stand to gain an advantage, especially in infrastructure plays with a long lifetime. They will define standards and become platform providers, and will be very costly to displace. Early movers will also capture deep knowledge about how to plan future network architecture, and will develop the new skills and capabilities necessary to win as the market evolves.”

Editor’s note: To request an interview with Mr. Blum or Mr. Smith, please contact Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102.

# # #