HBR Russia

Rising to the Challenge: How Digitalization is Changing Telecommunications

The new business model of mobile companies, if it can be implemented, will drastically change the balance of power in the market.

By Genia Kudryasheva and Elena Filatova

First published on fevereiro 09, 2018
min read


Digitalization is not conquering all of the world at the same pace — its spread differs by industry. Bain distinguishes between three phases of digitalization. The first phase is about targeted introduction of digital technology, mainly for the purpose of cost-cutting (this is typical for oil and gas, production of other natural resources, and similar industries). The second phase is characterized by a much wider introduction of new technologies, while maintaining the existing business model (e.g. air transport, education). In some industries however, players are forced to fully redesign their business models as a result of digitalization — this is the third phase of the process. Let’s discuss challenges that drive the transition between the second and the third phase as illustrated by telecommunications, one of the most advanced industries. Their case will at some point be of use for other industries. The rise of messengers has put a serious pressure on revenues telecom operators used to be getting from text messaging; expansion of VOIP (Voice over Internet Protocol) constitutes a threat to non-Internet verbal traffic. Operators are setting off the losses by charging a data transfer fee; however, the following trend is on the way: data volumes are outstripping data transfer revenues, while the costs are going up on a par with the data volumes. For instance, data traffic across Western Europe grew 10-15 times (up to 30-40 times in certain countries) over 2010 to 2016. Data-driven revenues however grew just 1.4-1.7 times, depending on the country and the accounting method applied to package offers. There is an upside potential for revenues, this is beyond dispute; and this potential can be unlocked within the second phase of digitalization, i.e. without dramatically changing the business model. It implies further development of digital communication with customers: a more user-friendly and intuitive personal space, broader range of services accessible through such personal space, convenient link between personal space and physical channels. The possibility to resolve simple technical issues is an example of these new services: Tap & Fix, an application of Singtel, Singapore, helps find an error in the smartphone settings and suggests respective changes taking into account parameters of the gadget, checks WiFi speed across networks, and suggests the best network in terms of speed. Bain analysis shows that such improvements could result in a 30 percent point higher NPS (i.e. customer satisfaction), with more subscriptions, and higher ARPU (average revenue per user). The second-phase digitalization would also drive cost reduction. Total reduction of costs in the context of wider penetration of digital technology can reach 10-20%, along with 40% less calls to contact-center to discuss services, and 30% less contacts with clients in outlets. One other growth opportunity is to use Big Data to manage telecom operator’s customer base: analyze customer behaviors, use the finding to build targeted offers, manage attrition. Our research shows that these activities can lead to 10% growth of revenues among the leaders in terms of customer base management. Full article only available in Russian

Digitalization is not conquering all of the world at the same pace — its spread differs by industry. Bain distinguishes between three phases of digitalization. The first phase is about targeted introduction of digital technology, mainly for the purpose of cost-cutting (this is typical for oil and gas, production of other natural resources, and similar industries). The second phase is characterized by a much wider introduction of new technologies, while maintaining the existing business model (e.g. air transport, education). In some industries however, players are forced to fully redesign their business models as a result of digitalization — this is the third phase of the process. Let’s discuss challenges that drive the transition between the second and the third phase as illustrated by telecommunications, one of the most advanced industries. Their case will at some point be of use for other industries.

The rise of messengers has put a serious pressure on revenues telecom operators used to be getting from text messaging; expansion of VOIP (Voice over Internet Protocol) constitutes a threat to non-Internet verbal traffic. Operators are setting off the losses by charging a data transfer fee; however, the following trend is on the way: data volumes are outstripping data transfer revenues, while the costs are going up on a par with the data volumes. For instance, data traffic across Western Europe grew 10-15 times (up to 30-40 times in certain countries) over 2010 to 2016. Data-driven revenues however grew just 1.4-1.7 times, depending on the country and the accounting method applied to package offers.

There is an upside potential for revenues, this is beyond dispute; and this potential can be unlocked within the second phase of digitalization, i.e. without dramatically changing the business model. It implies further development of digital communication with customers: a more user-friendly and intuitive personal space, broader range of services accessible through such personal space, convenient link between personal space and physical channels. The possibility to resolve simple technical issues is an example of these new services: Tap & Fix, an application of Singtel, Singapore, helps find an error in the smartphone settings and suggests respective changes taking into account parameters of the gadget, checks WiFi speed across networks, and suggests the best network in terms of speed.

Bain analysis shows that such improvements could result in a 30 percent point higher NPS (i.e. customer satisfaction), with more subscriptions, and higher ARPU (average revenue per user). The second-phase digitalization would also drive cost reduction. Total reduction of costs in the context of wider penetration of digital technology can reach 10-20%, along with 40% less calls to contact-center to discuss services, and 30% less contacts with clients in outlets.

One other growth opportunity is to use Big Data to manage telecom operator’s customer base: analyze customer behaviors, use the finding to build targeted offers, manage attrition. Our research shows that these activities can lead to 10% growth of revenues among the leaders in terms of customer base management.

Full article only available in Russian