Telco businesses can continue to thrive through the economic downturn | NTT DATA

Fri, 20 January 2023

Telco businesses can continue to thrive through the economic downturn

Times are tough, with multiple factors dragging on the post-pandemic economy and consumer prices soaring. Customers are cutting back on discretionary spending as mortgage rates and energy bills rise, making it more difficult to argue the case for upgrading communications beyond the essentials. This puts a further squeeze on telco businesses that are already under pressure from rising input costs. One obvious reaction is to clamp down on non-essential spending and wait for better times, but that would be a mistake. NTT DATA UK&I believes that investing now in areas that can improve efficiency and prepare you to make the most of future opportunities is critical. For telco companies, that often means turning to digital solutions to support their evolving business objectives. Deploying them now will bolster short-term resilience and achieve an accelerated recovery once things begin to look brighter.

Don’t take our word for it 

Independent analysis backs this idea. According to Gartner, 70% of companies don’t regain the level of growth they enjoyed previously for at least three years following a recession and just 5% of companies consistently achieve profitable growth above that of their competitors coming out of a slump. But there’s one common factor that makes companies three times more likely to achieve above-industry revenue and margin growth during a recovery – being a digital leader.

Change is the only constant

In large part this additional resilience boils down to the outstanding adaptability of digital leaders, who are best placed to respond positively to a fast-changing business environment. That might mean switching up offers to match evolving consumer preferences or adapting existing tools and processes.

If the past few years have taught us one thing, it’s that anything can happen and happen quickly. The pandemic, Brexit and the war in Ukraine show how hard it is to predict the fallout from external events. With the onset of recession, it now looks like even more financial pain is on the way in the shape of tax rises for businesses and consumers.  Who knows what else is around the corner in terms of political and economic instability, as well as climate change and the measures needed to combat it?

What does this mean for telcos?

The current squeeze has implications for the revenues and costs of all telco businesses.

It hasn’t all been bad news for revenues so far. Most UK mobile providers (apart from VMO2) have benefited from the re-introduction of roaming charges post Brexit, for example. Operators have also been partially protected from inflation by ‘CPI-plus’ price increases in April.

However, price increases now lag CPI, which continues to rise, and hard-pressed customers may yet be forced to trade down in the coming months. Market volume growth has been muted or even declined across most consumer telco services in recent quarters. This mainly impacts sub-scale players who depend on market growth/switching and there has been strong price discounting in response.

The picture is equally challenging in terms of the cost base. Most telco costs are fixed or quasi-fixed, which leaves them especially vulnerable to contractions in revenue and cost shocks. 

Compounding this, Bain & Co. estimates that inflation will exert its greatest pressure on inelastic costs, such as capital expenditure, personnel, external services, site leases and, of course, energy.

Three strategies telcos won’t regret

It’s tough out there, but the good news is that there are things telcos can do to emerge from the recession with no regrets. All these approaches can be broadly grouped under the umbrella of three key strategies. And in almost every case, the right digital solutions can play a part in implementing the broader business initiatives, to help accelerate and scale the benefits.

1. Reduce and optimise costs

Now is the time to maximise the bang for every buck spent.

That might involve reprioritising and reducing overall spending, for example, by reducing headcount, cutting back on network investment, or only pushing forward with the most promising projects. It might also mean re-negotiating existing supplier agreements and reconfiguring operating models (e.g., ‘right sourcing’) to create more headroom and boost margins. Improved cost management and control will also be essential to reduce the chance of overspends.

Most telcos will benefit from reviewing and rationalising their existing technology stacks, enabling them to reduce the technical debt paid on current and future projects.

Greater automation can deliver the ideal combination of streamlined, cost-efficient processes and improved customer services at the same time. Almost every aspect of the business - from network operations to provisioning and customer onboarding - can benefit from automating routine tasks. In common with many other digital solutions, if implemented expertly, automation projects can deliver in-year benefits.  

Cloud technologies are proving to be transformative for telcos, but they can fail to deliver the expected savings if they’re not implemented correctly. Most service providers have already made a significant shift towards cloud, but analysts suggest that cloud solutions are often introduced on an ad hoc basis, which can lead to disappointing results in terms of reducing costs, eliminating complexity, and increasing flexibility. Without a coherent cloud strategy, costs can start to creep up and any ‘cloud first’ ambitions can remain stubbornly out of reach. So, it’s worth taking a step back to ensure that cloud migrations and solutions align fully with the underlying business objectives, avoiding common – and costly - barriers and pitfalls.

2. Create extra value

A new operating environment – even a difficult one – always creates new opportunities for revenue generation.

Identifying how existing products and services can be re-positioned or modified to create new opportunities is often hard but not impossible. Perhaps current capabilities can do more with only a little modification? For example, at the tactical end, loyalty programme offers can be refocused on savings (20% off) rather than upsell offers (3 for 2) and targeted at everyday goods and services, rather than discretionary expenses. Or, borrowing a concept from the mortgage industry, could telcos see themselves offering fixed period payment holidays?

In addition, new needs will inevitably emerge as the situation evolves, so telcos should aim to respond quickly with new products and services that can address them successfully. Effective management and control again play a key role, so improve governance to ensure that benefits are being fully exploited.

3. Accelerate digital transformation

Even as inflation bites, customers are not necessarily looking for the lowest price. It’s perceived value that ultimately breeds loyalty and that means consistently improving customer experience.

Telcos can accelerate and/or increase investment in digital transformation initiatives to improve the customer experience. This makes it easier for customers to accept price increases, rather than switching to competitors. This is a valuable contribution to the bottom line in the short term and it’s also the way to outpace the competition when economic prospects improve.  Many telcos have made great strides in improving their digital channels, but most are yet to move from optimising for multi-channel to omnichannel, which arguably is what customers are seeking.

In addition to some of the solutions already mentioned, such as cloud and automation, digital transformation also offers fresh opportunities for telcos to monetise data, offering opportunities to streamline operations as well as strengthening the revenue base.

Choose the right partner

While many of today’s challenges are common to all businesses, NTT DATA understands that every organisation is different. We work in close partnership with clients to design a digital approach that aligns with your unique business goals.

Your business could accelerate out of the recession ahead of the competition and NTT DATA can help. As a first step, we’d like to set up a workshop to identify the best ways to support your objectives.

Please get in touch to find out more.

Stay tuned for our next blog on Cost Transformation

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