In order to succeed in today’s troubled economy, telcos need to navigate a series of challenges and emerging trends, while being open to revisiting their business approach.
If navigated properly, these changes impacting telcos can represent an opportunity to generate new revenue streams.
1. Carriers are facing rising operational costs1 and margins are under fire.
The biggest issue for telecom operators in 2023 will be coping with inflation and rising energy costs2, with 76% of senior decision makers identifying rising costs as the biggest risk to their business.
Telco industry revenue dropped by 6.6% on a YoY basis in 20223 and is expected to continue on this trajectory. Inflation has already cut 3-5%4 off most telcos’ margins, putting pressure on budgets, external spending, energy and capital expenditure.
In this uncertain economic climate, cost efficiency initiatives are not enough to address rapidly rising costs, forcing telcos to take additional measures to maintain their profitability.
The downwards pressure on margins5 is putting pressure on telcos to offset rising costs. Some carriers are choosing to increase their prices to capture some additional revenue.
2. Looming competitive threat6 from large tech companies and hyperscalers
In today’s world almost every facet of life involves some form of digital technology and connectivity. The goal for CSPs is to increase revenues beyond connectivity7, but unfortunately they lack the bandwidth to serve all industries, making room for hyperscalers.
Hyperscalers are encroaching into telco territory8 with 5G ambitions, with the likes of AWS, Microsoft and Google controlling 70% of the public cloud market in 20209. Hyperscalers plan to capitalize on the movement towards the cloud by expanding their offerings beyond infrastructure services to full-stack capabilities, putting pressure on telcos.
Hyperscalers have a digital platform economic advantage, benefitting from the huge economies of scale they have built given their resources and momentum. They have figured out that their global scale allows them to run network functions once provided by carriers and capture the revenue from carriers too.
As competitors, hyperscalers develop direct customer relationships for cloud services10, providing customers with an integrated offering. CSPs struggle to compete due to their lack of resources, and when they deploy 5G, they end up bearing most of the costs, giving hyperscalers disproportionate profits.
3. Customers are evaluating their telco spend11 as part of overall cost cutting
With concerns about inflation, consumer behaviors changing and costs rising, the conditions for telcos are extremely tough with B2B spending on communication and data12 decreasing.
Customers are cutting back on spending with energy bills rising, making it more difficult to argue the case for upgrading communications services, and even driving some to consider cutting back.
Economic pressures are forcing customers to review the value they get from service providers, and want offers presented to them quickly and easily.
With consumers reassessing their spending, telcos become vulnerable to consumers trading down to lower-margin products13 as prices rise. This puts more pressure on telcos who are already suffering from rising costs, forcing them to acclimatize to the shift in consumer behavior.
There are a number of strategies that MSPs are starting to adopt in order to tackle these rising external factors. Streamlining processes through automation is becoming a clear a tactic when looking to reduce costs and improve operational efficiency.
With MSPs under pressure to optimize their business models, CloudSense looks to address these challenges with Telco One. As an end-to-end solution that optimizes and future-proofs every stage of the concept-to-cash lifecycle, CloudSense makes selling quick and easy, with an implementation that is faster, lower risk and less costly than ever before.
Sources: 1, Business Leader, 2022, 2, The Guardian, 2022; 3, PR NewsWire, 2023; 4, Bain & Co, 2023; 5, Arthur Little, 2023; 6, The Register 2022; 7, Network Computing, 2021; 8, Timewe Tech; 9, Disruptive Asia, 2022; 10, Kearney, 2022; 11, NTT Data, 2023; 12, Nae Global, 2023; 13, Bain & Co, 2022