5G: Racing Up The Wrong Hill?
Telecom operators worldwide are racing to be the first in their market to deploy 5G network upgrades. The promise of faster data speeds, lower latency and greater capacity will enable the mainstream adoption of HD video streaming, smart homes and cars, virtual reality, IoT and other services.
At least this is the vision cited by traditional telecom vendors who see a lucrative opportunity to sell more equipment.
Morgan Stanley estimates that the industry will spend $225 billion on 5G between 2019 and 2025, including new spectrum and network infrastructure. Deutsche Telekom has said that an overall total of $500 billion will be invested in deploying 5G in Europe over the next decade. By comparison the industry spent about $275 billion on 4G, and operators have yet to see significant returns on those investments.
But is the focus on a new air interface and core network technology the right one for mobile operators in the next wave of digital transformation? Yes, network capacity and speed are necessary for advanced digital services but where exactly is the ROI on the massive cost of a 5G upgrade? Many operators still say privately they have not yet recovered their investment in 4G network upgrades.
5G will get off the ground; it just isn’t clear yet whether operators will find their ROI. The analyst firm Jupiter has predicted that by 2025, global revenues from 5G will reach $269 billion, from $850 million in 2019. But the majority of acquired 5G connections will simply be users upgrading from existing 4G connections. As a result, Jupiter does not expect an increase in the number of active SIMs from the introduction of 5G networks. Recall that the average revenue per user actually dropped in the transition from 3G to 4G.
The real opportunity for value creation for telecom operators is in improving the digital customer experience. Most customers prefer digital customer experiences, and Millennials demand them. A recent McKinsey study found that customers who used 100% digital channels for support and transactions had 33% higher customer satisfaction vs. customers using traditional channels like call centers or retail shops.
Over the past 10 years telecom operators have invested massive sums in spectrum and network infrastructure, and have under-invested in product development and digital customer experience. A typical telecom operator’s Capex allocation resembles the following:
Contrast the telecom investment picture above to that of an OTT player where the user experience, product design and software development come first. Compared to telecom operators, their focus and spending priority are reversed. Internet companies like Netflix, Uber, Apple, Google, Facebook, and Amazon and smaller over-the-top players are investing massively in mobile apps, user experience, content, advertising and cloud-based infrastructure.
Rather than suggesting telcos copy the business models of Amazon or Facebook, a better way for the industry is to look at a maverick that operates amongst them - Softbank Japan. This is not your average telco. It has boldly embraced the digital economy in a way few others have, re-allocating capital and resources to platform and technology based business models that generate much stronger growth and value. Softbank’s stock has outperformed the share prices of other major telcos over recent years.
Start with the customer experience and work down the stack
Research shows that most customers prefer digital experiences, and Millennials will often not buy from brands where this is missing. According to a recent McKinsey study the more digital the customer journey, the higher the customer satisfaction.
In fact 76% of telecom customers in Western Europe are satisfied with 100% digital journeys, compared with 57% for traditional channels. However, few service journeys are entirely digital as yet: just 15% are digital from start to finish, while 41% begin on an e-care platform and then switch to traditional channels. For telecom operators, migrating to e-care can reduce call volumes and operating expenses by 25 to 30%.
Consumers perceive digital leaders as innovators and premium brands, that use technology to challenge customer service norms, streamline the customer service and improve the status quo. Digital leaders like Amazon, Netflix and others now use big data and AI to improve and personalize every customer interaction. Customers expect their telecom service providers to do the same: make each interaction personalized, fast and free of friction. Pricing should be simple and transparent.
Digitally leading brands offer consumers what they want, when they want it. The website, app, checkout flow, and delivery are all designed to make interactions easier, faster, and more convenient.
Bringing the OTT playbook to telecom operators
LotusFlare bridges telecom operators with the mindset and toolkit used by successful Internet players. We partner with operators around the world to build delightful digital product experiences and then systematically drive Growth on these products. We also create digital B-brands-- often focused towards Millenials who expect a 100% digital experience when interacting with their operator.
LotusFlare solutions have been deployed by leading operators and OTT companies including Verizon, Globe, Telkomsel, Indosat, Digi, Maxis, Telenor, Tigo, Supercell, LinkedIn, Skype and others.
Our offering includes:
1. Digital Network Operator™ (DNO™). DNO™ is a ‘telco in an app’ solution for operators to launch an entirely new, 100% digital brand with zero CapEx and no retail presence. With DNO customers can select or port-in a mobile number, order a SIM and phone, track the shipment, choose and purchase plans, discover and purchase content, pay bills, refer a friend and access customer service. This can all be done via the operator’s app.
2. Growth Platform. Today launching an app is not difficult: there are over 6 million apps on the app stores. The real challenge is to get millions of users to download, engage and transact in your app. This is what we mean by Growth. LotusFlare provides Growth products and services to telecom operators. We learned the Growth framework first-hand while working at Facebook where it was pioneered.
Replicating Facebook, growth teams are now in place at most Internet companies. They can have a significant impact on metrics such as acquisition, engagement, retention and monetization.
Growth begins with understanding the level of product-market fit. In practice Growth is a combination of three disciplines working together to impact a North Star Metric. A Growth team goes much further in the customer funnel than a traditional marketing team.
Telecom operators have spent massive sums in the past 10 years on spectrum, network and IT infrastructure, and chronically under-invested in customer experience and digital products. Meanwhile Internet companies including Amazon and Netflix have set a new baseline of expectation for UX by which every other consumer brand is judged.
To realize a positive return on their 5G investment, telecom operators must include the digital customer experience in their 5G strategy. This digital customer experience should be reflected in their budget allocation, roadmap and staffing decisions. Otherwise operators will just have a faster network but the same old customer touchpoints and products.
Furthermore, the 5G use cases as defined today (IoT, connected cars and smart homes) all require a digital user interface -- whether an app, website, in-vehicle or in-home interface. The digital user interface (the real estate between the human and the software / hardware) is more important than ever. Telecom operators need to apply best practices from adjacent industries (social media, game developers, etc) to drastically improve their digital user interfaces and customer journeys. A fast 5G network behind a poorly designed digital interface full of friction will disappoint customers and lead to churn and lost revenue.
Telecom operators need to make sure they are climbing the right hill and allocating resources appropriately. The real opportunity for value creation is not in launching a better network powered by 5G, but in becoming the provider of a compelling user experience in a fast-moving digital world.