Can Telcos Thrive by Becoming Ecosystem Integrators with 5G?

January 13, 2025
Can Telcos Thrive by Becoming Ecosystem Integrators with 5G?

The telecom industry’s transformation over the past decade is remarkable, evolving from basic landline services to 5G-enabled smartphones, IoT, and AI-driven connectivity. The rise of mobile connectivity is evidenced by the fact that 96% of Americans now have access to it, underlining the critical role of telecom networks in the modern digital economy. Yet, as mobile services become commoditized, telcos face significant financial challenges. Despite investing more than $1 trillion in network upgrades since 2018 and another $81 billion specifically on the 5G spectrum in the US, telecom operators are struggling to generate substantial returns. With revenue growth slowing, they are now exploring new revenue streams, moving from traditional service offerings to integrated ecosystem solutions.

Financial Strain on Telecom Operators

Investment vs. Returns

Communication Services Providers (CSPs) are under significant financial pressure due to the hefty investments required to keep up with technological advancements, particularly with the advent of 5G. The once primary revenue sources—voice and data services—have become commoditized, leading to a slowdown in revenue. While data and connectivity services are growing, their growth is insufficient to offset the losses from legacy services. This situation is creating a pressing need for telcos to rethink their business models and explore more profitable avenues. The returns on these investments are underwhelming, and the pressure to innovate while keeping costs manageable is ever-increasing.

Operational costs have skyrocketed, as maintaining and upgrading these advanced networks requires continuous expenditures. Additionally, the competitive landscape is intensifying, with new players emerging and traditional competitors expanding their service portfolios. These factors are squeezing margins and making it harder for CSPs to achieve a favorable return on investment. Diversifying into new business areas is becoming crucial for survival and growth, but the transition is fraught with challenges, including technology integration, customer acquisition, and regulatory compliance.

Market Saturation and Growth Opportunities

The B2C market shows signs of saturation, limiting growth opportunities in this segment. However, there remains tremendous potential in the B2B space, with 5G serving as a potent enabler for business. Telcos must explore new avenues to sustain and grow their revenue streams. The promise of 5G lies not just in faster speeds, but in its ability to support a myriad of new use cases that extend beyond traditional communications. These include applications in manufacturing, healthcare, logistics, and smart cities, all of which hold substantial promise for revenue growth.

However, tapping into the B2B market requires telcos to develop an in-depth understanding of various industry verticals and their unique needs. This involves more than just providing connectivity; it requires offering end-to-end solutions that drive digital transformation for enterprise customers. By focusing on B2B markets, telcos can unlock new revenue streams, achieve higher margins, and ensure sustainable growth. Thus, while the consumer market may seem exhausted, the enterprise sector offers a wide array of opportunities that telcos are only beginning to explore.

B2B: A Shift to Integrated Ecosystem Solutions

Beyond Simple Connectivity

For telcos to fully realize their potential, they must reposition themselves from being mere connectivity providers to becoming robust ecosystem integrators. While 5G has been hyped as a transformative agent across various industries, only a few use cases have translated into substantial revenue opportunities thus far. To change this, telcos must move beyond simple connectivity and offer comprehensive tech solutions that drive enterprise digital transformation. This involves the seamless integration of multiple technologies, such as edge computing, IoT, and AI, into a cohesive and secure framework tailored to specific industry needs.

Rather than merely providing the underlying networks, telcos need to design and implement solutions that solve real business problems. This approach demands a shift in mindset from technology-centric to customer-centric, ensuring that each solution delivers tangible business value. The focus should be on creating a versatile and scalable infrastructure that supports various applications, from automated manufacturing processes to remote healthcare monitoring, enabling businesses to innovate and grow.

Integrated Solutions and Market Potential

This approach requires the integration of connectivity services with edge computing, IoT solutions, and AI within a robust security framework. Examples of integrated ecosystem solutions include smart manufacturing with real-time monitoring, healthcare through telemedicine and remote patient monitoring, smart city solutions focusing on traffic and energy management, and optimized logistics via real-time tracking. The market for these integrated services is growing at a double-digit compound annual growth rate, far outpacing traditional telecom services.

However, these new avenues currently contribute less than 10% to overall telecom revenue, highlighting the untapped potential for telcos that can successfully transition to this new business model. Effective integration solutions can significantly improve operational efficiencies, reduce costs, and create new revenue-generation opportunities for enterprise customers. As businesses continue to embrace digital transformation, the demand for sophisticated, integrated solutions will only increase, presenting telcos with substantial long-term growth prospects. This shift not only diversifies revenue streams but also strengthens customer relationships by positioning telcos as indispensable partners in the digital age.

Leveraging Value-Added Partnerships

Joint Go-to-Market Model

Developing complex integrated solutions is both costly and resource-intensive. Therefore, telcos would benefit from adopting a Joint Go-to-Market model rather than building solutions from scratch. Collaborating with System Integrators (SIs) like Tech Mahindra, who have the expertise to manage multiple vendors, integrate different technologies, and provide vertical-specific solutions, is strategic. SIs bring years of experience in designing cost-competitive solutions and are critical in addressing industry-specific challenges.

These partnerships enable telcos to leverage the deep domain knowledge and technical skills of SIs, allowing for faster and more efficient development and deployment of integrated solutions. By combining their strengths, telcos and SIs can create a comprehensive suite of services that address the specific needs of different industries, from healthcare and manufacturing to logistics and smart cities. This collaborative approach not only reduces the financial burden on telcos but also accelerates time-to-market for innovative solutions, enabling them to stay competitive in a rapidly evolving landscape.

Strategic Collaborations

SIs bring years of experience in designing cost-competitive solutions and are critical in addressing industry-specific challenges. By partnering with SIs, telcos can leverage their deep knowledge of various verticals, creating solutions that combine virtualized networks, cloud services, data, applications, and security. This approach allows telcos to offer a comprehensive suite of services without having to make large upfront investments. A notable example of such collaboration is the Sahabat-AI project, an extensive language model ecosystem custom-trained for Bahasa Indonesia and other local languages.

Developed by Indosat and GoTO in partnership with government bodies, tech partners like Nvidia, AI Singapore, and orchestrated by Tech Mahindra, Sahabat-AI can process vast amounts of data in local languages, preserving critical cultural and linguistic nuances. This project exemplifies the significant advantages of value-added partnerships, demonstrating how collaborative efforts can lead to innovative and culturally relevant solutions. Such strategic collaborations not only enhance the capabilities of telcos but also foster a more inclusive and diverse digital landscape, ultimately benefiting both businesses and consumers.

Global Collaboration for Telecom Success

World Economic Forum’s Emphasis on Collaboration

The theme of global collaboration is emphasized at this year’s World Economic Forum, encapsulated in “Collaboration for the Intelligent Age.” It highlights the necessity for global cooperation to leverage emerging technologies and solve complex challenges. For instance, telecom equipment provider Ericsson has joined forces with 12 global telecom operators to create a global network platform. This platform allows developers to build use cases using network APIs from multiple telcos, demonstrating the shift towards increased collaboration within the industry.

Leveraging 5G and other advanced technologies, this initiative aims to expedite innovation and discover a broader range of business opportunities. By sharing resources, knowledge, and technology, telecom companies can innovate faster and deliver more compelling solutions to their enterprise customers. Global collaboration not only accelerates the pace of innovation but also helps to address common challenges such as interoperability and standardization, ensuring that new technologies are accessible and beneficial to a wider audience.

Expediting Innovation through Shared Resources

This platform allows developers to build use cases using network APIs from multiple telcos, demonstrating the shift towards increased collaboration within the industry. Leveraging 5G and other advanced technologies, this initiative aims to expedite innovation and discover a broader range of business opportunities. By sharing resources, knowledge, and technology, telecom companies can innovate faster and deliver more compelling solutions to their enterprise customers. This collaborative approach not only drives technological advancements but also fosters a more resilient and versatile telecom ecosystem.

Examples of successful global collaboration include joint ventures, strategic alliances, and industry consortiums that bring together diverse stakeholders to address complex issues collectively. By pooling their expertise and resources, telcos can overcome barriers to innovation, accelerate the adoption of new technologies, and create value for customers across various sectors. These efforts lead to the development of more robust and scalable solutions that can adapt to the evolving needs of the digital economy, ultimately enhancing the overall competitiveness and sustainability of the telecom industry.

Conclusion

Communication Services Providers (CSPs) are grappling with significant financial challenges due to the substantial investments needed to keep pace with technological advancements, especially with the rollout of 5G. The traditional revenue streams, namely voice and data services, have become commoditized, resulting in a slowdown in revenue growth. Although data and connectivity services are expanding, their growth doesn’t compensate for the declines from legacy services. This scenario is compelling telcos to rethink their strategies and find more profitable business models. The return on these hefty investments has been disappointing, and the pressure to innovate while keeping costs in check is intensifying.

Operational costs have surged, as maintaining and upgrading advanced networks require ongoing expenditures. Moreover, the competitive landscape is becoming fiercer, with new entrants and existing players expanding their services. These factors are compressing margins, making it tougher for CSPs to achieve a good return on investment. Diversifying into new business areas is crucial for survival and growth, but this transition comes with challenges such as technology integration, customer acquisition, and regulatory compliance.

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