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Telecom Business Review | Wednesday, September 14, 2022
A decreasing ROIC, evolving customer expectations, and increasing competition from hyperscalers will lead operators to rethink the importance of their networks.
FREMONT, CA: The primary source of competitive advantage for telecommunications companies in recent years has been network coverage and speed. Yet today, as several highly-anticipated advancements in telecoms network technology begin to bear fruit, the emphasis is turning to user-level quality of experience (QoE), deployment speed, and innovation in network services.
Advancements in analytics, virtualization, cloudification, open-network architecture, network management, service orchestration, API exposure, and higher levels of automation are all examples of these technological innovations. After years of dropping ROI, which in some cases has fallen below the weighted average cost of capital, they have the potential to assist operators in discovering new levels of efficiency and revenue streams (WACC).
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They also allow hyperscalers and digital attackers to compete with operators more directly, notably in the B2B arena. In this climate of expanding customer options, the relevance of QoE influenced by network performance, deployment speed, and innovation velocity continues to rise. Operators must improve their network to stand out from the competition and keep their clients from becoming a cost-intensive commodity. In the process, it will significantly increase the value creation of operators, potentially resulting in ROIC and EBITDA increases of 2 percent to 3 percent, reallocating up to 30 percent of capital expenditures, and a 30 percent reduction in time to market.
Turning the network into the next competitive battleground for operators needs a shift in focus, as operators face several network-related strategic technology decisions that will define their level of success. In addition to the investment decisions, operators must make, they will likely also need to determine the optimal architecture transition path.
Change agents are accelerating
Three significant trends will change telco networks over the next three to five years: data-driven decision-making based on the user-level quality of experience, open, virtualized, and cloud-based networks (softwarization and cloudification), and the shift to increasing active network sharing. As they facilitate one another's acceleration, all three are accelerating.
The necessity of customer-centric QoE
The fundamental differentiation for operators is the individual customer experience. The network experience is the primary driving force behind new user purchases and churn; price and customer service are the second and third drivers. Even if the price continues to drive a significant portion of market share, price competition cannot sustain the industry's profitability.
User-level QoE is essential for optimizing network capital investments and maximizing return on investment. Still, it requires an accurate evaluation of user views of the services they use and value, which is impossible with conventional methods. Many operators cannot move beyond generating aggregate wireless and wireline network measurements. The operator cannot allocate money based on criteria unrelated to the user experience, like average speed, marketing claims, or ARPU (average revenue per user).
An operator cannot determine whether money is allocated appropriately without user-level QoE data. For instance, an operator may give capital to a micro market where the QoE is already high despite experiencing slower-than-average speeds than competitors while ignoring a micro market with a higher ROI where a greater proportion of users are experiencing poor QoE. However, the average network performance in that area exceeds target thresholds. This error would result in decreased gross additions (new subscribers) and increased churn. In contrast, having user-level QoE data has resulted in an ROI improvement of up to 30 percent for operators due to lower churn, improved gross additions, and total capital expenditure reductions.
Additionally, user-level QoE rankings can enhance the care experience and increase revenue. For example, the scores can help prioritize care queues, send targeted messages to manage poor QoE, and provide personalized offers, such as offering new services to customers with high scores. After offering a streaming package to users with poor QoE, one operator learned this the hard way after experiencing unusually high churn—such offers for additional services can backfire if the network cannot deliver on them effectively, increasing customer frustration.
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