This time last year, just before the annual industry gathering at Mobile World Congress (MWC), I suggested it was high time telcos 'woke up and smelt the coffee' about the fundamental weakness of their business models.
Not a lot has changed over the last year. The industry moves very slowly. But neither has a lot has changed over the last 10 years on this topic, as you can see in the chart above. The value of telco businesses has stayed flat or declined, while the digital natives - with platform-powered business models - have flown past them.
I can remember participating in the 'Leadership Summit' at MWC in 2008, when one prescient CEO of a major international telco, reflecting in his keynote on developments including the introduction of the iPhone, announced that '2008 must be the year of business model innovation' for the industry if it wanted to keep up. Yet no business model innovation ensued.
So now the telecoms industry finds itself in a difficult and paradoxical situation. While the number of users and the volume of usage of telecoms services will continue to increase significantly over the next 10 years as the digital economy inexorably expands, the revenues that telcos (as a whole) will generate are forecast to grow at less than 0.7% per annum worldwide and decline -1.5% per annum in Europe, with margins shrinking.
Part of the reason is that others are eating the telcos' lunch, for example in core communications services:
And others are innovating much more effectively:
But the good new is that, in theory, Telcos still have most of the assets in place that can be leveraged to upgrade their business model and create a new way to grow. The problem is that, in practice, they have become stuck, like many now-incumbent organisations, in what Jeff Bezos calls Day 2 thinking.
They are failing at effectively transforming for a digital world, and so they remain stubbornly 'defensive' stocks for investors, sinking more and more towards utility status and unable to attract talent and excite customers in the way they once did.
So, rather than suggesting telcos become more like Amazon or Facebook, perhaps a better way for the industry to wake up from its long sleepwalk is to look at a maverick that operates amongst them - Softbank from 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.
The chart below shows just how different Softbank's current business model mix is compared with a traditional telco today (and indeed how I think they should evolve over the next few years, being practical given current strategies and mindsets).
Many in the industry will say how 'different' they are to Softbank. The financial community is also wary of Softbank's unorthodox strategy.
Yet, in CB Insights' tournament to find the best companies to invest in over the next 10 years the traditional telcos in the draw got knocked out in the early rounds (and most didn't even make it past the qualifying stages).
The past is not always the best predictor of the future (see the relative share price growth below). But Softbank's bold strategy, dramatic business model portfolio shift and dynamic capital re-allocation towards platform-based business models, technology innovation and digital ecosystems (managed, owned or invested in) inspires me with much more confidence than the telco CEO's plea at Mobile World Congress back in 2008. So, it's still 'time to wake up and smell the coffee'...it's just that the coffee's getting colder by the year.
To help execs think through how to transform their business models with a true platform approach I've recently created a new set of methods and tools. Very practical and engaging. Do mail me if you interested to find out more: [email protected]
Join our mailing list to receive the latest news and updates from our team.
Don't worry, your information will not be shared.