After a decade of exponential growth in technology, rapidly shifting consumer expectations and extreme competition, you’d forgive some telecoms operators for feeling a bit breathless, writes Alex Saric, a smart procurement expert at Ivalua.
Today, and in the coming years, we’re likely to see them dig deeper than ever as they face fiercer competition and must carve out and retain market share. Digitalisation is the next big challenge, and telecoms is one industry that is intertwined with this growing trend, providing the central foundation upon which every new digital trend and innovation is reliant.
As the digital economy continues to grow, the telecoms industry must see this increasing competition and technological advancement as an opportunity to innovate. But, to compete, many telecoms operators around the world are in dire need of an upgrade. To tackle this, they need to get smarter when it comes to procurement, allowing them to compete in a crowded market place.
A poor connection
Achieving innovation that keeps pace with market trends and meets customer expectations is vital if telecoms operators are to face up to the pressures in the industry. This is especially crucial now, as the battle for subscribers is starting to pinch, and with profits falling.
According to McKinsey, revenue and cash flows for the largest 250 global telecom operators have dropped by an average of 6% per year since 2010, caused by the influx of over-the-top (OTT) providers that have proliferated in the market. These OTT providers are changing the landscape with digital alternatives to traditional services. For instance, WhatsApp (Facebook) and Skype (Microsoft) all offer voice, messaging and video calls but in a tailored way, designed to appeal more to their target audience. This is having a significant effect on the industry and, according to research firm Ovum, telecom operators lost approximately US$386bn between 2012 and 2018 due to OTT competition.
In an increasingly digital world, changing customer behaviour is a huge stumbling block for telecom operators. Most industries today are so commoditised that customers are spoilt for choice and, in a bid to regain dwindling customer loyalty, companies fight to offer the cheapest products with the best customer service. Therefore, revenue yield on data services continues to decline as consumers use more and more data, with static or declining monthly bills.
Superfast innovation
Telecom operators form the back bone of innovation for a broad range of industries. Smart homes, connected cars, wearables and the Internet of Things (IoT) all rely on telecoms providers to function. With the amount of connected devices set to reach 20.4 billion by 2020, there is a significant opportunity for telecom operators to remain at the forefront and dominate the market.
5G also represents a huge opportunity to become the connective tissue for the IoT, connected cars and mobile media. To keep up with consumer demand for connectivity and data, telecom operators must adopt new strategies that tap the power of next-generation mobile devices. Mobile content and video are some of the most significant consumer use cases for 5G, so expanding into the content arena through merger and acquisition (M&A) activity, partnerships and alliances is a key move for telecom operators seeking growth. They could expand into media by buying major media houses, or by purchasing smaller-scale TV distribution technology with the intent to scale it or embrace M&A activity.
Another, often overlooked, source of potential competitive differentiation is the supply chain. Organisations must work closely with procurement and supply chain teams to identify growth areas and unlock innovation from the supply chain.
Innovation through collaboration
Procurement leaders must prepare to play a major role in shaping and executing their innovation strategy. The procurement team must also be involved earlier in the product development cycle, to help gain a cost advantage but also drive specifications based on supplier knowledge.
Part of this strategy must involve collaborating with suppliers to solve the challenges in the industry and meet new and evolving customer demands. Procurement teams can provide businesses with a holistic view of suppliers, as well as insight into capabilities, specializations and their ability to execute. This unique bird’s eye view of the supply chain means procurement is ideally placed to provide telecoms operators with a rich vein of innovation to develop the latest and greatest technology to stay competitive.
This desire for collaboration and innovation means we’re seeing procurement partnerships between major telco players to increase collaboration across supply chains. The likes of BuyIn (Orange and Deutsche Telekom), The Vodafone Procurement Company, Telefónica Alliance, and the BIG Group (SoftBank and Sprint) are already working together to source goods and services to create the technologies of tomorrow.
Among all this investment and innovation is the usual procurement specialization – optimising spending and investing every penny wisely. Telecom operators will be relying on a variety of suppliers providing network equipment, hardware, software and content. This spend can relate to 40-50% of revenue, and optimising this can ensure investments go to the right supplier to produce the desired outcomes.
Expect the unexpected
As competition increases, the telecoms industry must grasp new opportunities to innovate if they wish to avoid falling by the wayside. Procurement teams can help the telecoms industry identify innovation opportunities through technologies such as 5G and the IoT. Collaboration will enable telecom operators to stay ahead of the curve and compete with OTT companies to increase profits. By utilising the procurement function, organisations will have complete visibility across their supply chain, allowing them to unlock supplier-led innovations and collaborations to develop the ‘next big thing’.
