Enterprises are a key source of revenue for CSPs, but the market is changing

The search has been on for most of the last two decades for communications service providers (CSPs) to uncover new sources of revenue to underpin their continuing need to invest in the next generation of cellular networks as well as sustain fibre infrastructure roll outs. This is not a question with a single answer and many of the apparent answers have already proven to be wrong but with the clock ticking down to a commoditised future for CSPs, what monetisation levers do they have left to pull, asks George Malim?

A profit war is coming and CSPs need to be prepared

Much of CSPs’ profitability during the last 20 years has come from enterprises which is in direct contrast to the coverage, attention and focus on innovation that has been experienced in the consumer sector. The mobile generations in tandem with smartphones and the app explosion have transformed how we all communicate as consumers and at work but this has left CSPs with a problem. Who will pay for their infrastructure and, perhaps more importantly, who will pay more to use it?

“It is true that most profitability for CSPs does come from enterprises, but what has changed in the last few years is that enterprises are not exclusively buying connectivity, minutes or devices,” says Vladimir Mitrasinovic, the regional vice president for EMEA at Amdocs. “They want much more than that and, as users consume more bandwidth, CSPs will need to increase their prices or risk higher costs eroding their profit margins.”

CSPs must sell solutions and services built on connectivity, quickly

“Of course, enterprises remain a key source of revenue for telecoms companies, but they need to be prepared for market changes by expanding and augmenting their offerings and pricing structures,” he adds. “If they aren’t, they may be pushed into a bidding war, which will inevitably result in a reduction of their profitability, a hit to their image, and they may be outbid by alternative providers.” Martin Morgan, the head of digital marketing at Qvantel, agrees that the opportunity centres around being able to sell richer services that are enabled by CSPs’ strengths. “The opportunity is to sell solutions that are built on connectivity – especially in 5G where the CSPs can manage the latency and quality of service (QoS) of the network,” he says. “This gives CSPs a stronger position and means they can’t be pushed aside by another ICT provider.”

Others see the need to expand beyond public telecoms networks and into ICT service provision, with private network provision an attractive opportunity. “Real money in telecoms comes from delivering the enterprise networks, not only communications for enterprises,” says Maria Lema, the co-founder of Weaver Labs. “Specialised networks can serve a variety of use cases and are the key to success in increasing revenues. Building 5G networks that serve multiple use cases in a cost effective and replicable way is where key savings and revenue multipliers come into play.” “Businesses no longer invest in complicated networks to carry just one type of traffic,” continues Lema. “That’s outdated and simply doesn’t work well with how the market dynamics operate.

Businesses buy software that solves their problems in the application layer. The network must be able to handle what the software is giving it to transport. Network solutions, such as IMS and SMS have proven to be a black hole in investment. The application layer and the software industry have already solved the problems of messaging and communications without the need for any special network processes in place.”

Why Business messaging alone won’t save CSPs

messaging

It doesn’t look like business messaging will be the saviour of telecoms revenues either. “Back when services like WhatsApp weren’t considered a business tool, I met with many CIOs and CTOs that believed business messaging would prevail over consumer-based applications,” says Mitrasinovic. “But we now find ourselves in a time when business messaging takes place across many communication platforms. Of course, businesses are concerned about security and personal data protection, but we cannot think of the future of messaging as a dedicated server. Instead, the security of existing communication platforms needs to be assessed and improved. This is where innovation and evolution become vital for CSPs, many of which had to adapt during the Covid crisis to create new offerings and services that supported business messaging.”

In fact, the pandemic may have created some false symptoms that could prove a distraction to CSPs.

Stay-at-home workers have inevitably increased their messaging and voice interactions while businesses have turned to messaging as a means to maintain customer relationships and drive marketing. How much of this will remain after the situation stabilises is open to interpretation but few see a sustained resurgence for traditional voice.

“Voice has become a commodity for all customers – enterprises and consumers alike,” acknowledges Morgan. “CSPs need to be able to look at new revenue streams.”

Voice telephony is dead and it’s time to move on

Girls enjoying phone call

Lema shares Morgan’s lack of sentimentality. “Voice as in telephony is dead,” she says. “The only reason we still support 2G is that a generational change hasn’t really happened yet. All communications happen through the application layer, and we don’t expect any surge in revenues coming from telephony. This will be a very low percentage of the revenue in the coming years. There will be a clear decline in usage and revenues as we move forward with more solid 5G coverage and increased bandwidth for apps.”

Something drastic will need to change in order for voice to bounce back and be a substantial part of CSP revenues. “Voice has suffered and changed dramatically over recent years,” explains Mitrasinovic. “There is an ongoing resurgence, but not in the way that we think. Copper-based networks have evolved into fibre-based networks for robust IP-based communications and the ever-increasing need for capacity and broadband speed. Voice communication is not going to reinvent itself and will likely need to be catalysed by new use cases, such as between human and machine. 5G is enabling CSPs to provide their customers with much more reliable connectivity, which will also help to re-cement voice as a valuable communication tool, reopening the door for voice-based revenue streams for CSPs.”

3 areas where CSPs can maximise revenue opportunities

Straightforward provision of a portfolio of communications services won’t be enough to elevate CSPs into a higher revenue market. They will need to add capabilities that enable them to make differentiated offerings. This might take the form of bundling in ICT capabilities as Lema mentioned earlier but offerings may need to be more sophisticated and specific to customers’ needs. Those that can do this will be rewarded. “Together, business messaging, voice telephony and conversational commerce will provide enterprises with a source of enhanced communication,” says Mitrasinovic. “The CSPs that will profit most from this are those that offer all of these methods of communication and add their own twist.

Just providing yet another price plan for voice messaging will not generate significant additional revenue for telecoms companies, especially as non-CSP providers begin to play in this area. CSPs therefore need to embrace the changes being seen within the industry, combining their services and providing customers with additional capabilities, alongside seamless connectivity. By providing security, closed communication and allowing transparent and easy access, CSPs will be able to maximise their revenue opportunities in all three of these areas.”

There’s risk and reward in providing new services

For several years, CSPs have sought to decouple their charging from the cost of providing the network and instead to charge for the value customers derive from the connection. This is a complex undertaking and, understandably, there is no great appetite among enterprises to shift to this inevitably more expensive model. This doesn’t mean, however, that enterprises are unwilling to pay for value, if CSPs can deliver it.

Morgan sees the opportunity: “Yes,” he confirms, “CSPs can develop value-based pricing for services where latency and quality of service are important. At the consumer level the example everyone talks about is gaming with no jitter or lag. In enterprises this could be provision of Industry 4.0 solutions for robotic production in a smart factory, where the customer would be willing to pay a premium for a service level agreement to ensure QoS so that the robotic production line runs smoothy.”

This involves taking on risk as part of an external business process but, if agreements are constructed properly, the rewards could be appealing. “I don’t think that enterprises are interested in models that tie charging to the value of the service enabled rather than network usage,” says Mitrasinovic. “Many are willing to pay a premium for specific services, but it’s hard to say whether CSPs will generate more revenue with such charge optimisations. However, if CSPs open up their platforms, enabling third-party content to be input and managed in one place, it may be easier for them to manage the entire value chain and simplify the link between the value they enable and how they charge, ultimately increasing their profitability.”

Technologically, CSPs are able to engage in these more complex models and handle the more sophisticated array of partner relationships that successful service delivery demands. “From a BSS vendor perspective, a revenue model that charges consumers based on service value rather than network usage is not only possible, but also an effective way for CSPs to drive incremental revenue in today’s competitive telecoms landscape,” says Hamish White, the chief executive of Mobilise.

“Having a digital ecosystem of partners offering an ever-growing range of products and services is essential to effective upselling. However, the wider the range of products and services the more complex the user experience can become.”

Digital BSS platforms are key to providing new products and services

“Digital BSS platforms enable CSPs to deploy their own suite of products and services and also integrate third-party value-added services, like loyalty and reward schemes, streaming services and device insurance for example, into one digital customer interface,” he adds. “Cross-selling and upselling must be performed in a targeted manner. CSPs should adopt a hyper-personalisation strategy, which use data drives behavioural insights technology that integrate artificial intelligence, machine learning and data analytics, to strategically offer customers services, offers and prices that are most likely to successfully sell based on each customer’s individual behaviour patterns.

Digital BSS platforms enable CSPs to access, analyse and act upon this information from one comprehensive system, making a value pricing model more feasible.”

Look both ways before investing in technology to aid new services

Technology

Lema warns against rushing down blind alleys of opportunities that don’t provide a means for CSPs to differentiate and ultimately will fail to enable them to transform their businesses. “Again, messaging, telephony and conversational commerce are all carried out by the application layer,” she says. “The only way CSPs can improve their position in the market is by being able to provide more agile means of creating connectivity to serve the wide and heterogeneous set of needs of the enterprise market right now. These challenges span far beyond voice provisioning and will be the ones providing the key source of revenue in the future.”

The opportunities that stand out for CSPs are less in the voice and messaging arena and more in a specialised market of providing a wider package of technology to enterprises.

Examples might encompass provision of a private network at a manufacturing site that also adds messaging, voice-to-machine capabilities, management of robots and has revenue tied to business outcomes, such as production line uptime. This type of lateral thinking, that goes way beyond the telecoms network and does not only replicate offerings of ICT providers, is how CSPs will transform their profitability and revenue generation capabilities.

The coming years will uncover which CSPs have been able to make the shift and which instead become – commodity – suppliers of telecoms infrastructure to those that could change successfully.

This report first appeared inside VanillaPlus magazine. Subscribe here to access free, expert content. 

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