In the next wave of telecoms, are bold decisions your safest bet?

Authors

Tom Loozen

EY Global Telecommunications Sector Leader

Fascinated by the positive impact of telecoms. Passionate musician. Enjoys educating himself on psychology, wine, sports, technology, arts and much more. Husband and father of three daughters.

Adrian Baschnonga

EY Global Telecommunications Lead Analyst

Lead Analyst with deep sector knowledge in technology, media and telecom, gained in professional services and business intelligence environments.

15 minute read 19 Nov 2019
Related topics Telecommunications TMT

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Telecoms must transform to remain relevant to consumer and enterprise customers. Our survey findings explore priorities and next steps.

The global telecoms industry landscape has been changing rapidly for many years. But today, the pace of evolution appears to be faster than ever before. Migration to 5G networks, growing use of evolving technologies, such as automation and artificial intelligence (AI), and the rise of internet of things (IoT) applications, are coinciding with intensifying competitive and regulatory pressures.

The result is that operators have no choice but to transform if they’re to remain relevant to consumer and enterprise customers. It’s clear the major driver for this transformation is digital technologies. The only question now is how to plan and navigate the transition successfully.

Accelerating the intelligent enterprise, EY's global telecommunications study 2019, monitors and evaluates the views of leaders across the global telecommunications industry.

  • Methodology

    EY teams met with each of the senior industry executives who participated in the study, asking them 14 questions that focused on the industry as a whole, as well as on specific areas and issues within their organizations. With most questions, we asked the participants to provide their top three answers in order to give us more in-depth insights into the opportunities and challenges confronting them now and in the future.

    We also captured key verbatim comments from the dialogue generated in the interviews, an anonymized selection of these are showcased in this report.

Information technology (IT) spending continues to shift to digital …

As telcos’ 5G investments ramp up, the complexion of IT spend is also changing as they overhaul their IT estate to lay down a solid bedrock for digitization. The next few years will see the balance shift decisively from conventional IT to digital, which includes new cloud infrastructure, edge-computing systems, content delivery networks (CDNs) and other elements. This will account for over four-fifths of IT capex by 2024.

… as emerging technologies power the transformation agenda

At the same time, emerging technologies, such as AI, analytics and automation, are critical to serving customers’ rising expectations while delivering greater levels of agility and operational efficiency. EY research on the announcements made by the top 50 telcos worldwide by their revenue shows that adoption of analytics capabilities is in a mature phase, with automation initiatives ramping up in 2018 to play a complementary role.

Despite progress, profitable growth remains challenging. Overall, the telecom industry’s digital transformation is yet to be translated into sustainable financial gains. Revenue growth has fluctuated over the last 10 years, while earnings before interest, tax, depreciation and amortization (EBITDA) margins remain low compared to the previous decade.

Over the past three years, operators’ aggregate revenue has increased at a compound annual growth rate (CAGR) of 3.7%, while EBITDA margin has risen by just 0.6% over the same time frame. Given that ongoing investment in network expansion is a necessity, the underlying task facing telco leaders today is to find a way to break out of this holding-pattern of continuing profit pressure.

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Chapter 1

Five key findings

Based on our survey results, we’ve identified some areas where digital transformation and adoption of emerging technologies resonate most strongly.

1. AI, 5G and automation are the key technologies driving digital transformation.

IoT or 5G networks, automation and AI are identified as the key drivers of change by the survey respondents when they were asked which emerging technologies and processes would be most important in driving their organization's digital transformation journey over the coming five years. More than half of respondents ranked them one of their top three transformation drivers.

It’s clear that the transition to 5G is viewed as a fundamental game changer, with AI and automation not far behind. Automation will have a fundamental impact on both the customer experience and the back office.

"5G moves IoT from being a data network to being a control network. The network becomes more predictable and you can control things, and 5G helps move this control into the cloud. It is vital to resetting the value of the connection."

However, other emerging technologies are at a much more nascent stage, with less than 1 respondent in 10 mentioning blockchain, and less than 1 respondent in 20 citing edge computing or quantum computing.

While there are hopes that blockchain may be valuable in helping to overcome issues around data and asset ownership, as telcos form more vertical industry partnerships, the general view was that its applicability in telecoms isn’t yet clear. Edge computing’s low score may be more cause for concern, given its role to enhance data processing and storage in a 5G world.

2. Customer experience improvements are the top rationale for AI, with agility the key driver of automation adoption.

Zeroing in on the importance of AI and analytics to telcos’ long-term digital transformation agendas, we asked participants about their most important rationales for building these capabilities. Almost four-fifths of the respondents cited that the importance of optimizing the customer experience was the key reason for their adoption of AI. 

More than half of the respondents also said accelerating business efficiencies was a top-three driver of AI, while four in ten picked out the new business models and services.

The verbatim comments from the interviewees underline both the rising tide of investment in AI in the telecoms industry, and also its pivotal role in efforts to improve the customer experience.

Looking ahead, respondents see customer experience — including sales and marketing — retaining its prominence as an AI use case over the next five years. This is understandable given the gains operators are achieving in terms of NPS. Network performance management is another important domain for AI, cited by almost half of the respondents.

However, operators are less confident in AI’s role to improve service-creation activities, with only one in five seeing this as a critical use case in the long term and concerns surrounding customer trust issues acting as a potential inhibitor.

Turning to their reasons for adopting automation technologies, telco leaders view increasing agility and scalability as their leading driver. Greater workforce productivity and improved customer support rank second and third respectively.

Automation’s role as a catalyst for incremental digital transformation is a little more muted, with less than one-third citing this as a reason for adoption.

Across all rationales, OPEX and CAPEX gains are important considerations — a point underlined by the respondents’ verbatim comments. Yet, respondents’ focus on productivity and customer experience gains also show that the human outcomes of automation, be it for the customer or the employee, are also one of the major concerns. "We're a bit late to process automation and need to play catch up. For us, it's about fixing the basics."

3. Missing skills, poor data quality and a lack of long-range planning are holding back the transformation agenda.

While telco leaders are energized by the potential of AI and automation in areas such as customer experience, they also acknowledge that they face significant barriers, both strategic and operational, that prevent them from realizing the full potential of these technologies.

As cited by 67% of respondents, inadequate talent and skills are overwhelmingly the leading pain points affecting the deployment of analytics and AI. Beyond this, lack of alignment between analytics or AI initiatives and business strategy, low-quality data and metadata, and poor interdepartmental collaboration — all feature as significant hindrances.

All of these barriers are reflected in the respondents’ verbatim comments, with a surprisingly heavy focus on the problems posed by the "silo mind-set," an age-old issue for many operators.

Looking at the barriers to successful automation, telco leaders mention a range of issues, with no single factor alone being cited by more than half of the respondents. Out of the many cited issues, the most frequently mentioned one is a lack of long-term planning, followed by poor linkage between the automation and people agendas.

What shines through is that many telcos lack an overarching approach to automation and that the organizations must bring their people with them on the automation journey. Both of these factors are underlined by our respondents’ verbatim comments.

4. Customer and technology functions are viewed as the prime beneficiaries of AI and automation over the next five years.

Customer and technology functions lead the way as the parts of telco organizations most likely to benefit from AI and automation over the next five years. Although marketing is seen benefiting more from AI than from automation, the balance with other functions such as finance and human resources (HR) is the other way around — with AI expected to have a greater impact.

Together with the verbatim comments from participants, these findings suggest that there’s still plenty of impact yet to come from AI in sales and marketing, and that network teams are also in pole position to take advantage of both automation and AI. Interestingly, while three-quarters of respondents see IT and network teams as primary beneficiaries of AI over the next five years, under half of the respondents see network-related use cases as critical over a similar time frame.

5. Operator sentiments on emerging technology pain points diverge according to market maturity

An analysis by geography of telcos’ responses regarding technology drivers and AI and automation pain points shows their sentiments vary significantly. When asked which emerging technologies will drive transformation, emerging market operators more likely put AI, automation and 5G on an equal footing as transformation drivers. 

Developed market operators have a more singular focus on 5G and IoT networks as a catalyst for transformation.

Also, the perceived pain points regarding AI and analytics vary between regions. Low-quality data and metadata are the leading concern alongside missing skills in developed markets, underlining that elemental challenges persist even while use of analytics is in a mature phase.

Meanwhile, lack of skills, leadership buy-in and collaboration all rank higher as barriers in emerging markets, underlining the need for better organizational alignment.

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Chapter 2

Four next steps for telcos

To maximize the value generated from analytics or AI and automation across their operations, telcos can prioritize these areas.

Step 1: Prioritize the mutually reinforcing impact of emerging technologies with an informed and holistic mindset.

The impact of emerging technologies is not limited to IT, but are pervasive across the organization. They’re also mutually reinforcing, amplifying and enhancing each other’s ability to create value.

Given these factors, it's vital to take a holistic approach to deployments that defines the optimal interplay and phasing of different technologies, balancing growth and efficiency goals in the process. It’s also important to take a long-term view of emerging technology deployments — while automation is already delivering plenty of benefits, long-range planning is often lacking.

Assessing emerging technologies and processes

As the choice of emerging technologies and processes continues to widen, it’s essential to take action in order to increase internal knowledge and education, particularly given the potential interplay between them. The vast majority of telcos agree that they need to do more in this area.

Step 2: Engage and empower the workforce as agents of change

To transform successfully, telcos need to leverage the most powerful change lever at their disposal — their own workforce. This means ensuring they take their people with them on the journey and begin taking actions to create a more cohesive workforce that collaborates across age-old organizational barriers — including those between IT and the business.

To achieve all this, and drive transformation at the necessary scale, engaging process owners is critical. Instilling a greater sense of ownership of change among them by more clearly articulating roles and responsibilities around digitization is important.

A renewed sense of purpose among process owners will also support relatively new leadership roles, such as that of a chief digital officer, that are designed to broaden organizational commitment to transformation.

At the same time, telcos need to do more to break down silos. Trust between business units is often lacking, and sustaining collaboration between product development, marketing and IT remains challenging.

Also, centralization strategies remain in flux, making it more complicated to create and apply a consistent transformation agenda across geographies. All of these internal barriers need to be tackled through a new mindset, roles and ways of working.

Step 3: Extend AI and automation efforts well beyond the customer

Telcos’ current use of AI or analytics and automation is weighted heavily toward optimizing the customer experience. However, use cases for AI in areas, such as networks and security, where they’re currently less advanced, would benefit from greater focus going forward.

This will require a shift in investment priorities and telcos should also take into account that AI and machine learning have an important role to play in supporting new business models, through capabilities such as such as network slicing for enterprise customers.

Step 4: Revisit and refresh your digital transformation fundamentals

If telcos are to maximize long-term value creation in the evolving landscape that we’ve described, it will be essential for them to have an agile transformation road map — one based on fundamentals that they would need to revisit and refresh continually to stay abreast of developments and ahead of competitors. Nearly all operators in our study agree that they require a step-change in agility levels in order to maximize their digital transformation journey.

This will involve applying four specific principles. One is prizing innovation as well as efficiency gains. Compared with the previous surveys of industry leaders, our 2019 survey underlines growing fears around telco rates of innovation.

AI, analytics and automation have a substantial role to play in overcoming this challenge by providing greater levels of customer- and product-level insights that can aid new service creation.

The second principle is to achieve a better balance between experimentation and execution. Experimentation remains a critical route to new learnings and new competencies. The overwhelming majority of telcos in the study agree that their organization needs a more experimental mindset to get the greatest possible value from analytics and automation.

The third principle for maximizing value from AI or analytics and automation is applying improved governance and metrics. As digitization matures within telcos, new forms of measurement and oversight will be essential to maintain visibility, control and alignment with the strategy.

Finally, it will be vital for telcos to recognize not just the potential of digitization, but also its limits. Transformation is a human-centered process, and while AI and automation have a major role to play, it’s imperative for organizations not to lose sight of the human aspects and also to ensure they take their people with them on the journey.

Summary

Accelerating the intelligent enterprise looks at the overall transformation imperative for telcos, drilling down into several key issues — primarily around the opportunities and challenges presented by AI, analytics and automation.

About this article

Authors

Tom Loozen

EY Global Telecommunications Sector Leader

Fascinated by the positive impact of telecoms. Passionate musician. Enjoys educating himself on psychology, wine, sports, technology, arts and much more. Husband and father of three daughters.

Adrian Baschnonga

EY Global Telecommunications Lead Analyst

Lead Analyst with deep sector knowledge in technology, media and telecom, gained in professional services and business intelligence environments.

Related topics Telecommunications TMT