Discover how telecom operators can overcome their structural challenges and embark on three strategic paths to a prosperous future: reinventing the integrated model, delayering, and transitioning to a utility-based model, based on an article by McKinsey.
Structural challenges: An industry at a crossroads
The telecom industry is facing unprecedented financial and structural difficulties. Some of the most pressing issues include:
- Stagnant revenue growth: Between 2018 and 2022, global revenue growth barely reached 2%, with Europe even seeing a decline of 1%.
- Massive investment requirements (capex): Since 2018, capital investments have soared by $300 billion, while return on invested capital (ROIC) fell by 10-15% in North America and Europe.
- Rising competitive and regulatory pressure: New players, such as MVNOs, the rise of e-SIM technology, and increasingly stringent regulations (e.g., in Europe) are further complicating the industry’s outlook.
Three key challenges to address
Redesigning business models: Traditional models no longer generate sufficient returns to sustain the heavy investments required.
Coping with competition: The rise of new entrants, particularly in fiber and OTT services, is forcing telcos to rethink their strategies.
Navigating a complex regulatory environment: Policies that limit average revenue per user (ARPU) and stricter data protection requirements are restraining growth.
Three strategic paths to a sustainable future
In light of these challenges, three strategic options emerge as paths to success:
1. Reinventing the Integrated Model
Telcos can optimize efficiency and unlock new growth opportunities by focusing on:
- Digital technologies: Automation, artificial intelligence (AI), and data-driven insights to enhance customer personalization.
- Collaborative models: Infrastructure sharing to reduce costs. For instance, Malaysia’s shared 5G network reduced costs by 30-60%.
- 5G API monetization: Network APIs, developed with global platforms, could generate $100-$300 billion in revenue by 2030.
2. Delayering: Creating Specialized Entities
Telcos can strategically break their operations into independent, focused units.
- Successful example: Turkcell (Turkey) spun off its digital services into standalone platforms, generating $150 million in additional revenue within three years.
- Advantages: Increased transparency, niche growth focus, and greater investor appeal.
- Potential drawbacks: Operational complexity and a potential loss of synergies between units.
3. Transitioning to a Utility Model
Adopting a model inspired by utilities offers several benefits:
- Reduced financial risks: Partnering with governments to align infrastructure investments with national strategies.
- Increased regulatory support: Subsidies, reduced spectrum prices, and regulatory asset-based (RAB) frameworks.
- Enhanced valuation: Investors often value stable cash flows from utility-like models more favorably.
Toward a digital and sustainable transformation
To achieve this transformation, telcos must embrace several key levers:
- Automation and generative AI: Cutting costs, optimizing customer experience, and proactively addressing technical issues.
- Green and sustainable products: Net-zero solutions and smart home services (e.g., solar panels, EV charging) can build customer loyalty and meet rising ESG expectations.
Examples like Movistar (home security services) and Sky (insurance bundled with smart technologies) demonstrate that innovation beyond the core business is not only achievable but profitable. By embracing bold changes and leveraging their assets—vast networks, skilled talent, and rich customer data—telecom operators can secure their place at the heart of a rapidly evolving digital economy.