The Future of Telco: Internet in the Sky!

Telco companies around the world are battling to drive average revenue per user. So forward thinking CEO’s are moving to try and participate in Over The Top (OTT) services. But that may not be enough.
Given how many people own mobile phones, it might seem surprising at first that Telco companies the world around are under pressure to grow revenues. Companies in emerging markets like Beeline, Wind, Kyivstar, Mobilink, Telecom have been suffering with year-on-year declining Average Revenue per User (ARPU) figures for the last 5 years. This is not much better in developed markets. The key challenge across all operators is the costs of licensing spectrum, maintaining physical network infrastructure on the ground, and the declining margins on data sales due to global competition. Match this with massively growing smartphone adoption across the globe, where all services are moved to data channels… and you’ve got a race to the bottom. All the telco’s are offering narrowly differentiated services and competing on… price. Not a good place to be.

So forward thinking CEO’s are moving to try and participate in Over The Top (OTT) services. The timid or risk averse types are going for a partner strategy where they promote What’s App or Facebook messenger and try and keep customers locked into an ecosystem of brands and services through their channel. Not bad but it doesn’t seem to be a long term strategy to solve it all. Braver CEO’s are looking at how they can participate in the OTT space by developing innovative services that they can own. Services to reduce costs through customer self service, drive acquisition through superior offerings, and/or drive revenue through new paid offerings to customers. This looks like a step in the right direction, but comes with quite a few built in challenges. Telco’s are not (yet) well structured for developing innovative services of this nature. So a new organisational operating model is needed along with a lot of new skills.
Vodafone in the UK is starting to hint at some good shifts in their strategy with their latest campaign. Their ‘Powered by Vodafone” could be a very powerful starting point for a new approach that breaks out of the “dumb-pipe” operating model that so many telco businesses are stuck in.

Powered by Vodafone

But I’m questioning whether getting into the OTT space is enough. Assuming it’s done right (which I’m doubtful of), and telco’s manage to compete in the tech market alongside Facebook Messenger, music streaming services, and What’s App and so on; the OTT service is only one component of the landscape. The thing I always find interesting about innovation is that it’s not a static event. It’s a whole lot of time horizons, isn’t it. Depending on your industry you may have a different perspective on what “long term” time horizons are. But technology moves pretty fast, so shall we pick a 10 year horizon as being about as far a see want to look to the horizon? I think that’s about right. OK, so the question is: What is going on right now, that in 10 years could be something significant for telco?
So lets look at a few current day technologies in their infancy, and try to picture what they might be like in 10 years when they’ve grown a little. The little infant ideas, the playthings, and pet projects in the tech scene that don’t get much attention… yet. I personally believe there are a few ‘lab test critters’ which might grow much bigger than expected. Bigger hairier and with more teeth than telco’s might like.
Let’s look at Google, Facebook and Space-X. What do all these big hitters in the tech market have in common? They all have projects that want to beam the internet from the sky!!! Crazy right!?

Google Project Loon
Ballons that beam internet from the sky!

Facebook Aquila Project
A giant solar powered unmanned aircraft that beams internet connectivity from the sky!

Space-x Internet by Satellite
4000 low orbit satellites that beam internet from the sky!

Connecting the Dots: These infancy stage projects are the playthings of large digital mindset companies that telco CEO’s need to be wary of. Three moving parts in the telco landscape are moving to change the market. 1) Mobile services continue to move into the data spectrum 2) smartphone penetration increases every year, and 3) devices get smarter. These three mean it stands to reason that with the addition of ‘The Internet From the Sky’, mobile phone users could to be free of their reliance on a physical ground-based networks for internet connections. So the telco’s physical infrastructure assets will reduce in value proportionately to the adoption of “Internet in the Sky”.
So what are the telco’s going to do to compete here? They are only just catching up on App’s! Many of the telco’s who are aware of these projects (and their agencies) argue that their game is to stay relevant and profitable long enough to even worry about these kind of problems. But it seems to make sense to me that if telco’s are going to try and compete to stay in the game, they should at least start developing their own pet project in this area. Telco’s could partner, buy, invest in these existing three if they have to. They just need to do something so that if they do survive the next 5 years, they at least have some glimmer of hope to survive the 5 after that! Otherwise shareholders should be asking telco CEO’s if they are really acting in their best interests.

Grant Cleveland

Grant is Start-up investor, advisor, mentor focussing on very early stage ventures. Particularly interested in start-ups and founders who are using tech to have a positive impact on the world.


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