Telco competitors aren’t other telcos anymore

It might seem like an unusual statement to make, but if the fortunes of the fourth industrial revolution are going to be realised, telcos need to stop bickering between themselves.

The new competitive landscape seems like a very counter-intuitive one. The status quo for years has been to capture as many subscriptions as possible, building profits on top of connectivity, though the digital economy is so much more. This might seem like a very obvious statement to make, though the dangers are seemingly more apparent on the African continent, with the OTTs and cloud players a larger threat to a telco than other telcos.

This was a fear which emerged during the opening panel sessions at the AfricaCom 2018 show in Cape Town. Connectivity is not enough, especially on a continent where ARPU can be as low as $4 a month. There is of course demand for more data connectivity, but where is the value when you actually deploy data networks? According to Hind Elbashir, Group Chief Strategy Officer at Sudetal, not in the connectivity business.

“The OTTs have spread their wings, while we are continuing to compete in a very small place,” said Elbashir.

While the telcos are laying the foundations for the digital economy in Africa, they are continuing to focus efforts on traditional business models focused around connectivity and subscriptions. This is a limited section of the value chain, becoming increasingly crowded, and built on the race to the bottom. Value will become increasingly difficult to find and profitability will erode as the telcos fight for customers on pricing. However, the fourth industrial revolution is creating value elsewhere in the ecosystem.

Nic Rudnick, CEO of Liquid Telecom, echoed Elbashir’s point. While the African telcos are building the networks and spending all their time on securing more subscriptions, foreign players in Silicon Valley or China are swooping in to collect the more lucrative rewards at the top of the digital value chain. The OTTs are capitalising on the vast expenditures outlaid by the telcos and stealing the new value which is being created through enhanced connectivity.

But why is this more of a risk in Africa than anywhere else? That is a very simple question to answer; Africa does not have anywhere near the same scale or penetration of connectivity infrastructure as in the developed markets, while ARPUs are significantly lower, adding more pressure to the bottom line. With African telcos having to spend more CAPEX to deploy infrastructure to realise the digital economy than European or North American counterparts, while simultaneously collecting smaller tariffs off customers, it cannot afford to lose the added value created in other areas of the ecosystem.

This is a change in the industry’s landscape which has been coming for years, but the telcos seem to be struggling to capitalise on. The rules are shifting with the cloud and OTT players securing the lion’s share of newly created revenues without assuming the risk and vast expenditure of network deployment. Not only will the telcos have to transform culture and operations to reverse this trend, but also create new relationships with competitors.

Elbashir pointed to joint investments in infrastructure to reduce financial exposure and allow telcos to spread CAPEX further. Multiple joint ventures would allow for quicker expansion of network infrastructure, increasing the connectivity footprint of the telcos, but also allow talent to focus on creating strategies and products to capitalise on the created value in the digital ecosystem.

Collaboration is a key word, though we all know how difficult it can be to create. However, telcos should recognise the greatest threat is not from other telcos who are fighting for subscriptions, but the OTTs and cloud players who so easily secure revenues in segments of the ecosystem the telcos are struggling to exploit. The threat from the OTTs is a simple one, but if it is not addressed, growth is going to be impossible.

This is a new market dynamic, and while the OTTs might be a threat to all telcos around the world, it seems to be more pronounced in Africa.

Dallas, Atlanta and Waco win the AT&T 5G jackpot

The cities of Dallas, Atlanta and Waco have been selected by AT&T as the first to receive mobile 5G services by the end of the year.

The move comes after a promise from AT&T that it would deliver 5G to twelve cities across the US. At the time there was no indication what the cities would be (or any real details) and it did appear to be a bit of a panic move from the telco in reaction to 5G claims from competitors, all of which had already made commitments. The confirmation of these three cities is at least progress, but taking two months to unveil 25% of the plan (one of the locations is the home of AT&T HQ, so that should have been a given) doesn’t remove the fears AT&T might be making it up as it goes along.

Meeting the demands of this stringent timeline will be tricky and to help the momentum build AT&T will be opening a new 5G lab in Austin. The purpose of this lab will be to stress test mobile 5G network equipment and devices from multiple vendors, and also features an outdoor 5G testbed to trial 5G applications and usecases.

“After significantly contributing to the first phase of 5G standards, conducting multi-city trials, and literally transforming our network for the future, we’re planning to be the first carrier to deliver standards-based mobile 5G – and do it much sooner than most people thought possible,” said Igal Elbaz, SVP of Wireless Network Architecture and Design at AT&T. “Our mobile 5G firsts will put our customers in the middle of it all.”

Irrelevant as to whether AT&T is making it up as it goes, or if it was caught off guard with competitor announcements at the end of the year, it has shot to the front of the 5G race with this announcement. Details are the enemy of marketers and PR gurus but the friend of the customers, and this move from AT&T seems to offer much more clarity than the telcos suspect attempts to seemingly fool customers with LTE-A rebranded as 5G Evolution. 5G is coming and AT&T is now pumping its chest loudly.

What is worth noting is that there won’t be a huge number of 5G capable devices on the market when AT&T launch the networks, though this could have a positive effect on the supply cycle. Perhaps the presence of a 5G network will fuel demand from customers and force the manufacturers to hit the market with devices at an increased pace. This could be the case, though sceptical individuals would argue the manufacturers would simply use 5G capable features as a means to encourage customers to upgrade to more expensive devices. Bottlenecking the breadth of 5G capable devices would almost certainly encourage some users to consider more expensive devices, but should such nefarious strategies start to appear it could potentially open the door for a brand to disrupt the market.

The initial 5G deployment will be based on 3GPP standards and operate over mmWave spectrum, with the telco claiming the services will seamlessly integrate with current LTE technologies using the non-standalone configuration outlined in 3GPP release 15. It should be worth noting that AT&T has not forgotten about the LTE roll out, which is yet to be completed nationwide, but the technology being deployed here will be easily migratable to 5G, the telco has said.

Naming these three cities is certainly a positive step and AT&T has said it will name the other nine over the next couple of months. A good guess at where they might be Houston, Plano or Palo Alto, as these are the other locations of AT&T Foundry (aside from Atlanta), though it would also be worth having a look here where the telco names the cities it is ‘super-charging’ its network over the next couple of months.