The network operator of 2025: can telcos retain a leading role in the digital era?
After building much of the infrastructure for the digital transformation we see across industries and society, traditional telecommunications network operators continue to be confronted by extensive changes in markets, technologies, consumer demands and value chains.
“We’re talking about the industry that 20 years ago was the sexiest industry in the world,” said Tomas Lamanauskas, founder and Managing Partner at Envision Associates, Ltd. “We’re at a little bit of a different stage now.”
That could be the understatement of the decade.
With new market players, multi-billion dollar mergers, massive infrastructure investment requirements and shrinking traditional revenue bases, the question arises: Can telecommunications companies (telcos) retain a leading role in the digital era? And what role will regulators have in this increasingly dynamic space?
“Telecom operators are fundamental for the digital transformation; those are the ones that invest, build and operate the networks.” — Verena Weber, OECD
The answers to these questions have great implications for people worldwide whose lives could be greatly benefited by a range of services from mobile banking and smart farming to intelligent transport systems and customized, precision healthcare solutions. And they have great implications for ITU, which counts telcos as some of its most active, most influential traditional private-sector members.
At ITU Telecom World 2019, operators, regulators and international organizations gathered to discuss this rapidly changing environment and what the future will hold in this evolving space.
A period of limited disruption?
In the next five years, the role of network operators will remain largely the same: as the providers of today’s digital infrastructure, there will be no big fundamental change, some panellists said.
“We really don’t expect very, very substantial disruption in the network layer by 2025,” said Ervin Kajzinger, Director of International Affairs and Strategy of Hungary’s National Media and Infocommunications Authority.
“Telecom operators are fundamental for the digital transformation; those are the ones that invest, build and operate the networks,” said Ms. Verena Weber, Acting Head of the Communication Infrastructures and Services Policy Unit of the Organization for Economic Co-operation and Development (OECD).
In the past decade, network operators have shifted their business model from voice and SMS to being financed primarily by data and internet. And as we move to a more digitized society, this transformation will be faster than ever before, especially with the approaching 5G era and evolution to fibre, panellists said.
“I haven’t been optimistic personally for the last couple of years and we’ve been proven right,” said Dalibor Vavruska, Managing Director, Research and Head of Global Connectivity Strategy at Citibank UK.
So while the panellists agreed that network operators will continue to provide high-quality infrastructure for technology companies to use, Ms. Weber of the OECD pointed to three main trends are shaping market dynamics: traditionally vertically integrated operators are broadening their services; wholesale business is growing; and terminal equipment providers and online service providers are increasingly playing a role.
The evolving role of regulators
This change is not limited to network operators; regulators will also be impacted by the shifting digital revolution environment too, say operators.
“I think in the same way as the industry has been disrupted, regulators will be disrupted. Regulators and institutions as well, have to wake up to the fact that what they’ve done yesterday will not work tomorrow,” said Christoph Steck, Director Public Policy & Internet for Telefonica.
“Why can you not create a regulatory sandbox like you do in the financial sector for 5G and say: ‘Operators, experiment!’ ?” — Christoph Steck, Telefonica
But the European regulatory environment is too tough to enable a supportive environment for significant growth and change, said some of network operators on the panels.
“As we move forward, we’re embracing a new world where telcos are competing with IT platforms and big American technology companies – and at the moment, it seems that the regulatory frameworks in Europe is constraining that evolution,” Gabriel Solomon, Head of Government & Industry Relations, Europe & Latin America at Ericsson.
And this will lead to a rippling effect across the value chain.
“Investors are not putting money into European operators, because some of them feel they don’t get the return they would get from other parts of the value chain and of other operators in other parts of the world as well,” Christoph Steck, Director Public Policy & Internet for Telefonica.
Instead, regulators should have a more open approach and facilitate an environment of experimentation, which is especially important for the development of 5G, says Steck.
“Why can you not create a regulatory sandbox like you do in the financial sector for 5G and say: ‘Operators, experiment!’?” asks Steck. “No one knows what the business model is; let’s experiment a little bit. Let’s see if we find a good business model, and the regulators can sit on the fences or even inside the same room, and they can watch and they can learn and they can intervene when they think something goes wrong.”
Next evolution of global connectivity
As we move towards a 5G era, speakers pointed to gaps in global connectivity, especially in rural areas. So there is a need to think outside of the box, says Steck.
Peru, for example, presents a difficult business case for traditional operators: deploying connectivity networks has a higher cost, but people have less money to pay for it. As a result, only 55% of the population is connected to the internet.
So Telefonica is partnering with Facebook and national banks as part of their Internet Para Todos (Internet for All) scheme to deploy internet connectivity where the demand is, which is supported by innovative regulation for rural operators in Peru.
“The idea is: all the demands you have concentrated on one network … in an open way and try to get innovation in all sides,” said Steck. “And you know what? We will have connected half a million people in only one year in Peru and we would not [have otherwise been] able to do that. Our goal is to connect everyone in Peru.”