The telecom services industry has gone through several stages of evolution and has now hit a new inflection point. After the roll-out of 5G, many telcos are trying to transform themselves into “techcos” by offering a wide range of services across multiple verticals. A techco may be defined as an agile, open organisation that leverages software technologies to create a modular foundation for innovation on top of its network. These businesses are characterised by a flexible, horizontal workforce and an ecosystem of many partners.
There are many reasons why this transition has been more or less forced upon telcos. The roll-out of 5G has entailed vast investments in research and development, as well as direct investments in network deployment. In turn, this means telcos need to generate and sustain high rates of return on those investments.
But doing this the conventional way through voice and data services is difficult. Many of the world’s largest telecom markets are saturated. Fighting to grab market share or raising ARPUs in highly competitive markets with 100 per cent teledensity (above 100 per cent in many cases) is expensive and difficult. Basic services have, therefore, become commoditised and telcos lack pricing power when it comes to voice and data tariffs. At the same time, the threat of competition from hyperscalers is growing as data centres seek to integrate backwards.
On the positive side, while the search for new revenue streams is a business imperative, superfast 5G networks enable many new use cases, especially in segments such as B2B and enterprise-related services. The existence of 5G networks is inducing all sorts of businesses to go digital, and this has created opportunities for telcos in previously unexplored markets since the telco is the first point of contact for a business looking to leverage 5G. As 5G, edge computing and private networking converge, telcos can see more opportunities at the cutting edge of these technologies.
Telcos, which can leverage their networks to provide a basket of value-added services, can develop new revenue streams and those new services are also higher margin than basic telecom services. One example of such a successful transition from telco to techco would be that of Spark of New Zealand, which generates over 50 per cent of its revenues from B2B services.
In India, Airtel Business – the enterprise arm of Bharti Airtel – now contributes around 20 per cent to the telco’s revenues through its B2B plays. Tata Communications and Reliance Jio are also exploring this B2B segment by offering a basket of new services across verticals.
Growth rates in these areas could be much higher than growth across conventional telco revenue streams. The International Data Corporation (IDC) has forecast that the public cloud services market in the Asia-Pacific (APAC) region will hit $153.6 billion in 2026. The implied compound annual growth rate (CAGR) would be 23.5 per cent between 2024 and 2026. The bigger US market too will grow at a CAGR of 14.1 per cent over the same period. The SaaS segment in APAC will more than double from $22.9 billion in 2021 to $58.1 in 2026, contributing almost 40 per cent of the revenues of the APAC cloud services market.
But while the potential rewards could be large, successfully transitioning from a telco to a techco involves a big change 
in mindset, and a tectonic shift in internal organisation and corporate culture for the typical telco. This has very significant implications for business strategies, customer relationships and operational procedures.
The traditional telco relies on a network team working side by side with an IT department. The network engineers and the IT workers are in separate silos. Telcos rely heavily on proprietary hardware and typically have a few large B2B contracts with large service providers. They also invest in expensive business support systems (BSS) and operational support systems (OSS) that are customised for their specific needs.
This structure leads to slow bureaucratic processes involving back and forth inter-departmental communications. It means cautious exploration and gradual implementation of solutions, and low innovation rates. Rigid proprietary hardware and customisation make it hard to integrate with any new partnerships or innovate internally.
These rigidities and slow internal processes have held telcos back historically. For example, despite rolling out the networks that enabled the internet, telcos did not create great businesses that rode on those networks to deliver new value-added services. The more nimble techcos like Amazon, Google and Facebook, and a host of others did that.
The typical techco has a very different structure and corporate philosophy. Techcos have integrated teams; they innovate fast and, if a given innovation fails, they try another approach quickly. They rely on open hardware and open digital architectures (ODAs). They share data across the organisation and use the cloud and hyperscalers extensively, if not exclusively, to run networks. They do not customise. They prioritise speed in creating new products and services. They prefer a multi-vendor approach to a few rigid partnerships since they cannot afford either the time or the money to invest in new BSS and OSS solutions each time they launch a new service. This structure gives techcos the agility to visualise new opportunities and grab them as they arise.
Techcos have a very different structure and corporate philosophy. They have integrated teams; they innovate fast and rely on open hardware and open digital architectures. They do not customise and they prefer a multi-vendor approach to a few rigid partnerships. This structure gives techcos the agility to visualise new opportunities and grab them as they arise.
This “fail fast” approach requires a completely different corporate mindset. As and when a telco does transition to that mindset, it can straddle multiple verticals in providing new services. For example, the leading digital solutions platform in the Philippines, Globe, is a telco. In addition to connectivity, Globe offers services such as digital marketing solutions, startup finance via venture capital, telemedicine, e-commerce, business process outsourcing, advertising technology, educational technology, and solutions for media and entertainment.
Among other examples, Telstra is offering dedicated e-health services to the healthcare market in Australia, along with products from partners. SK Telecom of Korea has partnered with Mars Auto to develop AI-powered self-driving vehicles, facilitated by SK’s 5G networks. Comcast (USA) offers many value-added services ranging from digital advertising to video-on-demand.
But radical transformation is mandatory if telcos are to develop new revenue streams like this. Telcos have to evolve from being traditional connectivity providers to being technology solution providers. They also have to be open to finding the right partnerships to drive innovation.
B2B services are one of the main growth opportunities. Some of the others include network-as-a-service (NaaS), consumer connectivity, developer experiences, and vertical opportunities. While all of these areas are important, the focus on B2B services is intense since it allows telcos to leverage existing network assets and customer relationships to generate high-margin revenues. Telcos can easily offer multiple cloud computing and IoT solutions, as well as cybersecurity and e-commerce solutions.
Telcos can leverage their networks to provide a basket of value-added services and develop new revenue streams. Many of those new services are also higher margin than basic telecom services.
While these new markets are high margin and telcos have a natural advantage in that they own the data networks, they also face stiff competition from established technology companies. Apart from reconfiguring internal teams and processes, they need to open up their own networks, switching from closed proprietory hardware and associated customised software to ensure that their networks are easily compatible with that of their partners.
Going cloud-native involves partnering closely with hyperscalers. A cloud-native architecture enables a techco to plug together various software modules from different vendors, and thus seamlessly offer services across new lines. No customisation makes it more affordable for service providers to diversify and partner with new businesses.
Integrating ecosystems involves overcoming the technical issues involved in connecting multiple vendors and systems. There may be a huge number of partnerships required to create and sustain a flourishing techco ecosystem. Integrating just one vendor into a typical telco’s back office systems can take months. But techcos cannot afford slow integration since they may have to partner with 20 or 30 diverse partners to create the ecosystems they need. Apart from the technical issues, telcos also need to develop the legal expertise to deliver upon contractual obligations while working with third parties, and establish win-win agreements. Again, speed is of the essence.
Upskilling and integrating sales teams are also critical. Traditional telcos focus on connectivity services, moving from SIM cards to broadband access. B2B services are very different. The sales team must learn how to market the new services even as the telco creates the new ecosystem.
By adopting open API (application programming interface) and ODA (open digital architecture) standards, telcos can replace legacy systems with a common, flexible set of cloud-native systems. This is the ideal approach for digital transformation. Cloud-native SaaS infrastructures empower telcos to monetise their existing connects with different verticals (as a telecom service provider), adapt to changing market dynamics, and deliver the value-add customers want.
An ODA helps techcos to seamlessly integrate into the existing systems servicing a market. For example, a telco with an ODA could integrate with a CRM (customer relationship management) system that is servicing the customers of a major automotive company, allowing it to deliver new connectivity services associated with smart vehicles.
Let’s assume a telco transforms into a techco by embracing the concept of 5G-as-a-service, investing in vertical ecosystems, digitalising the network management and actively working to deliver innovation. This also means moving beyond connectivity revenue streams to create a repository of value-added tools, solutions and services. These new revenue streams are higher margin and provide a foundation to support further diversification.
Apart from margins, telco-techcos can deliver on volume if they have invested heavily in 5G infrastructure and upgraded the equipment. By going cloud-native, they create an ecosystem where developers and integrators can select the elements of the network they need in order to create their own services and solutions over the top. That helps embed the telecom networks into other companies’ solutions, providing more resilient, sustainable revenues.
The leaders in this transition are moving to new business models and generating new revenue on platforms focussed around technologies such as connected healthcare, digital manufacturing and smart cities. They are exploring AI to develop use cases, improve customer experiences, convert prospects and identify new cross-selling opportunities. As they transition, they also need to change the metrics and move from simply monitoring service calls, ARPUs and subscription numbers to looking at API integration and customer lifetime value.
Partnerships with hyperscalers are already crucial as networks go cloud-native. These partnerships will only gain in importance in future. Telcos will likely rely on hyperscalers for more and more services as they transition to being techcos.
Radical transformation is mandatory if telcos are to develop new revenue streams. They have to evolve from being traditional connectivity providers to being technology solution providers. They also have to be open to finding the right partnerships to drive innovation.
Transitioning to such data-centric models requires a fundamental shift in corporate thinking and greater automation to streamline processes. Overcoming inherent resistance to change and ensuring a smooth transition in the corporate culture are key. The telcos that manage this process best will cease to become mere telecom service providers. The ones that don’t will be left behind. We will witness this new dynamic playing out over the next two years.
Devangshu Datta
