Analysis from the closing plenary panel at Total Telecom World Congress on 21st November 2023, disussing “success beyond connectivity” with Tolga Kilic, Strategy Director, Turkcell, Jeroen Thorenaar, Co-head Strategy & Transformation Office @ KPN, and Tanel Sarri, CTO, Tele2 Eesti (Estonia). My thanks to the panellists for a great discussion and for reviewing this analysis prior to publication.
Overview: Among the issues we discussed were the telcos' approaches to governance, culture, mindset, and technology. We identified “proving a credible, sustainable business model” as success, and explored what’s needed to achieve this. In further analysis I infer that “prudent capability gardening” is a hidden strategic success factor.
You can read my analysis in full below or download a PDF version here.
Executive Summary
Main findings: success = a credible, sustainable business model
Success in new areas can be defined as proving a credible, sustainable new business model.
Attractive areas discussed included Mobile Financial Services, Security, and IT Services (for business, especially), and Gaming.
However, initial success should not be framed in the context of traditional telco measures such as EBITDA. It is essential but can be hard to reconcile this with internal and external stakeholders.
Success is highly contextual to the purpose, context, and assets of each telco.
Key lessons in the development and delivery of success beyond connectivity are:
How to create independent governance and the sustenance of new teams facing new challenges with an appropriate mindset, culture, and processes.
Work never stops when building new areas and the cycle of change and review is permanent, and managing the opportunities and challenges that this presents is the key to long term success beyond connectivity.
So what? “Prudent capability gardening”
Telcos should be ambitious and realistic about the growth they can achieve when investing around a tenth in R&D as a proportion of revenue that global business with growth-oriented business models (such as Google, Amazon, and Microsoft). You cannot achieve tech valuation multiples on this basis.
Yet success is possible for companies that:
Listen to customers and selectively choose niches and local/national opportunities to build out from.
Partner with other players to develop and build new offerings.
Learn from and use the latest approaches to remain relevant, move fast and make the core business efficient to free up more resources to invest in new things.
Many telcos (including my panellists) appear to be taking these paths, which is encouraging.
Key observations beyond this are that the governance and investment process is particularly critical and needs healthy independence from the core business.
Key to future success won’t just be in the success of the latest hero initiative, but in the careful gardening of the innovation capabilities developed – ensuring that the right talent, knowledge, and capabilities are sustained whether current activities succeed or fail.
In-depth breakout: What’s needed for success beyond connectivity?
We broke this topic down into three component questions:
What does success beyond connectivity mean to you?
What were the key things you needed to change to get where you are today?
What’s next?
This document summarises our discussion on each of these questions and provides some post-event thinking on their consequences.
What does success beyond connectivity mean to you?
A fundamental challenge for telcos looking at new business models is to grasp that growth takes time and requires different measures and KPIs than traditional telecoms model (i.e. is not EBITDA at the outset)
All panellists agreed that broadly, “success” is to have a credible sustainable business model.
However, the nature of that success can be very different depending on business context.
All the panellists looked for customer impact, but there is a difference between initiatives that are largely intended to have synergistic outcomes (e.g. grow or sustain core business outcomes like ARPU or churn) and those leveraging core assets (e.g. brand, data) to create new lines of business (e.g. mobile financial services).
We discussed a range of opportunities, including
Turkcell’s techfin (financial services) initiative which is attractive in its market due to both lower penetration of certain financial services and Turkcell’s strong market position.
Gaming – on which the panellists had a range of views, from it being an exciting opportunity to not being hugely helpful for them, again for market and positioning reasons.
Security and SME IT service products which Turkcell, KPN and Tele2 are all pursuing.
What were the key things you needed to change to get where you are today?
Understanding the need for different governance for new activities was a key step. Tolga talked about how at Turkcell it had been critical to manage the new activities in business units outside of the core. Turkcell had found this vital not only because different measures were needed, but because different incentives and cultures needed to be employed for success.
We discussed “mindset” and culture too (as we did at more length on the panel on “Building a World Class Culture”).
In terms of mindset, the key changes were being more open to partnering and a focus on speed / being more entrepreneurial according to Jeroen at KPN.
Tanel described how national culture had changed enormously in Estonia in the last 15 years, and that it was critical for Tele2 to keep ahead of that change to attract and keep talent, especially when competing as an employer in the same pool as global technology players – a theme that recurred in other conversations at the Congress.
In terms of technology processes and changing technologies (such as 5G):
Tanel at Tele2 talked about trying to grasp the opportunities presented by AI, and Jeroen echoed this with comments about increasing speed to market through automation and other approaches such as DevOps and agile working.
Hybrid working is now regarded as an important norm in terms of employee wellbeing (and attraction/retention) but presents challenges as well as opportunities – another theme discussed elsewhere in the Congress.
What’s next?
Tolga said the next step at Turkcell will be a portfolio review. This will be to establish which new initiatives are successfully setting out a credible sustainable business model and understand the potential of the company for further investment and growth.
Jeroen said that he foresaw more work on technology processes at KPN, with a key objective being how to onboard partners quicker (NB from my previous research, this is one of the most challenging activities because it touches so many business processes and units – but also one of the most transformational because of what it can unlock).
Tanel’s constant obsession at Tele2 is how to accelerate change. He believes that COVID and other crises have helped the industry see that rapid change is possible, but that the approach unlocked needs to continue and go further as the industry is not yet changing fast enough.
Analysis & further thoughts
Creating success beyond connectivity is hard for telcos – but not impossible.
It’s hard because telcos are competing with players that invest 5-10x more proportionally of their revenues in R&D, and many of those players (think Google, Amazon, Microsoft, etc.) are many times larger than even regional telcos, let alone a national Opco. Those players have both global and economic scale and brands to attract talent, making it even harder.
Yet it’s not impossible because telcos can do three things.
Listen to customers and selectively choose niches and local/national opportunities to build out from.
Partner with other players to develop and build new offerings.
Learn from and use the latest approaches to remain relevant, move fast and make the core business efficient to free up more resources to invest in new things.
Part of the challenge is that telcos in the past have, perhaps understandably, looked critically at opportunities that don’t immediately ‘move the needle’ – make a swift and significant impact on revenues and EBITDA.
Yet the reality is that innovation rarely works based on successfully cherry-picking the perfect opportunity and applying existing wisdom from your current business. It is more realistically a rapid process of trial, error, learning and reconfiguration towards a meaningful goal. Even then, the goal posts may move over time!
The evidence from the stimulating panel discussion with Tolga, Jeroen and Tanel (including our preparation) is that many telcos have wised-up to this reality. They are doing many of the things needed to create success beyond connectivity – identifying what success means in their business context and pushing towards it in a rapid and adaptive fashion.
The danger – in my mind at least – may be that some telco boards (NB I am not talking about those on the panel) will from time to time kill off too of much the capability for innovation in their organisations, losing the talent, knowledge, and capabilities they have gained in the search for the latest round of budget cuts to deliver this quarter’s EBITDA.
Good gardens are always well cultivated. New plants take time and constants care to grow, unhealthy plants need to be managed carefully (but not always culled), and mature plants benefit from expert pruning. And sometimes, plants need to be moved to completely fresh fields to reach their potential.
So, it is with growth beyond the core connectivity business. Change is permanently accelerating, and opportunities will come and go. Much of the long-term success for telcos will depend as much on their skill of what to keep and what to change as what to start. Of the telcos I know, I think Elisa sets a good standard of how to do this across the piece and is worthy of study.
Interesting report and overview, thanks for posting. What is disturbing reading this section: "Part of the challenge is that telcos in the past have, perhaps understandably, looked critically at opportunities that don’t immediately ‘move the needle’ – make a swift and significant impact on revenues and EBITDA."
That this wasn't learned in the late 90's or 2000's means it's now the situation telecoms is in. Getting boards and senior executives to buy into this becomes harder and harder and telecoms is now - as you rightly point out - still only investing a tenth into R&D as the 'big tech' companies. However, perhaps it's worth just recognising that telcos have their niche now and should accept it!