everis has released a new report analyzing the current state of the telecom sector. It also proposes new opportunities and the path to be followed by operators in order to emerge stronger from the current health and economic crisis.
The report is directly linked to a previous version everis presented last June. This anticipated a necessary change in the business model and identified new investment opportunities for CSPs through innovation and the creation of their own contents. Currently, the economic effects of the COVID-19 crisis keep growing and everything suggests they will last in in the economy in general, without any distinction between the nature of the business or the production model.
Initially the telecom sector was considered to be one of the least affected due to the nature of its business, and forecasts suggested a higher consumption. However, since the lockdown in March, the different impacts added to the change in the consumption model and the market, have led main CSPs to undertake historic reductions of up to 30% on their tariffs. They combine fiber optic, land line, cell phones and TV to take over a hyper-competitive market, according to the trend followed in recent years. According to the collected data, the reduction of these tariffs has two parts: a structural component that will not vary significantly in the future; and another temporary and limited in time. .
Consolidated impacts on operators
The report benefited from the contribution of major CSPs which allowed everis a better understanding of the real impact of the crisis on this sector. There is a double aspect affecting CSPs: higher operating costs and lower income, derived both from current restrictions that limit mobility and economic activity. These are also affected by non-payments increase and the drop in the household economy due to rise in unemployment and temporary redundancy plans (ERTEs in its Spanish acronym).
Faced with these issues, on one hand CSPs have reacted and protected themselves with more aggressive marketing approaches in terms of customer acquisition and loyalty, which resulted in lower profitability. On the other hand, companies have assumed higher operating costs derived from the need to establish protocols that guarantee safety at offices and in actions at customers’ homes.
These consolidated impacts are directly related to the situation of most of their customers, both B2B and B2C. From mid-March until now, over 100,000 B2B clients, corresponding to small companies have been destroyed. Transport, tourism, automotive and energy sectors, among many others, have been particularly affected by the pandemic. It is estimated that 25% of B2B customers in Spain are in a situation of technical bankruptcy. Despite this negative scenario, CSPs still have many options for developing business in these sectors. They need to take advantage of demands directly related to transformation and digitalization, which will allow these sectors to survive, along with users’ demands for current and future services.
The road to transformation
In spite of the current situation, main CSPs still have opportunities to moderate the effects of the economic and health crisis, and thus outlining a path that will help them raise the current profitability of the business. Internal and external transformation are key features of this path, impacting both customers and CSP, respectively.
Regarding external transformation, they should adopt new market trends, facilitating business growth through the digitalization of the rest of productive sectors and attending to the new demands generated by “the new normal”. This can be done by adding third-party products and services to their catalogues, executing an unified and omnichannel management to be more efficient. This will allow them to adjust their operating costs while improving customer experience. Additionally they can also design marketing campaigns for customer acquisition via personalized offers and selective services. In parallel, this will increase loyalty among current customers with flexible payment options to minimize late payments (or non ayment) in both in B2B and B2C.
In relation to internal transformation, four main strategies have been identified, which involve guaranteeing the survival of contracts, taking advantage of fiber optic and 5G deployments, developing a new production model combining on-site and remote systems; establishing new models to market their infrastructures to third parties, asserting their position as generators of employment and wealth; and increasing the creation of their own content, following customers’ demands.
Taking into account the context and data collected in the study, it is important to highlight that the majority of business sectors (which are already CSP’s clients) have the obligation to transform and digitalize their structure. This can generate new business opportunities in the telecom sector. Communication Service Providers have the technological capacities and services to implement this digitalization process and thus, they have a fundamental role in the recovery of other sectors.
This report can be used as a guideline as it contains market analysis from the perspective of a partner like everis. It also includes opinions and experiences of big telecommunications providers that have witnessed a change in the consumption model and are forced to modify and evolve their own production and business models to adapt to the new normal.