INSIGHT: Why Telcos should disrupt their own businesses and supply chains

Twenty years ago, mobile telecoms was a young industry.

Twenty years ago, mobile telecoms was a young industry.

Wireless communications were at the cutting edge of technology, and operators and vendors employed top talent from leading universities and business schools.

But the telecoms workforce has stopped growing, and telecoms operators and vendors are no longer recruiting.

The average age at one large European telecoms firm - a company responsible for much technology innovation in mobile networks - has increased by 10 years in the past decade (the exception is China, where service provider and technology giants continue to grow rapidly and to expand their workforce).

Contrast this with Internet companies. Anyone who joined Facebook at this time last year is now in the longest-serving half of the company. Talent circulates freely between Internet firms, and there is strong cross-pollination of skills and cultures.

A huge proportion of digital start-ups have sprung up out of the larger Internet firms.

Telcos have struggled to develop successful new products and services in part due to a shortage of digital skills, but this is not the main reason. The Internet-company DNA involves disrupting traditional services and business models - such as those of the telecoms operator business.

If WhatsApp had been created within a telecoms company it would not have succeeded, because no telecoms operator would have offered it as a free service that would cannibalise the SMS cash cow.

But perhaps now is the time for telecoms operators to start disrupting their own businesses. They have already learned that launching new products is made easier by white-labelling another company’s services rather than building their own.

But a bigger potential reward may await those that are aggressive in disrupting the businesses of their suppliers and their broader cost base.

How much telco capex and opex could be cut if technology and services were, for example, put into the cloud?

This thinking explains why telecoms operators are so enthusiastic about technologies such as software-defined networking (SDN) and network functions virtualisation (NFV).

But the speed at which they embrace these new technologies and new suppliers will depend on how prepared they are to start working with new companies that are intent on disrupting the business models of existing partners.

Many network access vendors and billing and OSS vendors have relationships with telcos going back 15 or 20 years. Operators have come to rely on them for broader strategic advice.

Will they be prepared to sacrifice these relationships and the support these vendors have always provided?

Such disruption will also affect telcos’ own internal teams and functions. The IT function is one that could be seriously altered by a shift to more cloud-based technologies, and this would undoubtedly impact headcount.

Telecoms companies will never resemble Internet firms - although, as they get older, Internet firms may start to look more like telcos.

But they can learn from the new digital skills that Internet companies embrace and their readiness to disrupt, however painful this may be.

By Mark Newman - Research Analyst, Ovum