the connection is a defining feature of the modern digital economy. The ubiquity of mobile and landline connectivity has enabled new digital economic models that became part of people’s daily lives until the COVID-19 pandemic prevented digital interactions.
Ubiquity and continuous use have made communication a critical commodity, paradoxically finding it difficult for telcos to generate revenue. This commoditization has steadily reduced the value of telco stocks over the past five years.
This is creating an industry imperative for change as Europe’s multi-billion dollar telecom market seeks to embrace new technologies (cloud, AI, 5G), new ways of working (app and DevOps) and new revenue opportunities (B2B and B2B2C). These trends are emerging against a backdrop of war in Ukraine, high inflation, a race for talent, and the need to demonstrate strong commitment to climate change and social issues.
Technologies, Services and Customers
Telcos are poised to reinvent themselves as technology companies that can play an important role in business and consumer communications. This transformation needs to be deep and take place across dimensions such as technology, services and customers.
- Between 2021 and 2026, the amount of data created, captured, replicated or consumed in Europe will increase. 126% higher, according to IDC’s latest Global Datasphere forecast. This, along with regulatory obligations, will put pressure on European telcos to continue investing heavily in network capacity over the next decade to maintain the performance of their core products.
- This includes deploying 5G access networks and increasing their fiber broadband footprint.
- Investing in capacity alone will make telcos stand still. To manage, create and improve the experience of their services, they also need to support their core network architecture and IT systems.
- In IDC’s 2022 digital transformation survey of European telcos, 58% cited BSS investment as the most impactful transformational investment to maximize returns. Other investments include modernizing systems to become cloud-native, consolidating core networks to support fixed and mobile services, and developing OSS/BSS platforms that support deeper network monetization and better customer outcomes.
- We expect FTTP to form and represent the majority of broadband lines by 2024 58% of total lines By the end of 2025. On the mobile side, European operators are currently rolling out 5G coverage, which also requires significant investment.
- We expect 5G to account for the majority of mobile network connections by 2025 57% of all mobile connections until the end of that year.
- As telcos’ core networks and IT systems evolve, operators are also interested in exploring new business models that expand their role in the consumer and business value chain beyond connectivity. Many of these new business models, from private networks to 5G gaming bundles and network-as-a-service, require complementary partner-driven ecosystems and extensive value creation.
- As such, 40% of large European operators have decided to integrate partner services into their ecosystem As a decisive influence of the API-based strategy in IDC European Study on Telco Digital Transformation 2022. To pay off these investments, telcos need the APIs they provide to be simple for development partners and supported across heterogeneous network infrastructures.
- While the bulk of telecom revenues have traditionally come from consumer services, the commoditization of communications has made it difficult to increase revenue by selling minutes, texts and data. In 5G, operators are looking to grow their position in the enterprise value chain.
- This means chasing opportunities, for example 83% of European businesses use or plan to use IoT technologies in their operations in the next two years. This shift in customer targeting cannot be successful without fundamental changes in how telcos operate and strong understanding from trusted partners that B2B and B2B2C customer base operators intend to create value.
- As operators look to capture new segments, they are also struggling to retain existing customers. Is over 95% of European TV companies invest in AI/MLand their primary use case is to improve customer understanding.
- A deeper understanding of customers has two goals—to keep customers happy for longer and to help telcos identify, develop, and produce new value propositions. The broadcasters with the deepest insights will be the most successful in the long run.
What’s next for European Telcos
Success in all aspects of technology, services and customers requires careful balancing of many transformational initiatives. The competition for financial and talent investment to succeed in a wide range of initiatives is further complicated by macroeconomic and geopolitical headwinds buffeting Europe.
Key message Europe’s telcos can no longer stand still. To revitalize their space in the broader technology landscape, they must invest in and improve all aspects of their network, operations and organization.
IDC Telco Digital Summit, on November 22, we will consider these topics in more detail. The summit will feature leading analysts and senior executives from Europe’s telecoms industry and will feature keynote speeches from industry leaders to help attendees navigate the storms in the European telecoms market.