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Straight Talk Telecoms

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Telecoms operators have made stuttering progress in their efforts to become digital service providers. The bundling of third-party services (typically digital media services on the consumer side and cloud services for enterprise customers) has become commonplace and is a great strategy for adding value to the core business. But telcos have had much less success in creating new, incremental digital service revenue streams.

It may well be that bundling other companies’ services is the best approach for the telecoms industry. Operators’ track record in commercializing their own (digital) products created in-house is pretty dreadful. But it does represent an admission that telecoms operators will not be able to diversify away from their core business.

Is this just the way it is? Or are there other approaches that telcos can take to becoming more immersed in digital services markets?

One operator that has managed to become a diversified digital technology and services group is the Japanese giant Softbank – owner of Japan’s third-largest, and the US’s fourth-largest, mobile operator. But Softbank was a technology and Internet company before it became a telecoms operator.

Finding digital conglomerates with telecoms operators at their core is tough. Some of the enthusiasm three to four years ago for launching digital businesses has waned. There has been some M&A activity in the Internet of Things space and an enthusiasm for entering the TV business, but the broadcast TV sector cannot really be labeled digital.

A number of operators are rolling out venture capital businesses, either directly or by investing in the funds of established VC firms, but there are few examples of operators turning their early-stage investments into longer-term shareholdings. Operators tend to see VCs as a way of building stronger partnerships rather than as vehicles for building digital investment portfolios.

Google, Facebook, and Amazon are all extremely active in M&A. In some cases the companies that they acquire are immediately plugged into their core businesses – either to create new technology capabilities or to enhance existing services. But they are also making acquisitions to diversify into new markets that have little to do with their core business.

Google last month created a new corporate structure to create greater transparency and accountability within its core advertising business and other businesses in sectors as diverse as healthcare, automotive, and energy management. It is interesting that while Google seems to be embracing the principle of a conglomerate – a business strategy that has become a dirty word in the corporate sector – telecoms operators seem to have become more focused on investment and M&A activity that adds value to the core.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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