Digital Service Providers: An Inevitable Evolution, Part 1 of 2

As traditional business models and boundaries collapse in today’s communications industry, service providers are no longer in the driver’s seat of value creation. Instead, they’re under siege from digital enterprises that are not only eating into revenue streams but are identified as true value-added players.

The trouble begins when customers start valuing these add-ons more than the connectivity offered from a service provider. Consumers think in terms of the services enabled, applications delivered and the content made accessible on their broadband-capable devices. Since service providers are usually not directly providing the services that consumers value the most, Apple, Amazon, Facebook and others are providing the real value in the eyes of consumers, forcing network operators to reposition themselves. A service provider’s weight is no longer valued solely in being a provider of bandwidth; it is in being an enabler of services.

There is no doubt that the telecommunications industry has been critical to the success of today’s web-scale companies. Digital enterprises depend on telecom networks to provide customers with compelling online and mobile experiences. Ironically, service providers are way behind when it comes to delivering their own digital initiatives.

Service providers have a decision to make: Do they want to be to become value-added players or remain bandwidth and connectivity providers? Whatever route service providers take, they have no choice but to undergo digital transformation. From providing integrated, omnichannel, personalized digital experiences to their end customers to digitally connecting the workforce, it is becoming critical for service providers everywhere to transform into digital service providers (DSPs).

Planning for Success

A recent Netcracker survey of 115 service providers revealed that of the 24 percent of respondents that said they are not currently executing a DSP strategy, only one-third expect to have something defined in the next 12 months. This means that many service providers haven’t even cemented their plans. The time for them to do so however is quickly running out; their business models are being challenged on a variety of fronts:

• Consumer Demands: Today’s consumers demand a different kind of digital experience. Thirty-six percent of consumers between the ages of 18 and 29 are “almost constantly” online and half of them go online multiple times per day, according to a recent Pew Research Center survey. They talk less, text more, use multiple mobile devices and share their experiences—good and bad—via social networks. In fact, since as far back as May 2013, more than 70 percent of online adults are active on social media.
   
• Competition: Cloud, streaming service and social network providers are steadily pulling consumers away from voice, web, pay-TV and other traditional service provider offerings. Today, traditional pay-TV channels are sitting unwatched while internet alternatives continue to grow. Netflix, now the nation’s largest video subscription service, streamed 42.5 billion hours of video content to users around the globe in 2015, a nearly 47 percent increase from 2014.
   
• Technology Evolution: Communications networks are moving to all-IP and mobile network operators will soon be challenged to continue LTE rollouts while preparing for 5G. But software-defined networking (SDN) and network functions virtualization (NFV) still promise to deliver massive benefits to service providers through lower costs, faster time-to-market and new revenue streams—but only if they can figure out how to operationalize these technologies and ensure that their BSS and OSS can handle the shift from physical to virtual networks.

These are just three areas where service providers are facing challenges, but they can also act as motivators for them to transform their businesses.

But how is a DSP defined? Has a service provider gone digital if it is more agile and uses virtualized network technologies or can operators call themselves a DSP if they provide digital offerings? There is little doubt that a lot of factors must be considered, but there is even less doubt that the transformation into a DSP will be mandatory.

Be sure to check out the second piece in this series that highlights what exactly must be factored into defining a DSP.

[Editor’s note: An earlier version of this column also appears in the March/April 2016 issue of Global Telecoms Business magazine (www.globaltelecomsbusiness.com).]