May 17, 2017

Investors Pause as Service Providers Must Prove They Can Transform

With so many unpredictable variables in a transforming industry, which factors can service providers actually control?

When your industry is described as “not the most attractive” to investors, as McKinsey & Company’s Duarte Begonha stated in the opening keynote on day two of TM Forum Live! 2017, it's a reality check for service providers. If investors are not willing to bet on service providers’ futures, does it undermine the industry’s confidence in its ability to transform, take on digital competition, pursue new business models and open new revenue streams? It shouldn't, but this doubt demonstrates that the industry has a great deal to prove and results to show in transforming itself for future success.

The New B2B2X Opportunity

As a counterpoint to Begonha’s perspective, Netcracker CEO Andrew Feinberg noted that with large enterprises across all industry verticals moving to “mobile-first interaction,” new opportunities are opening up in B2B, B2B2B and B2C markets that were previously untapped. Feinberg also added that “the conversation about moving into next-generation strategies is happening in the board room.” In other words, the industry is aware of its threats and opportunities and now has a sense of urgency that it must benefit from change rather than become its victim.

Goldman Sachs Managing Director Nick Pomponi agreed that service providers have a substantial opportunity in front of them in the B2B sector, but noted that investors are waiting to understand what the “unit economics of these new business models” will look like. The greater industry also awaits output from these board-level discussions to, in some cases, set a clear direction with which to move forward. It seems like the industry has agreed that, as Feinberg stated, service providers “are potentially at an inflection point” where they “can advance their position in the supply chain.”

Disruptors Will Also Pursue New B2B Revenue

While we observe the beginning of the Industry 4.0 revolution and anticipate the advent of both 5G and fully automated virtualized networks, the communications industry’s ability to influence and enable radical advancements in productivity and cloud-based automation seems obvious. At the same time, the threat from digital disruption is not over. Though digital’s first wave has largely grown based on consumer applications, digital companies will follow the money and are likely to invent powerful ways to compete with service providers for digital enterprise revenue in ways that will be difficult to anticipate.

The question that perhaps no one can answer is, “how much time does the communications industry have to transform itself?” It may be a two- or three-year process, but is that too slow? Urgency is certainly evident throughout the halls at TM Forum Live! 2017, as executives from Telefónica, Deutsche Telekom, Verizon Wireless and AT&T have demonstrated their progress publicly. But if the investment community is not yet sold on the industry’s ability to transform, then there is clearly still work to do.  That work must be done very rapidly to prevent digital disruptors from once again capturing the majority of new revenue opportunities.

Service Providers Seek Control Amidst Unpredictability

An inherent conundrum in this era of rapid change is that new models and their success will necessarily be based upon new as well as current, evolving technology. Virtualization is new. Cloud-native, enterprise-grade applications are new. Digital B2B2X business models are new. Many open-source technologies are also new to the communications industry and enterprise verticals.

So, in this race to transform, what are the predictable and quantifiable variables service providers can control? The answer is they can choose transformation partners and technology suppliers wisely. In the search for new technology that passes the “cool” test—which suddenly seems to matter—they shouldn't overlook the value of partners who cannot only provide that tech, but deliver it successfully. In other words, it's up to service providers to work with strategic partners that have deep a understanding of the technology environments that service providers must transform. Indeed, choosing a strong partner may be the only aspect of transformation which service providers can truly control.


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