March 14, 2019

Technology Approaches for CSPs are Going Beyond Connectivity to Access New Value Chain Revenues

Becoming a digital service provider and claiming more of the digital value chain means service providers must offer more than just the data pipe.

For many, the “digital transformation” of the communications service provider (CSP) is centered on the quest to diversify into providing essential services across other industry verticals. This, therefore, fundamentally alters the role of the CSP in business and in society. Rather than just a provider of connectivity, the digital service provider (DSP) will enable a heavily IT-centric platform on which all other entities can digitalize themselves or go about their businesses in a frictionless, holistic environment. Seen in this light, the DSP is something very different from today’s CSPs; the evolution required to get to that next stage is significant and the value chains created are much more complex.

Closer relationships with the other players in the chain could place CSPs at the heart of the digital ecosystem.

The key technology investment strategies we see going on today in progressive CSPs—5G RAN, network virtualization, artificial intelligence and machine learning, blockchain, omnichannel customer experience—are laying the bedrock for a digital operations platform upon which other industries can empower their own digital transformation strategies. So, we see CSPs moving from being focused on either consumer smartphone sales, multiplay home solutions or B2B connectivity packages to a much broader spectrum of commercial possibilities. This broadening requires a change in how operators approach revenue transactions, which can be made in much more complex value chains in digital service scenarios.

Complex Digital Value Chains are Partner Ecosystem Opportunities

A good example of a complex digital value chain can be seen with the Internet of Things (IoT). It appears that commercial arrangements for providing services in the IoT space are going to be highly complex due to the nature of the services and the intense competition from other entities in the value chain. Because it is unlikely that CSPs will try to compete in the device or modules (radio chipsets) parts at one end of the chain, and may or may not be able to compete in the applications and application enablement platforms at the other end of the chain, the connectivity portion looks to be the CSP’s sweet spot. Research shows that connectivity represents around 15 percent of the total service revenue for an IoT deployment today. Connectivity is, however, a mission-critical portion for any IoT solution. As such, CSPs are building out more comprehensive solution packages to streamline the enablement of IoT concepts, often with a complex partner ecosystem.

Becoming the arbiter in new B2B2X value chains is the sensible first step for CSPs. Cellular connectivity is clearly an important piece of the IoT ecosystem for CSPs to provide, but this must be as part of a more holistic approach that offers all other service facets of the IoT paradigm. CSPs must have a frictionless package to support IoT enterprises from concept to cash. They must also be able to produce their own consumer products and services.

As CSPs transition from providing individual solutions to being a holistic digital platform for digital services, closer relationships with the other players in the chain could place CSPs at the heart of the ecosystem and maximize their financial participation in the whole value chain.

Future Operations Models Can Make Telcos More Important in the Digital Value Chain

A digital network and operations platform (DNOP), a future vision of telco operations, will be able to orchestrate ecosystem collaboration at a very granular level. This will introduce a model in which the CSP (or DSP) has orchestrated master control over the whole, end-to-end digital service. This is true of many instances of IoT, like the connected car and autonomous vehicle market, many smart city scenarios etc. So rather than just being a connectivity provider, the CSPs become a cloud entity on which any digital service can be enabled, quickly brought to market and controlled and monitored with extreme precision. This role demands a larger share of the revenue in those value chains than simply providing bandwidth in the “dumb pipe” model that has plagued the industry for decades.

Several examples of this new ecosystem play with a strong CSP position are now appearing in the automotive industry, industrial production, logistics and smart city spaces. The common theme is that the CSP has something more advanced to offer than just a data pipe and is collaborating enthusiastically with partners from other verticals, from the ground up.

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