New Oliver Wyman Report Analyzes Where And How Telecom Companies Can Diversify Their Portfolio
June 06, 2023
- Paradoxically, Telco industry had lost relevance in the economy during the digital revolution in the last decade, dropping from 2.6% to 1.8% of the global gross domestic product (GDP) between 2012 and 2021.
- Telcos’ return on capital employed (ROCE) decreased from 15.3% to 10.7% in just 7 years
- Telecom operators have struggled to diversify their portfolio and services beyond connectivity in pursuit of growth and differentiation.
- Operators have three areas to diversify their portfolios beyond their core services: natural expansion (media, gaming, music, cloud, and IoT services), data-driven services (advertising or data monetization), and non-telco industry related vertical (financial services, energy, and healthcare).
- Operators should recognize their gaps and weaknesses when entering new services and create a successful business model and ecosystem for each service by partnering, acquiring, building their own capabilities, or launching new ventures.
April 12, 2023 — Oliver Wyman, a global management consulting firm and a business of Marsh McLennan (MMC), examines how telecom operators can diversify their portfolio beyond connectivity and build sustainable ventures. The report, entitled "Growth Beyond Connectivity: Picking the Right Battles and Crafting a Sustainable Position in the Value Chain", distills the learnings from telcos' previous attempts to diversify their businesses and identifies the most valuable assets that can be leveraged beyond connectivity.
According to the report, telecom operators have lost relevance in the economy and faced challenging economics in the past decade, with sluggish growth and lower returns leading to mediocre stock performance with regards other sectors. Telcos’ return on capital employed (ROCE) have decreased from 15.3% to 10.7% in just 7 years and the industry have lost relevance in the economy in the last decade, dropping from 2.6% to 1.8% of the global gross domestic product (GDP) between 2012 and 2021, despite being instrumental in an ever more digital world.
Telecom's core traditional connectivity service (mobile, TV, and broadband) is increasingly seen as a commodity in the eyes of consumers, and this commoditization is further accelerated by the rising trend of infrastructure sharing and other players capturing most of the value unlocked through new technology waves. Therefore, the report suggests that operators must differentiate themselves via superior or differentiated customer service, brand, and the ecosystem of adjacent and non-telecom services they can add to their portfolio.
In this context, some operators have indeed made some efforts to diversify their portfolio beyond their core— yet to limited success to date— in pursuit of: competitive differentiation, pricing power, greater relevance in customers’ life, customer loyalty, and growth as additional business streams per se.
However, the inconsistent performance of operators when venturing outside their core business indicates that they must better identify the services where they have a “right to win” as well as how to play in those markets to capture sustainable value while building a defensible value proposition.
Felipe Hildebrand, partner at Oliver Wyman said: "Our report provides valuable insights into how telecom operators can diversify their businesses and build sustainable ventures. We believe that telecom carriers' most valuable assets that can be leveraged beyond connectivity include massive customer bases, deep customer data and insights, presence inside the home, brand equity, high consumer engagement, and invoices".
The report also suggests that operators must carefully navigate through the myriad of potential opportunities with a disciplined approach, only engaging in those where they can clearly bring meaningful and distinctive value to the ecosystem.
Felipe Hildebrand, partner at Oliver Wyman, said: "In addition to the typical assessment of the attractiveness of the different markets, operators should start by carefully selecting the markets where they can compete and win, with those being markets where operators add meaningful value to the ecosystem by leveraging their distinctive advantages, and consumers see legitimacy in telcos to assume those roles".
The report proposes three pathways for carriers: partnering with leading-edge companies capable of delivering truly exceptional service, acquiring or investing in applicable settings, and building its own solution by developing and scaling.
Felipe Hildebrand, partner at Oliver Wyman, said: "Breaking into new services entails new competitive battles, and very often against highly specialized and well-funded firms stacked with top talent. Therefore, operators should avoid the errors of the past, recognize their own gaps and weaknesses, and build a winning business model and ecosystem for each service anchored in excellence and customer delight".
The report concludes that operators must better identify the services where they have a 'right to win' and how to play in those markets to capture sustainable value while building a defensible value proposition.
About Oliver Wyman
Oliver Wyman is a global leader in management consulting. With offices in more than 70 cities across 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 6,000 professionals around the world who work with clients to optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a business of Marsh McLennan [NYSE: MMC].
For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.