The industry is a key enabler of digital transformation across industries, but the value of digitalization has so far eluded telecom operators.
Enabling the Fourth Industrial Revolution
The ever-wider availability of technologies such as mobile, artificial intelligence, cloud, analytics and platforms is dramatically altering the way we live, work and interact – in what has been termed the Fourth Industrial Revolution.¹ The telecommunications (telecom) industry is playing a critical role in enabling the digital revolution unfolding around us.
The telecom ecosystem has provided the fundamental building blocks – access, interconnectivity and applications – that are enabling this digital revolution to take place. A large share of potential value² stemming from digitalization across global industries over the next decade is dependent on the telecom industry delivering essential infrastructure, applications and productivity improvements in many areas.
- Retail Broadband penetration will be essential to the growth of e-commerce, which could directly result in almost $100 billion in value migration from offline to online retailers over the coming decade.
- Automotive Customized networks that make telematics and usage-based insurance a reality could save more than 120,000 lives by reducing traffic accidents.
- Electricity Telecom infrastructure will enable connected devices on the grid and in consumer homes to drive a potential $170 billion in cumulative cost savings for consumers over the coming decade.
More than $10 trillion of value from digitalization in five key industries over the next decade depends on the telecom industry
Note: The values above reflect only the share of total industry and societal value directly enabled by telecom infrastructure and applications. Rounded values may not add up. Source: World Economic Forum / Accenture analysis
Missing out on a digital windfall?
The industry faces a rapidly changing economic and competitive landscape driven by internal and external digital disruptions. So far, the role that telecom operators have played in accelerating digital business and service models has not translated into new value for the operators themselves. Operators’ share of the industry profit pool has declined from 58% in 2010 to 47% in 2015, and is forecast to drop to 45% in 2018. Pressure on traditional revenues means that it is increasingly important for operators to look at new digital business models to make sure that they share in the value from digital transformation.
Digitalization in telecommunications: a $2-trillion opportunity
The telecom industry plays a critical role in supporting digitalization in external industries, but it can also unlock significant value through its own digital transformation.
The next decade of digitalization will look markedly different from the past and companies across the industry will need to be well-prepared to take advantage of the sweeping transformation happening in consumer lives, enterprises and the broader economy. Our research has identified four broad digital themes, each including tangible digital initiatives that firms can implement, which we expect will have the biggest impact on telecom companies.
 | Networks of the future Virtualization and an abstraction of the physical hardware layer promise to fundamentally change the basis of future service differentiation by creating self-optimizing and secure zero-touch networks. |
 | Beyond the pipe The increased digital transformation of consumers’ lives and businesses presents the telecom industry with important opportunities to extend revenue streams beyond connectivity, through integrated Internet of Things (IoT) solutions, consumer and enterprise digital services, and reimagined models of digital communication leveraging advances in natural human interfaces and augmented reality / virtual reality. |
 | Redefining customer engagement To win the race for customer loyalty and mindshare, telecom industry players will need to increasingly deploy features and tools that deliver delightful digital experiences. This is especially important as customers now expect the high-quality digital experiences they receive in one industry to be matched by companies in other sectors. |
 | Bridging the gap on innovation The need for rapid innovation, greater convergence and new services means that telcos must fill capability gaps using new innovation models and revamped talent strategies for a digital workforce. |
Our value-at-stake analysis aims to assess the potential for digitalization in the telecom sector to unlock benefits for the industry, its customers and society more generally over the next decade (2016-2025).
The magnitude of impact of the four themes highlighted above will be immense, with more than $2 trillion in value at stake for industry, consumers and wider society over the coming decade (excluding the $10-trillion impact on external industries mentioned above). Of this, the value to the telecom industry could exceed $1.2 trillion in cumulative operating profit from 2016 to 2025, with initiatives under Networks of the Future and Beyond the Pipe representing the largest-value opportunities. These themes also stand to create more than $800 billion in value for society and consumers, the majority of which will come from efforts to connect the billions of people still unconnected to the internet.
Telecommunications: value at stake for industry, consumers and society, (2016-2025, by digital theme)
Source: World Economic Forum / Accenture analysis
Case study: Unlocking societal value by extending connectivity
Technologies such as drones, satellites and balloons are extending affordable internet access in regions with low population densities. For telecom operators, these new innovations have the potential to overcome significant cost barriers in reaching remote areas across developed and developing markets. The potential value to society of this initiative is around $490 billion over the next decade, but concerted public-private action will be needed to capture this value fairly and at scale. Considerations include affordability, regulations that ensure fair competition, digital skills, cultural acceptance and accountable institutions.
Inhibitors to change
Some significant barriers stand in the way of this value capture: firms are encumbered by legacy assets; there is limited collaboration between the public and private sectors; the “innovator’s dilemma” encourages inertia; and the culture at incumbent firms is impacting their ability to attract and retain the best digital talent.
There are other challenges hindering societal value creation. For instance, slow or uneven adoption of digital communications or the internet in under-penetrated regions can exacerbate the digital divide by concentrating most of the benefits in the population segments that are better prepared to benefit from the technology – the wealthy, the educated and the skilled. Unlocking wider value for the lowest economic segments will need focused action to address the analogue challenges – affordability, fair competition, locally relevant content and accountable institution.
Imperatives for industry and policy-makers
Network transformation will be necessary to enable new business models beyond the pipe and address changing customer expectations
Enabling new cross-industry business models in areas such as IoT will require flexible and agile networks that allow ubiquitous coverage of people and things, software-defined network functions and analytics, personal data protection and cyber-resilience, ultra-reliable low-latency communication, and enhanced mobile broadband.
New business models leveraging emerging technologies will require strong collaboration with vertical industries and internet platforms
Competitive advantage in digital services and IoT will be driven by the capability to collect and analyse large pools of data specific to vertical-market use cases and to target value opportunities through customization of services and offerings.
Operating in the digital age requires corporate cultural change along with new organizational structures
Creating a culture of innovation will be dependent on breaking through established organizational hierarchies and orthodoxies. This will be driven mainly by a change in governance, incentives, metrics and talent strategy.
Digitalization of the industry will require a transformation of existing policy and regulatory models
Transformational change in networks and business models will have to be accompanied by greater flexibility in regulation, especially on spectrum management, consistency across jurisdictions and fiscal policy.
Related reading
Footnotes:
1 Estimates of the value of digitalization are derived from the Digital Transformation Initiative value-at-stake analysis.
2 Schwab, Klaus, The Fourth Industrial Revolution, World Economic Forum, 2016