Industry Insights - Iskratel
18. 4. 2019

3 Trends that will transform the telco industry

If there is an expression that can accurately capture the future of the telco industry, then this is certainly uncertainty. Operators hoped to base their transformation on new technologies; however, the pace of development seems to be too slow. Moreover, changing consumer habits at an unparalleled pace, an increasing decline in revenue from traditional communication, competition due to innovative business models from over-the-top digital natives are threatening their sustainable growth. The operators are in a desperate need for change. 

The telco industry is not like other industries. Due to high initial investment in the infrastructure, business approaches need to be future-safe. When technological changes in the industry were measured in decades, everything ran smoothly. But what about today, in times when new technology develops every day?

The advent of 4G, wearables, smartphones, and mobile apps have increased the demand for broadband connectivity and changed the way people consume telecom services. McKinsey showed that there are already two-and-a-half billion “always on” digital customers under 25, who are showing a different usage behaviour compared to the traditional “analogue” consumers. On average, these young digital users spend 315 minutes online each day versus 126 minutes for traditional “analogue” consumers.
Disruptive innovations and behavioural changes are raising challenges for telecom giants as they still haven’t succeeded in their efforts to monetise the flood of data running through their networks, while their revenues are declining across the globe. 

Graph: Average revenue per user (ARPU) of mobile in Europe from 2011 to 2018 (in euros per month)

Which trends will define the telco industry in the coming years?

1. Revenues from traditional communication will continue to decline

The way people communicate is changing: voice and SMS are no longer “in” as IP messaging entered the game. Approximately 2.5 billion people worldwide now use at least one messaging app, which is steering valuable traffic away from telco’s text services. Similarly, voice traffic has decreased from 50% in 2009 to 41% in 2014, leading to a decrease in voice revenue of 2.7% by 2014. Traffic fell a further 8.4 % in 2017 and is forecasted to accelerate by 15% over the next 5 years. 

That is why operators will need to find additional ways and identified a series of new opportunities to stabilize/increase their revenue streams in the future. 

2. Growth in IoT

Gartner predicts that there will be nearly 20 billion devices connected to the IoT by 2020, and IoT product and service suppliers will generate revenue exceeding €250 billion.

Even though IoT devices represent big challenges for telco industry primarily due to the high level of connectivity they will need and a new level of traffic and data they will generate, they also bring more opportunities for growth. Becoming an IoT connectivity service provider and offering specialised devices can open up new streams of revenue for the operators.

3. Development of 5G

The pioneering players in the telecommunications industry are expected to enable 5G until 2021.

The biggest advantages of 5G will not only improve the data rates, but also capacity and latency. Ultimately, 5G will ensure less delay and virtually unlimited connectivity, thus providing exceptional user experience.

5G also seeks to bring greater reliability, scalability, security and universal mobility to the telecommunications industry, thereby increasing the number of services directly linked to the Internet of Things.

However, the telco industry is not the only sector that expects to benefit from 5G. There are numerous technology giants that are trying to force the development of 5G. That is why it is in the hands of the operators to keep the momentum by offering technology and services that the market demands.