Since the Covid-19 outbreak, telecommunications services have become even more essential to daily life worldwide. Communication networks enabled widespread remote work, helped people stay connected during lockdowns and social distancing, and allowed healthcare and retail services to move online. Telcos also supported government efforts to monitor and mitigate the virus. In many respects, telecom networks helped keep societies and economies functioning during the crisis.
Yet despite their vital role, telcos have not delivered commensurate returns to shareholders.
Bain & Company’s analysis of nearly 8,000 companies worldwide found that during the pandemic telcos created less shareholder value than almost every other industry except financial services. From February to mid-December 2020, the sector’s total shareholder return (TSR)—a measure of returns from share price changes and dividends—lagged the cross-sector average by 16 percentage points. Although the top-performing quartile of telcos did outpace the average, the industry overall fell further behind as the pandemic persisted: from April to mid-December, telecommunications was the weakest sector by TSR.
This performance only amplified a long-standing frustration for industry stakeholders. Despite heavy investments in networks and services to enable a digital economy, the financial rewards often flow to others. There is a striking contrast between the pride many telco leaders and employees felt about their pandemic response and the disappointing shareholder outcomes that followed.
The road ahead will be challenging. Telcos must continue responding to Covid-19 while also adapting to a rapid industry transformation that began before the pandemic. Leaders who secure their future will need to make strategic choices—and in some cases undertake bold transformations—to improve value creation and position their businesses for the years ahead.
We identify six primary telco business models likely to shape the communications market structure over the next decade.
#1: Integrated. Competition will intensify among traditional integrated telcos that provide a broad set of services. Premium bundles tend to capture a large share of market value, encouraging operators to integrate fixed and mobile offerings and to pursue consolidation. Many integrated telcos will expand bundles to include third-party services while opening their networks to enterprises that need connectivity for their own businesses.
#2: Value-focused. As simple connectivity becomes commoditized, many customers will choose lower-cost, “good-enough” services. Value-focused telcos will respond by trimming the most expensive parts of the traditional model and concentrating on targeted coverage, streamlined product lines, and customer service driven by automation and self-service.
#3: Pure infrastructure. The trend toward separating network assets into standalone companies is accelerating. Pure-play infrastructure firms can more easily resell capacity and increase network utilization, creating value that benefits multiple participants. Despite high-profile mergers and strong valuations in this segment, current activity likely marks only the early phase for independent infrastructure players.
#4: Asset-light. As network infrastructure becomes more accessible, telcos will be able to rent capital-intensive assets on demand. Asset-light providers can profit by offering services whose margins exceed the cost of network rentals. This model will expand beyond basic connectivity into managed network services, enterprise and consumer security, healthcare communications, and other areas that can leverage rented infrastructure.
#5: Smart platform. Digital economies drive rising demand for network-centric capabilities. Telcos can play a meaningful role by shaping their capabilities to be discoverable, consumable, and scalable for technology and digital service companies. However, telcos will likely need to partner with established and emerging digital leaders rather than attempt to build and orchestrate these platforms alone; the right alliances will be crucial to capturing a share of future value creation.
#6: Digital niche. As smart platforms proliferate and digital businesses become easier to launch, the barriers to entry will fall. Lower upfront capital requirements, reduced need for specialized staff, and the ability to rent resources on demand will enable telcos to experiment with adjacent digital businesses. Opportunities in edge and cloud computing, the Internet of Things, and digital media are examples of fast-evolving areas where telcos can design and scale new ventures.
Some of these models are already gaining traction; others may take a few years to mature. The drivers behind them are active now, giving telcos an opening to access new sources of value and to strengthen their position for the future.
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