Is it time for telecom companies to ditch their reputation as just “dumb pipes”?
That’s what a new global report from Citigroup Inc. argues, suggesting telephone and cable companies need to evolve beyond their wires and a business model premised on winning customers based on superior network quality.
The report, authored by 10 Citigroup analysts from around the world, argues that telecom operators should embrace a “digital transformation” that emphasizes selling service-based digital platforms and experiences to both retail and business customers.
Connectivity will still be crucial, but the Citigroup analysts propose a wide range of possible new avenues for telecoms, including mobile banking platforms, cloud-based television platforms, smart home and e-health services, advertising that leverages big data, and the connected devices that make up the so-called “Internet of things.”
The report says a recent Citigroup survey of investors found support for the idea that traditional telecom operators should “face the OTTs [over-the-top services delivered directly to customers over the Internet] head on.”
“They should move away from selling capacity (gigabytes of data) towards selling services, which their customers regularly use, understand and value.”
Investors have long appreciated telecom stocks for their reliable dividends, particularly in a low-interest-rate environment. But the report argues that telecoms face “historically unprecedented challenges”: sluggish growth rates in the range of zero to 3 per cent, a coming wave of heavy investment required to upgrade networks to 5G wireless technology and regulatory pressures to boost competition.
Traditional telephone and cable companies around the world are also facing pressure from specialized operators on both the infrastructure side (companies that focus solely on cell tower ownership or building fibre-optic connections, for instance) and the customer-facing side (online video-streaming services such as Netflix).