European Telcos: Which Future Operating Model?

R. Pritchard

Summary Bullets:

• Europe’s rumor mill is running at high capacity, but it’s becoming ever clearer that – despite the EU – in telecoms, the region remains a series of national markets.

• Activist investors, workforce reductions, fast-changing technology, hyper-competition, multiple layers of regulation, socio-economic changes, and the digitization of everything have got C-suite heads spinning.

Unsubstantiated reports in the press of BT seeking to replace its CEO, Philip Jansen, are typical of a market that is not entirely sure where it is going. Activist investors, cross-shareholdings, and in-country consolidation are confusing enough for the telco C-suite. Add to that, the complications of national and EU regulation, growing ESG requirements, employee ‘rightsizing,’ broad socio-economic and workplace changes, rapidly evolving technologies, the key role of digitization across all aspects of home and work life, plus the need to invest in both infrastructure and systems – it is no wonder that heads are spinning.

There are two possible solutions: highly sophisticated and agile management – or – simplification of the supply and value chain. In Europe, all former incumbents think they can pull off the challenging integrated approach, but most are tacitly accepting the need for value-chain restructuring.

This is evidenced by BT. It is investing in new wave services such as its recent announcement with Amazon Web Services (AWS), which aims to collaborate on IoT industry solutions, cloud networking propositions, and new 5G edge computing services for business customers. What will probably be less highlighted in press and analyst coverage is perhaps a key indicator for the future of the market: BT will become a Channel Partner for AWS Marketplace, which offers businesses procurement, provisioning, and governance of third-party software. (Of course, AWS will also become a channel for BT’s connectivity and value-added services, which will be positioned alongside those of 100,000 other AWS partners.)

With telecoms infrastructure operations likely to continue to become separated from former incumbents (e.g., towers, fixed networks), the likelihood of the ‘NetCo’ and ‘ServiceCo’ model increases – it potentially provides better delivery through strategic focus and opens up new markets. Openreach and other NetCos are already providing their connectivity products to a range of service providers – and will increasingly do so. The success of third-party channels to market such as master agents, value-added resellers, and integrators underlines that a strategic focus on customer outcomes works. ServiceCos’ core competence will be in procuring and assembling technology solutions from NetCos and other sources like cloud, security, and SaaS providers – they will have to do it well, or they will not survive. Ultimately, this may be how consolidation happens across Europe – at a service-layer level. Network infrastructure is also set to consolidate on a trans-border basis over time for economies of scale.

Although it should be customers driving the strategic evolution of the market, it is ironic that service providers might be driven to change by activist investors demanding better returns. Either way, it is unlikely that the current structure of the market will remain the same in the coming few years.

What do you think?

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