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Four futures for telcos after COVID-19

Recover and thrive in the ‘new normal’

Throughout the COVID-19 crisis, technology and telecommunications has made it possible for Australians to work from home, maintain study and stay connected. But the future is more uncertain.

Telcos around the world have weathered the initial response to the COVID-19 crisis with both commonalities and differences in their approach. As we look ahead to recovery, there is no crystal ball to show what the future holds. Deloitte has developed four scenarios describing how the COVID-19 pandemic could shape the global telco environment over the next 18-24 months – and what Australian operators can do to act.

As cities locked down early in the pandemic and retail closed, telcos saw one of their key channels for sales and services disrupted. Call volumes to contact centres soared and operators moved quickly to build virtual contact centres. In Australia, telcos announced the closure of some offshore contact centres and the return of local jobs, supported by solutions like Webex[1] or Zendesk[2]. Some are now considering whether this shift could be permanent. Vodafone has even increased its investment in AI contact centre solutions[3] despite retail stores reopening.

Telecommunication services proved to be essential through lockdown in keeping countries running. Operators have recognised this and offered additional services – such as bigger data allowances and special solutions for schools, healthcare, small businesses and emergency services – and payment relief[4], increasing brand value and customer loyalty.

Networks have also coped with the increased traffic. Some operators have reported 20% to 60% increases in network traffic, correlating with the severity of government ordered lockdowns[5]. In Australia, Telstra announced it would bring forward a $500m investment in network capacity[6], while Vodafone switched on its first section of 5G[7] and announced network integration to be a key priority following its merger with TPG Telecom[8]. Overseas operators have launched or expanded 5G networks in recent weeks, with the number of global 5G operators growing 14% in Q2 2020[9].

While no one can predict how the next 18-24 months will play out, we know the virus, the resulting lock downs and economic impact has changed the foundation on which telco business models are built – for good. Consumer behaviour has experienced a rapid, forceful shift and is unlikely to return to normal.  

While it’s clear we’re experiencing a global recession, there is little clarity from economists on its depth and duration. The state of the overall economy will have a significant impact on private and public investment into new networks, subsidies and services, and the ability of consumers to pay for these products.
Our global telecom experts evaluated the critical uncertainties that will have the biggest impact across the economy, technology, political and society in the next 12-18 months. The two key uncertainties are:

  • The future development of price levels and operators’ ability to monetise infrastructure, products and services. Will we see declining price levels driven by regulation and/or market demand or a trend towards premium pricing based on an operator’s ability to differentiate?
  • The engagement preferences of customers, driven by the investment of operators in digitising customer interfaces and the willingness of consumers to adopt digital interaction. Will customers prefer to engage in-person or opt for digital?

From the plausible yet extreme endpoints of these uncertainties, we devised four possible visions of the future.

Each of these scenarios will influence the strategies of telcos and the actions they need to take to become and remain successful.

Fountain of youth: This is the most optimistic and ideal scenario, where governments have been able to slow the spread of COVID-19 and manage its impact on the economy. A lasting shift towards digital drives the importance of telco services. Backed by their strong brands, telco players are able to yield higher prices and invest heavily in both network expansion and digital customer services. This will happen either organically or through opportunistic M&A. From a strengthened position of trust, they establish themselves as key partners of digital transformation.

Efficient bit pipe: A bleaker picture where repeated outbreaks of COVID-19 have significantly hit the global economy. There is an increased demand for telco services, but low customer purchasing power. Strict regulations force telcos to reduce prices and focus on core products. This low-margin environment is driven by cost-efficient, digital processes and sharing agreements and partnerships. Consequently, telecom operators prioritise investments in digital transformation over network expansion to differentiate and ensure long-term success.

Some gain, much pain: Telco operators find themselves in a moderate, albeit non-ideal environment in this scenario. Economies, after some drawbacks, slowly come out of recession. With consumers and business having understood the importance of reliable communication services, telcos benefit from a higher perceived value, allowing for slight price increases. Building on this development, telcos deliberately prioritise network build-out and upgrades over digitisation, limiting their potential to tap into new revenue services beyond connectivity.

Renationalisation: The most difficult scenario, where there is a deep recession and reliance on governmental support, significantly impeding the ability of telcos to spend. Together with higher workforce protection regulations, the resulting lower profitability limits telco investments in networks and digitisation to a bare minimum. To ensure ubiquitous access to adequate, countrywide communications infrastructure, governments force collaboration among telcos and won’t shy away from renationalising network assets if necessary.

As Peter Drucker wrote in his book, Managing in Turbulent Times, “The greatest danger in times of turbulence is not the turbulence itself, but to act with yesterday’s logic”. While predicting the future is clearly impossible, scenario design isolates the risks and opportunities of certain strategic issues. As opposed to conventional strategic analysis, which fails to address highly uncertain environments, scenario design can help move businesses beyond the usual planning horizon. It develops robust approaches that work in different potential futures.

We advise telcos to critically look at current strategic plans and ask yourself a number of questions:

  • Have you applied scenario thinking to your strategic planning?
  • How robust and adaptable is your current strategy and strategic plan?
  • Do you have clear indicators (leading rather than lagging) to show where the telco landscape is going?
  • Do you have a clear and recent view on how your current strategic initiatives will hold up in different future plausible scenarios?

Get in touch

With our global telecom experts, we have developed a (virtual) strategic response workshop that can help you think through your critical uncertainties, define and refine plausible scenarios, and create a plan or pressure test your existing strategies.