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Somewhat counter-intuitively, embracing disruption is likely to be the best strategy for established telcos

By April 18, 2018 No Comments

The web is littered with stories of companies that have been disrupted, some even before they turned a profit themselves. It almost always seems obvious in hindsight but definitions of “disruption” actually vary quite widely. Most disruption however, either comes sideways (market redefinition – think of Netflix competing with cable companies) or from a lower cost model (providing for an under-served, budget-constrained mass market – think of Uber adding new users to a market as well as convenience to an existing market).

Whatever the industry, incumbents are often so busy serving their established base of customers that they are caught out by nimble challengers. If you assume that profitable but unwieldy incumbents are prone to attack by digital disruptors (think of Kodak) – then it seems inevitable, in the context of 5G in the telco space. After all, 5G standards effectively guarantee efficiency for “disruptive”, smaller, micro-operators in the form of network slices they can rapidly enable for narrow, micro-segments.

This “attack” will come more often from highly focussed MVNO-style specialists, perhaps catering for sub-cultures or yet to be defined, segments. (Think perhaps of a service specialist catering for all cyclists in a city).

These upstarts now have affordable access to slicing, automation and cloud infrastructure as well as flexible, web-scale charging capabilities – that the wider industry is now embracing. New commercial models are already enabling a plethora of IoT-focussed businesses to de-risk. 5G makes their viability even more likely.

Encouragingly, most established telcos are on their “path to digital” already, in terms of both network evolution and customer focus. If they can allow themselves further latitude to embrace more disruptive methods for themselves, if necessary in partnership, they may still be able to grasp opportunities now available to “upstarts” that are now more fully enabled by 5G.

Incumbent companies needn’t respond to disruption defensively. Some risk overreacting by dismantling a still-profitable business with prolonged “transformation” strategies. Instead, they can continue to strengthen relationships with core customers by investing more opportunistically in innovations around that core business. They can also partner with and enable “disrupters” in the interest of increasing revenue from an increased market pie. Going further, they have the option to create a new division focused solely on the growth opportunities that arise from the inevitable disruption set to be encouraged by the industry in the coming years. Success of such a new enterprise may even depend on keeping it separate from the core business. That means that for some time, incumbents will find themselves managing two very different operations.

Disruption is a journey, not a destination. But it’s not exclusively available to upstarts.

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