The telecommunications industry has a complicated relationship with digital transformation. At one level, the industry is an important building block of the Fourth Industrial Revolution, propelling a transformation in how businesses, governments and individuals interact, collaborate and compete. But this digital revolution also represents an aggressive challenge to the primacy of business models and infrastructure that the telecommunications sector has spent decades building.

The World Economic Forum’s Digital Transformation Initiative is examining the causes and consequences of this systemic disconnect. How can the telecommunications industry be competitive in a digital world, at the intersection of Moore’s law, wireless technology, machine learning and cloud computing?

Telecommunications: enabling digital transformation

Investment by the telecommunications industry in technology and interoperability has underpinned an immense shift in information and capital flows through the global economy. Total mobile data traffic has grown 4,000 times over the past 10 years and 400 million times over the past 15 years. This has contributed to an unprecedented level of economic activity: global flows of goods, services and finance, which grew 1.5 times to $26 trillion in the two decades between 1990 and 2012, could triple from to more than $80 trillion in 2025.

As the impact of the Fourth Industrial Revolution is felt more widely, the importance of telecommunications as an enabler of digitalization will only increase. As companies require greater access to cloud and mobile services, annual data flows are forecast to reach 44 trillion gigabytes by 2020, 10 times higher than in 2013. Reliable and secure connectivity will be critical for the operation of new technologies such as drones and autonomous vehicles.

Telecommunications operators: missing out on a digitalization windfall

The industry may play a crucial role in enabling digitalization, but this has not translated into new value for telecommunications operators. Operators now account for a smaller portion of the overall industry profit pool than five years ago, and this share is forecasted to go down further in the future.

Telecommunications operators account for a shrinking share of the overall industry profit pool despite their central role in enabling digitalization

Image: World Economic Forum / Accenture analysis

Operators are seeing pressure on both revenues and costs. Competitive pricing has contributed to a reduction of 13-36% globally in mobile voice average revenue per user (ARPU). Meanwhile, costs have increased rapidly to meet demand, with network investments potentially exceeding $2 trillion over the next decade.

Capturing the value of digital transformation

Operators face a growing threat that their core offering will be commoditized, but digital transformation also provides a tremendous opportunity for the telecommunications industry to unlock value, not least because of the importance of connectivity to digital business models in other industries.

To unlock this value and avoid being restricted to a utility model, operators will need to overcome several barriers. Clunky legacy assets and systems, antiquated governance and shareholding structures, tactical rather than strategic investment plans, outdated regulatory compliance requirements, and a lack of digital talent and leadership will all need to be tackled. For many telecommunications companies, incremental change is no longer enough. Instead transformational change, supported by rapid innovation and a relentless focus on customer experience, will be required.

There are four areas where we expect digital innovation to have the most impact in telecommunications over the next decade:

  • Networks of the future: Digital tools and capabilities are creating more reliable, secure and autonomous networks with increased flexibility to meet diverse and dynamic customer requirements.
  • Beyond the pipe: Ecosystem members will reposition existing business models and launch new digital services, to move beyond connectivity to a new world of cross-industry competition and collaboration.
  • Redefining customer engagement: Telecommunications operators will redefine their approach to customer engagement, as customer expectations, shaped by outstanding service in other sectors, cross traditional industry boundaries.
  • Bridging the gap in innovation: The need for rapid innovation, greater convergence and new services will require telecommunications companies to fill key capability gaps with new innovation models and revamped talent strategies for a ‘digital workforce’.

Innovation in these areas will put telecommunications in a stronger position to profit from the next wave of digitalization, while also securing the benefits of digital transformation for other industries and society.

The Digital Transformation Initiative will be publishing its report into digitalization in telecommunications later this year. The latest news and research from the initiative can be found here.