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Metamorphosis

It’s the end of telecommunications as we know it.

It’s not that wired and wireless connectivity are passé—in fact, this infrastructure is only becoming increasingly vital in our hyper-connected global economy. Rather, the telecom sector is in the midst of a massive metamorphosis as these brands attempt to layer on additional value on top of their networks and reposition themselves as peers of the technology greats—Google, Apple, Facebook, and Amazon. This evolution should be welcomed, as it will ultimately create massive amounts of value, not only for these businesses, but also for consumers as all parts of their life become conveniently connected and integrated.

Yet in this highly competitive and converging technology sector, telecom organizations will need to make the shift from product to experience. When telecom companies become experience companies, completing the transition started in the era of deregulation, they will capture more of their customers’ spend and truly compete on the same field as the internet giants that have already won the hearts and minds of consumers.

To give you insight into how radically the industry is changing—and how brands must adapt to seize emerging opportunities—you can find, outlined below, what we might term the four “cardinal movements” of the profound transformation already underway.

Telecom’s core business—connectivity—is saturated and an expectation

It has been less than a decade since the first iPhone began transforming society and the way consumers interact with the world around them, but what was once magical is now nothing short of an expectation. While consumers may no longer see the value of always-on network connectivity (it has become a basic human right in their minds), there is still an incredible amount of financial value left to extract. Technology brands are flocking to these opportunities as they chip away at traditional telecom’s legacy stronghold.

In 2012, Google introduced its cutting-edge Google Fiber technology. This move allowed the internet giant to stretch across the value chain by offering both infrastructure and over-the-top services. More recently, the company has begun experimenting with ultrafast Wi-Fi, which could eventually erode the value of telecoms’ cellular networks, if rolled out on a grand scale. Furthermore, at the beginning of 2015, Google announced its own wireless service. While it will leverage existing telecoms’ infrastructure for the time being, it is plausible Google is beta testing this proprietary service with the hopes of developing its own network.

And such technology brands’ efforts are expanding beyond North American borders. Both Google and Facebook are now in the (altruistic) business of connecting rural communities in developing economies, through the Project Loon and Internet.org programs, respectively. Bringing these communities online will not only elevate their access to information and standard of living, but will also add incremental revenue to these brands’ respective balance sheets. As these cash-rich brands continue to connect users directly, traditional telecoms will need to diversify their businesses in order to remain competitive.

Telecoms are drafting bold expansion agendas

What to do when your smartphone customer base is saturated and your core business— connectivity—is a table stake? Naturally, you expand into the next growth sector: the burgeoning Internet of Things (IoT). As technology brands continue to encroach on telecoms’ territory, telecoms are pushing right back and introducing consumer-facing services on top of their sophisticated networks. Diversification beyond mere connectivity is not a new concept for these telecom companies. Many brands, from Verizon in the United States to Movistar in Latin America, have offered television services alongside their wired and wireless connectivity for years. However, the next wave of growth will become apparent in other areas of our lives—namely in our cars and in our homes. The two largest telecom brands in the U.S.—Verizon and AT&T—have begun building IoT businesses and partnerships to deliver innovative solutions in both of these spheres. In this way, these “dumb pipes” are demonstrating the value of their networks and proving their technical prowess alongside some of the world’s leading technology brands.  

Telecoms turn to experiences for differentiation

As telecoms rush to create additional consumer-facing services and technology brands stretch to offer their own connectivity, brands are desperate to differentiate in the minds of consumers. Price remains an important purchase driver, so additional price wars as telecoms continue to trade customers are likely. However, as telecoms expand their portfolio of services, the real economic opportunity will lie in creating loyal customers who commit a significant portion of their spend to one brand’s ecosystem. Valuable products and services alone will not ensure success, rather brands will need to create seamlessly integrated, delightful and convenient customer experiences. The brands that succeed in doing this will both attract and retain customers—ensuring the loyal customer base necessary to effectively scale in the IoT.

An ocean of opportunity in the IoT era—and it’s only just begun

While many telecom brands are already shifting business priorities to align with the bigger opportunities presented by the IoT, this massive metamorphosis is still in its earliest days. But two major, interconnected questions remain. The first concerns how far consolidation will extend, and the second concerns how telecom organizations will use the power of their brand to communicate the value of their network to the end user. As both the telecom and technology sectors rush to cross the same IoT finish line, we must wonder if the market will eventually redistribute into each industry’s realm of expertise (network providers to traditional telecoms and software to the technology greats)? In a scenario where we never fully recognize this market convergence, telecom companies will look to find ways to own a portion of the relationship with the end user. Here, the brand will need to flex even harder to communicate the value of the network infrastructure that makes all the technology greats’ services possible.

If you would like to discuss this article with Lucas, please send an email to hello@interbrand.com.

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