People
The following content is a transcript from our interview series with Jat Brainch, former Chief Commercial and Digital Officer of Inmarsat, and Andrej Danis, Partner & Managing Director, North America Telecommunications Lead at AlixPartners. Learn more about AlixPartners' approach to the telecommunications industry here.
Leveraging technology and partnerships to drive innovation and growth
Andrej: We are currently witnessing the telecommunications sector try to embrace new technology as it looks for new ways to grow and prevent value loss and migration. At the same time, the market is getting more competitive with new players entering. How do you see the industry evolving over time?
Jat: I think one of the challenges of technology advancing so quickly is that the number of use cases is huge. People want to monetize and drive value out of these advances, but operators need to develop a real use case understanding of the tech assets they need to invest in now in order to gain future value. One of the biggest challenges for the incumbents is to not lose track of where these new and exciting opportunities are coming from, and how they're going to be funded. New players have none of that legacy infrastructure to replace and can come in with less investment, with a much flatter model that allows them to operate over the top and take market share.
Andrej: For industry players in position to make these investments now, where should they place their bets?
Jat: For incumbents, customer services are still heavily led by people, and they rely on manual network deployment and management tools and systems. All of that can now be automated and run through digital systems—that in itself will free up investment for more future opportunities.
In terms of those future opportunities, operators still really need to understand where they create value. In my view, there are two distinct cases where new technologies could help. One is around data. Incumbents have legacy customer bases and a great deal of knowledge and understanding about those customers—why they use communication services, where they use it, how long they use it, etc. The other factor is that connectivity is the backbone of all these future solutions; without connectivity, none of them work. Although traditional operators are feeling threatened by these new players coming into the market and operating on top of their infrastructure and systems, operators have a unique place where they're absolutely vital—connectivity. And they have an opportunity now to think about how they exploit that capability in a more dynamic fashion.
Andrej: I think you are alluding to the power of partnerships and viewing new players not as direct competitors, but more as partners that you want to work with.
Jat: I’m a great believer in partnerships because I think innovation is happening so quickly that anyone trying to be all things to all people will probably struggle in terms of the investment pace and finding the right skills. I think there are an awful lot of people and organizations who've got expertise in different parts of the overall value chain. And my belief is that working in partnership, you can meet people’s needs faster, more economically, and in a more secure and credible way than if you tried to do it all yourself.
Andrej: It's interesting because this is almost like a new frontier for the operators that have always tried to fight off any type of competition. We even discussed that only 11% of the operators really think strategically about partnerships on a CEO level.
Jat: If you think about the pricing trends we've seen, players worry about the huge amounts of asset infrastructure that they've had to invest in. If prices are going down, they look across the value chain to see how much more they can take on themselves to save costs. But the challenge is, the market isn’t going to wait for them to learn all these skills—the market wants these value chains coming together faster.
Within terrestrial networks, you tend to get operators that just focus on a particular geography or market segment. They provide excellent solutions within those segments, but they don't always think about the fact that many customers move out of the geographies that they operate in. If you get terrestrial players to start thinking about the ubiquity of service they provide, they may actually start building greater partnerships. That would actually drive down the cost to serve because you'd be building one set of network connections, one set of SIM cards, one set of systems that can cross-communicate and support customers rather than replicating these builds across multiple operators.
The beauty of extending this idea into other types of communication is that terrestrial players quite rightly focus on making sure they cover population density. Research shows 10% of the Earth's surface is covered by terrestrial, which leaves 90% uncovered. This is where partnering between terrestrial and non-terrestrial players helps, it takes away customer concerns about “my service only covers me if I'm here.” You get a more seamless, ubiquitous service, which, particularly for global organizations and governments, is going to be increasingly vital. You want someone that's going to create that solution for you, and make sure it operates seamlessly, securely, and in a way that's easy to manage. That’s where the operators can make a difference.
Andrej: That would completely change the ballgame—operators not trying to increase the average revenue per user (ARPU) by offering an extra package, but really growing their revenues in new ways beyond their current framework.
Jat: I think this is the key here. It's all about data, it's about information. People will look at traditional KPIs that give an indication of value as long as they continue to do so effectively—so you have to think about where future value is going to come from, and which use cases will drive that value to shift.
If there's a clear understanding that value is coming from other services, from other ways of using that connectivity operators provide, the attention will shift. Those that keep focusing on the past run a real risk of being left behind in the market, because the true indicators—the value that will drive more innovation, more investment, cheaper debt scale, and growth—will be the ones that others are innovating in today.
Developing an ecosystem to support green initiatives
Andrej: One area which fascinated me when we last spoke was how you think about merging telco growth with green considerations—how to fully align the two and really drive the environmental agenda.
Jat: I think over the last few years, any challenges and concerns about the importance of the green agenda have really subsided. Green investment funds have been incredibly popular—they’ve raised huge amounts—but they've rarely been deployed on a global basis thus far. And the reason for that is there has to be a proven business case for these investment funds, not just for the planet alone.
One of the key pieces helping to move the needle in the telco industry is when businesses must meet certain green targets, which are now universally adopted by governments and organizations that understand the importance of this for consumers and for businesses. There's a real economic case that says that we're not looking for you to spend more money, we're looking for you to generate greater returns in this area—some of which will fund the innovation that helps you reach growth targets.
Andrej: How do the operators still figuring out if they have these capabilities get into this market? What is preventing them currently? What are their challenges?
Jat: I think we have to take a step back again and think about how solutions across the ecosystem can come together in a really simple way to make it easier to scale. Operators provide the connectivity, that's always essential. Now they need to think about how they provide global connectivity. It's not good enough to cover regionally through terrestrial alone; you'll need to be regional, with multiple terrestrial players, but also find ways economically to include non-terrestrial for additional coverage. That links up to the solution providers, but they will need funding because if you're paying for that connectivity, you need to have funding that allows you to scale your business.
I see a partnership opportunity here to bring in the likes of the hyperscalers, who've got the platform play that can underpin the solution for multiple types of these solution providers with the connectivity. You basically create an ecosystem that has the application providers knowing how to reach their market—because there's a good platform for them to provide that to—and you have connectivity providers offering a seamless, easy-to-buy connection. But it's a one-stop shop, it's not a solution in one geography or in one segment. This is the unique solution that provides security, continuity of service, and ubiquity of service. You actually create an ecosystem that makes it easier for those green funds that have been raised over the years to be deployed.
Simplifying the past to accelerate the future
Andrej: If I imagine an operator today, the more established operators—what do you see as the challenges for them being able to operate in this new market? What do they need to know?
Jat: The future economic models will, by nature, be quite lean because they’re using digital solutions. They’ll rely on using data super effectively and using AI systems to make decisions on a rapid basis. This will all drive value through cost reduction and increased revenue growth.
At the same time, you do have to think about the ways in which we've grown as operators over the last 20-30 years. In particular, we’ve had very, very complicated systems in which we've tried to manage traditional KPIs around voice and data usage. When I first came into communications, we were pricing by the minute. And we made some calls cheaper after 6pm, and some calls cheaper depending on who you called. All that complexity was built into our systems, into our processes, into the way we assessed customers and served customers.
The market over the last 10-15 years has moved away from that into much simpler forms—you're now connected, wherever you are, whatever time of day it is, whatever speed you want. The complexity that sat underneath the past solutions still sits under these; we've changed the marketing messages, but we haven't changed the way we operate.
“Now” is never a good, easy time to try and simplify. But if you don't, you're continuing with that legacy cost base while you're trying to be innovative and agile, which isn’t efficient.
Andrej: I almost feel like operators are held back by their core setup, or a skeleton which—unless they shed it—will prevent them from progressing into the new world.
Jat: I think this skeleton analogy is a very, very good one because it does constrain them into a framework that's well understood by investors and operators alike. They can talk about it in a way that makes sense, which helps with investor relations and understanding current value.
But at the same time, as you say, it constrains their ability to think about things in a different way. When you look at those that don't have that legacy cost base, that don't have that complexity—they don't have the price plans and propositions that go back 30 years that don't actually add any real value to the end user.
People are so connected in today’s society, they’re great at doing their own research. But when asked a question, they often tell you what they think they want you to know. For instance, if you ask me what I’m looking for when buying a car, I’ll talk about fuel efficiency or range if it’s electric, and so forth. Really, I want comfortable seats, a convenient cup holder, and a brilliant radio. What’s beautiful about communications networks and companies is they have a huge amount of data that tells the genuine truth about how people use their connectivity. They know where customers are, how long they stay connected for, and what they use that connectivity for when switching from one app to another.
This insight isn’t unique to operators—Google and others have some of this info as well—but operators should be leveraging what they uniquely know to build partnerships, because this info should make their offerings more and more tailored to the true value and utility end users and businesses need their services for. That should mean with time, the solutions get even more targeted and valuable, which should help protect the operator’s role and revenue stream due to the value they’re creating.
