Telco to techco: Beyond connectivity

As connectivity becomes increasingly commoditized, capital investment costs rise and margins come under greater pressure, many telcos are fundamentally reimagining themselves as technology companies. Here’s why they are doing it and how they are making the transformation.

Why go techco?

There are three big opportunities here. The first is a diversity play. As techcos, these companies are moving away from pure connectivity revenue streams to instead create a stable of tools, solutions and services that are less dependent on infrastructure investment. These new revenue streams are often higher margin than connectivity models. And they provide a foundation of capability and agility to support further diversification as new opportunities emerge.

The second big opportunity is the volume play. For those telcos that have invested heavily into 5G infrastructure and upgraded gear, the key now is to maximize the return on those investments. As a techco, these companies should be better positioned to offer more dynamic services to clients, and then drive that activity through their existing connectivity infrastructure.

The third big opportunity is the network play. Techco companies are seeking to monetize their networks by transforming them into cloud-type solutions where developers and integrators can select the elements of the network they need in order to create their own services and solutions over top. That would essentially start to embed their networks into other company’s solutions, providing more resilient and sustainable revenue streams.

Ultimately, the idea for those on the path from telco to techco is to move to a place where they can not only provide individuals and businesses with connectivity, storage and processing power, but also curated solutions and applications, all wrapped with a privacy and cyber security line of defense.

Making the move

There is no single path to becoming a techco. Different companies are transforming themselves at different paces with different levels of commitment. Some are moving incrementally, building from their existing strengths and capabilities, taking tepid steps into new markets and models. Others are starting from a blank sheet and building themselves from the ground up, on a hyperscaler stack, as a digital native company

The leaders are rapidly moving into new business models and revenue streams. They are creating platforms centered around key focus areas and technologies like connected healthcare, digital manufacturing, and smart campuses and cities. They are exploring new technologies – like generative AI – to see how these can help them improve customer experiences, convert prospects and identify new cross-selling opportunities.

At the same time, the leaders are looking at their technology capabilities and models. They are using open data architectures to open up their networks, drive simplicity and encourage the growth of their ecosystem. And they are transforming the way they measure their success, moving from service calls, ARPU and subscription numbers to instead thinking about API integrations and customer lifetime value.

Everything is going to change

Get it right and healthy margins, enhanced valuations and new growth opportunities are certainly expected to follow. But that will require a massive and radical transformation of the way most traditional telcos currently operate. It will take nothing short of a revolution in skills, culture, business models, risk taking, customer awareness, partnering and operations – amongst other areas.

Creating this type of model will require organizations to become increasingly connected, within their ecosystems, within their enterprise and with their customers and stakeholders. They must be agile and robust enough to launch new offerings to capture their focused market segment or segments. And to do that successfully and sustainably, they will need to move quicky, boldly and aggressively.

Collaboration with hyperscalers will likely become increasingly important. For example, those telcos starting the journey to techco by focusing on the digital front-end play will likely need to rely on hyperscalers for services and to deliver the core. Those with ambitions to become full technology companies will likely rely on them for even more (even as they blur the lines between the two sectors).

Three steps to successful transformation

KPMG professionals’ experience helping telcos around the world make the jump to techco suggests there are three critical elements to successfully delivering this transformation.

Articulate your vision. Knowing what you want to be known for is the first step in driving your transformation. Maybe you are going to focus on the developer community (which would mean prioritizing network access and developer apps) or perhaps you might focus on customer service (genAI, self-service and customer experience investments would be key). Articulating a clear vision for the transformation sets the focus for the organization.
Build the right ecosystem. You can’t move from telco to techco on your own. This type of transformation will require a dynamic ecosystem of technology, services and solutions providers that can work collaboratively with you to deliver the capabilities and resources you require. As noted, collaboration with hyperscalers will likely be critical, not only for their processing power and capabilities, but also for their capital, brand recognition and reach.
Change the culture. The biggest predictor of success isn’t technology – it’s culture. Traditional telcos should think carefully about how they shift their organizational culture to accept more risk, adapt with more agility, innovate faster and focus on the customer. The tone must come from the top (building from the vision you created earlier) and focus must be placed not only on building pockets of capabilities within centers of excellence, but rather driving new capabilities and culture across the extended enterprise.

Towards sustainable growth

To be sure, competition for these newly minted techcos will be tough. Few may have the capital, brand recognition or trust that the hyperscalers currently enjoy. But there is still lots of room for techcos to compete around the edges and in unique and specialized niches. And, as such, this model may represent the shortest path to long-term, sustainable growth and relevance.

KPMG professionals have the insight, experience and tools to help telcos transform. Talk to your local KPMG member firm to find out more.

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