Can connectivity-as-a-service drive growth?

Communications service providers (CSPs) struggle to grow revenue, particularly in the enterprise market, while over­-the-­top hyperscale cloud providers are driving change and delivering the experiences customers are willing to pay for. This excerpt from our recent report 'What is connectivity-as-a-service?' (CaaS) explores whether CaaS could be the answer.

Bain & Co. released data recently showing that despite the effects of the Covid­19 pandemic, many industry sectors managed to create double-­digit shareholder returns in 2020. The telecommunications industry, however, delivered only a 4.8% return. As Herbert Blum, Bain’s Global Head of Telecommunications Practice, noted in a TM Forum Hard Talk discussion, “The pandemic has only exacerbated a trend that has frustrated industry stakeholders for years: Despite operators’ massive investments in infrastructure and services aimed at realizing the vision of a digital economy, the financial rewards appear to accrue to others.

Simply put, connectivity is becoming a commodity. CSPs need to find a way to reverse this trend, and many believe connectivity-as-a-service (CaaS) could hold the key.

Enabling enterprises

As a share of mobile operators’ total revenue in 2019, services delivered to enterprises accounted for an average of 35%, according to the GSMA. Most of this revenue (68% to 80%) came from traditional connectivity services for voice and data. The remainder was from services such as IoT, security, cloud and data analytics. Only 20% of operators declared a majority of revenue from non-traditional services.

Globally, mobile operators’ revenues from enterprise customers have been growing slowly since 2017 (in the low single digits, according to GSMA), but consumer revenue is shrinking. While the percent of enterprise revenue shows the connectivity services to be a strong business, it also shows too much reliance on them at a time when they are being increasingly commoditized and show little growth. As noted, stock market performance during the pandemic is revealing. Bain found that while some sectors suffered because of Covid-19, many delivered incredible returns last year.

Shareholder return in the electronics sector was nearly 50%, likely because of the shift globally to working from home. Every one of these sectors is enabled by telecommunications, but the telecom industry itself managed paltry returns by comparison. This suggests that while CSPs may have met increased demand for connectivity during the pandemic, they were not able to create additional value or monetize differentiated service levels. It illustrates a consistent problem: Increased data traffic is not translating into increased revenue, only increased costs.

A simple plan

CaaS could help CSPs increase revenue and shareholder value by making it far easier to order, provision and charge for connectivity and value-added services such as security, guaranteed bandwidth and priority routing, which operators believe enterprises will pay for. How to make ordering connectivity easier is the focus of a new workstream within TM Forum’s Digital Ecosystem Management Project.

Joann O’Brien, VP of Digital Ecosystems at TM Forum, argues that improving the customer’s experience of consuming connectivity services will lead to more sales and avenues to market, and to new revenue. During a recent Hard Talk discussion, she pointed to Twilio’s meteoric rise as a messaging platform provider, identifying simplicity of use as a big reason for the company’s speedy growth.

"In telecom, the consumption of connectivity is too difficult,” O’Brien says. “We as an industry have not solved that problem… That’s what connectivity-as-a-service is about: improving that consumption capability in a way that is standardized, so that we can do it right across the planet and address the needs of all our customers.”

We surveyed CSPs about where CaaS fits in their long-term plans for addressing the enterprise market. The largest percentage said they see it as the new self-service model for how all future services will be ordered and delivered. This answer aligns closely with TM Forum’s vision for CaaS.

Ubiquitous connectivity

While CSPs primarily envision targeting enterprises with CaaS, the same approach could be used for consumers, IoT providers and other service providers. The potential in these markets should not be discounted because making connectivity ubiquitous globally is key to growth in global gross domestic product (GDP).

CaaS will make it easier for operators to take a multi-network approach by partnering with other service providers and hiding that complexity from users.

Some companies envision combining Citizens Broadband Radio Service (CBRS), 5G, satellite internet, Wi-Fi 6, previous generations of wireless and telemetry to create low-density infrastructure in order to bring services to underserved areas. Federated Wireless is an example. The company conducted a pilot recently during which it built more than 3,500 small cells across three markets in a matter of months to deliver broadband service to underserved neighborhoods.

A recent discussion paper by McKinsey Global Institute, which looks at four uses cases (healthcare, manufacturing, mobility and retail), finds that advanced connectivity will boost the global GDP by $1.2 trillion to $2 trillion by 2030. However, the paper points to potential challenges: “In a world where future economic growth depends on improving productivity, the hurdles slowing both connectivity investment and the widespread adoption of use cases urgently need to be addressed. These hurdles include collaboration and partnering among different providers, a lack of global standards for describing and ordering services, and the inability to monetize and differentiate connectivity.”

The network technology to deliver connectivity to all markets – emerging, mature and advanced –continues to advance in terms of affordability, functionality and adoption. However, the solutions for ordering, fulfilling, consuming, modifying and charging for this connectivity in creative ways lag behind. This is not just an annoyance for users: Eventually, if customers cannot get what they want, they will look to other types of providers such as private network providers or digital service providers to deliver the capabilities they need.

“[As a business] I just want to be able to onboard connectivity as simply as I onboard cloud,” says TM Forum’s O’Brien. “I want that elasticity, that simplicity. I want to be able to operate at a global scale. I do not want to have to manage partner relationships. I do not want to have to deal with whether it is 5G or Wi-Fi, or whether I am in Canada or New York or Dublin. "I want to hide the complexity,” she adds.

“As a business I just want to be able to embed [connectivity] as a single component and have it work so I can design, develop and deliver global services. And if we don’t do it, the cloud providers will, and we will be disintermediated as an industry. That’s the risk we are facing."

Read the report