The diversification of activities should in the long term make it possible to sustain their activity, increase their profitability, and strengthen their positions in an increasingly competitive sector.
Ludovic VARGA
Business diversification has been at the heart of telecom operator strategies for several years. The connectivity market is stagnating. The growth in the volume of data exchanged is struggling to offset the decline in the value per kilobyte. Operators are therefore looking for other growth drivers to sustain their activities. They no longer hesitate to move away from their core business to address their customers’ new needs.
At the dawn of the advent of 5G, one could legitimately think that operators are directing their entire strategy, at least in the medium term, towards this technology. Indeed, it promises better connectivity, a means of combating digital deserts and, in fact, an increase in uses, while opening the way to countless new use cases. However, in the same spirit of investment, it can be seen that most of the major players in the sector seem to want to diversify their activities into services more or less distant from their core business.
The cause: the stagnation of the connectivity market
In recent years, operators have noticed a slowdown in the connectivity market, both mobile and fixed. Fiber and the new generations of mobile connectivity have made it possible to develop usages and improve the quality of service provided by operators. However, they have not symmetrically increased the size of the retail market.
The value of connectivity has long been captured by other digital players (GAFA or content creators). Today, telecom operators seek to remain relevant and increase their added value. They do not want to be relegated to a simple role of upgrading infrastructure in a tense market context.
Thus, despite the arrival of 5G, the average mobile ARPU should continue to fall by nearly 3.5% per year by 2023 at the global level [1]. Revenue growth, expected in almost all regions of the world, should only be generated by an increase in the number of SIMs.
Diversification strategies
The strengths of operators to sustain their activities
The infrastructure business of telecommunications operators allows them to benefit from a large investment capacity. Moreover, the latter usually have major assets: a large customer base, a large distribution network, control of Internet access. These competitive advantages enable them to respond naturally to their customers’ new needs and thus sustain their activities.
“The purpose of a business is to create and retain a customer” Theodore Levitt
Diversifications are sometimes very remote from the telecom operator business
Verizon has made Oath, later renamed Verizon Media, one of the three pillars of its growth. Telefonica is focusing on TV and OTT services and its digital transformation platform. NTT announces that it wants to become a major player in digital transformation by promoting B2B2X platforms and by offering personalized services. As for Deutsche Telekom, the operator is converting its fixed telephony infrastructure into electric vehicle charging stations. There are now many examples of strategic diversifications that are more or less remote from the core business.
Even more striking, Orange wishes to continue its transformation into a multi-service operator. The operator is breaking the boundaries of telecommunications by offering mobile financial services, insurance, and energy, particularly in Africa. Orange is thus addressing new customers on a continent that is still unbanked and where access to energy remains a challenge to be met.
Security and content: two priority areas for diversification
However, beyond their geographical expansions, operators are seeking to diversify vertically around services closely linked to the network. Retailer telecom operators have been looking at two areas of diversification linked to their core business since the beginning:
- network security
- or the production and distribution of content.
Cybersecurity: growth of nearly 11% per year
Although Deutsche Telekom’s cybersecurity subsidiary has just celebrated its 20th anniversary, the phenomenon has increased in recent years. Cybersecurity has become a strategic development pillar for most major players in the telecommunications world. The market is expected to grow by nearly 11% per year to reach between 180 and 250 billion dollars worldwide by 2025 [2].
As for Orange, its Cyberdefense subsidiary has great ambitions. Last year, it completed the acquisition of SecureLink, after having already completed the acquisition of SecureData. These operations aim to become part of the European podium of the Cyberdefense market.
Content production: the well-worn subject of operator diversification
With regard to content production, the phenomenon has become so widespread that the president of ARCEP told the Financial Times about telecom operators: “I would prefer to hear them clarify their promise to invest in fiber, 4G, and 5G rather than this kind of ongoing discussion around content”.
Thus, in France, the three major operators have resources for producing or promoting content. Since 2007, Orange has invested with Canal+ in the OCS TV package. Altice, SFR’s parent company, owns NextRadioTV (which includes a news radio and TV channel in particular) as well as a sports-dedicated news website. As for Bouygues Telecom, its parent company is the main shareholder of the TF1 group, the first and oldest French TV channel.
While the North American markets seem calm following the series of takeovers in the sector (Time Warner by AT&T and Sky by Comcast), in the rest of the world, and particularly in Europe, we can expect telecom operators to no longer settle for partnerships with content producers and finally go on the offensive.
To something bad is good…
In conclusion, we could say that operators have been able to take advantage of the decline in the connectivity market. The diversification of activities should in the long term make it possible to sustain their activity, increase their profitability, and strengthen their positions in an increasingly competitive sector.
Sources
[1] OVUM, Market Watch 2019
[2] Statista, Size of the cybersecurity market worldwide / Grand view research, Cyber Security Market Size, Share & Trends Analysis Report By Component, By Security Type, By Solution, By Service, By Deployment, By Organization, By Application, And Segment Forecasts, 2019 – 2025
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Sources:
[1] OVUM, Market Watch 2019
[2] Statista, Size of the cybersecurity market worldwide / Grand view research, Cyber Security Market Size, Share & Trends Analysis Report By Component, By Security Type, By Solution, By Service, By Deployment, By Organization, By Application, And Segment Forecasts, 2019 – 2025
