How Digital Strategy and Content Are Changing the Telecommunications Landscape

A robust digital strategy that optimizes assets and channels will be critical for the success for both new and old players in the telecommunications market.The emergence of video and content "ecosystems,” in which consumers expect their favorite content to be instantly available in any format they want, anytime they want it, is creating substantive change in how the telecommunications industry approaches digital. The drive towards personalization of content and changing consumer behaviors require telecom providers to revisit their business models and adapt.Content producers are scrambling to meet customer expectations, and telcos must revisit their traditional delivery infrastructure and distribution strategies to survive in this changing landscape. Content creators and over-the-top (OTT) players such as Netflix, Hulu and Amazon Prime Video continue to take a larger share of the value chain and are providing solutions that are pushing the bounds of existing communications infrastructure to affordably deliver content to consumers. This represents a shift in delivery expectations and customer experience that has previously been driven by telecom providers.Telcos' previously safe triple-play (broadband or cable, phone, TV) packages are increasingly under threat from the rise of OTT players, and the resultant disruption is substantial. Popular channels are further disrupting the telecom providers' traditional control and distribution of content by going direct-to-consumer through their own mobile and smart-TV apps (AMC, HBO, FX, Showtime). This changing dynamic, combined with the steady decline in voice and broadband revenues streams, makes for a precarious environment and the need for a new digital mindset in telco.

The Growing Appetite for Content

OTT providers are meeting the demand for better content and are taking a growing share of the global telecom value chain. CAGR for OTT providers is currently 18.4 percent from the five-year period between 2014 and 2019 while traditional service providers growth has been more or less flat. Andre Popov, partner at Peppers & Rogers Group, summarizes the position for telecommunication providers as being "in the fight of their lives." So how can these companies take steps to protect their customer base and revenues?

Fighting Back on the Content Front

Popov observes that telcos must adopt better digital strategies to combat the rise of OTT services and the decline of traditional revenue sources like pay TV. One such strategy consists of telecommunication companies fighting back by purchasing broadcast rights for ultra-popular content such as sport.In Europe, BT and Sky have engaged in vigorous bidding wars for the rights to broadcast Premier League football matches. This move into content has resulted in record-setting auction prices for broadcasting rights, with no visible end in sight. The BBC reports that Sky paid £4.2 billion in 2016, which is 83 percent higher than what it had to pay in the previous round for broadcast rights. The overall cost of rights to these events has risen by 71 percent for purchases covering the next three years. Meanwhile, sports teams are also benefiting financially from these bidding wars: Shares in Manchester United rose by 5 percent upon the news of the telecom transactions.This move to content ownership enabled BT to create new product offerings for their customers; they are shrewdly leveraging their infrastructure to effectively compete with OTT providers and beat them at their own game. Ownership and distribution of content via digital and mobile channels has become a major differentiator for telecommunication companies in the United Kingdom.

Mergers Producing New Value in the United States

Here in the United States, we see the content war evolving in scale and shape as AT&T moves forward with its proposed acquisition of premier content provider Time Warner for $85.4 billion. "We have several million mobile customers who are demanding premium content on their mobile devices ... and they're wanting the content formatted differently, they're wanting it curated differently," said AT&T CEO Randall Stephenson, whose corporation is about to acquire Time Warner. It will be interesting to see how AT&T uses and looks to monetize new content as users continue their shift to digital products and video streaming options over traditional broadcasts. With this major purchase, AT&T will look to differentiate itself from its competitors by offering the customer a more complete package of connectivity and content.AT&T summarizes the consumer-side benefits of absorbing a content-producer: "Customer insights across TV, mobile and broadband will allow [the newly combined] company to: offer more relevant and valuable addressable advertising; innovate with ad-supported content models; better inform content creation; and make OTT and TV Everywhere products smarter and more personalized." AT&T also gives a bow in the direction of its stockholders, noting that "significant financial benefits" will accrue to the company as a result of the acquisition.

Analyzing an Evolving Industry

Alina Selyukh of NPR elaborates on the pros and cons of this pending acquisition: Positive outcomes for consumers include new types of content and new methods of distributing that content. Potential risks are likely to be higher prices, a condition that arises naturally from any market consolidation. Selyukh also notes that the Department of Justice and the FCC are taking a good look at this purchase, to make sure it doesn't violate antitrust laws. However, since a telecom network provider is still officially defined as being fundamentally different from a content provider, most experts seem to think that the deal won't be legally blocked. The acquisition is being termed vertical instead of horizontal by the key players, but it is evident that these dividing lines are rapidly becoming obsolete.Wired points out that "media companies are becoming telecoms," and "telecommunications companies are becoming media companies." While content producers like Google, Facebook and Amazon are laying undersea cables and developing open-source telecommunications gear, telcos are being forced to adopt in-house content strategies. It will be interesting to see how players like Comcast (owner of NBC Universal) look to leverage their own content within this new competitive environment. It’s clear the competitive landscape and dynamics of the industry have changed with the emergence of content and digital strategies. What remains to be seen is how telcos will adopt their strategies to place digital at the forefront of their business models.

The Emerging Digital Strategy for Success in Telecom

A robust digital strategy that optimizes assets and channels will be critical for the success for both new and old players in the telecommunications market. For success, telcos need to evaluate their strategies taking into consideration the following:

• Content positioning and experience across multiple platforms: Today's users expect access to content and consistency of content through all channels that are convenient for them. This includes mobile, laptop or other online channels, TV set-top box, and smart TV ecosystems (e.g. Roku, Chromecast). User experience and ubiquity across devices and platforms will be key as content and distribution evolve.
• Partnerships with OTT content creators like Netflix, Amazon Prime Video and Apple TV: Channel distribution and content partnerships will unlock significant value as companies look to expand their customer touch-points and how they interact with their customers. Having a digital strategy that works with partners to on both content and data plays will enable a consistent product and experience for customers.
• Re-defining business models for digital: Content, delivery, customer ownership, and experience have converged. Business models need to adapt to better support the digital needs of consumers and drive long-term value for both customers and shareholders.

AT&T Senior Executive Vice President and General Counsel David McAtee stated, "Choices are expanding, content is being created at unprecedented levels, and on-line distribution of video has become an unstoppable force driven by surging consumer demand,". He goes on to explain, "The question for the video industry is not what consumers want; it is whether today's configuration of content creators, aggregators, and distributors can deliver it."The move to content represents a seismic shift in the telecommunications industry and will have lasting effects on how telecommunication providers compete for and service their customers. Each telco will need a comprehensive digital strategy and a well-defined roadmap to successfully navigate through this digital revolution.