Decision time for Europe’s telcos

To prepare is better than to be confronted

Struggling to create value for shareholders, the European telecoms industry is at a fork in the road.  Faced with a glut in capacity, there is a risk that the gradual decline in the industry’s return on invested capital could soon go into free fall.

There are two ways to arrest this decline – maximize automation to achieve a step change in the efficiency of the core business and/or push much deeper into the (beyond-core) digital services market. In other words, telcos need to concentrate on running networks as efficiently as possible and/or develop compelling digital services that can compete with the best the Internet has to offer. Although both options are likely to require radical changes to operating models, they are the only ways that telcos can hope to maintain the backing of investors.

Today, many European telcos are ‘stuck in the middle’, aiming to be successful in both core connectivity and beyond core, whilst maintaining a costly integrated operating model.

Ironically, the root cause of the looming crisis is the telecoms industry’s investment in highly efficient fiber and 5G networks.  These technologies have brought about a step change in the capacity available to both consumers and businesses, creating a situation where most telecoms customers now have all the connectivity they are likely to need for the foreseeable future: the industry is creating its own overcapacity!