by Matthew Duffey, Florian Gröne, Russell Taylor and Junis Rindermann
Although pressure to reinvent business models is building in all industries, telecoms companies find themselves in the eye of the storm. Average returns on invested capital achieved by large telcos have declined sharply over the past decade, and there’s little prospect of a rebound any time soon. As PwC’s Perspectives from the Global Telecom Outlook 2023–2027 report highlights, the industry is entering a phase in which revenue growth and optimisation opportunities will be muted, and in which it will be harder to earn back the cost of capital, especially while interest rates remain elevated.
Industry leaders know they have a problem. In PwC’s 27th Annual Global CEO Survey, 52% of telecom CEOs said they believe their company will no longer be economically viable in ten years if it continues on its current path (that share is up seven percentage points over the previous year and higher than the 45% average among CEOs across all industries).
So, what is to be done? Business model reinvention means radically transforming how a company creates, delivers, and captures value—in other words, fundamentally changing how it makes money, serves customers, and provides new products or services. Looking across the telecom sector, we see a number of new-breed business models at play as incumbents move to reinvent themselves and attackers challenge the status quo. Take, for example, the anything-as-a-service (XaaS) players providing the full stack of services that brands need to launch fixed or mobile consumer franchises. Or consider the network orchestrators serving large enterprise customers by combining wholesale capacity from across multiple operators.
The common thread is that these new models are typically tightly focused ‘puretone’ businesses, in contrast to the complex multitone models of integrated telcos. For integrated players, the reinvention journey starts with adopting a puretone mindset. This means taking a hard look at the performance and value of the multiple businesses currently nested within the integrated whole.
The honest truth is that integrated telcos today combine an array of diverse activities, each of which requires distinct management skills, has its own capital requirements, and operates on a unique planning horizon. Private investors previously recognised that value can be unlocked by transferring components of the integrated business model into more focused entities—a process that started in the late 1990s with the creation of TowerCos to own and operate passive network infrastructure. This same logic is now just as relevant for active digital infrastructure such as fibre networks or data centres.
To be clear, by arguing for a puretone approach, we are not calling for the break-up of vertically integrated carriers, although some may choose this path. Our recommendation, rather, is that telcos reconfigure their business unit and functional structures to create clearer organising logic around different models. Clearer separation and interfaces among them will reveal the true economics of each and new potential for value creation. The goal is a coherent portfolio with each unit anchored on a clear purpose and value proposition, and supported by winning combinations of assets, capabilities, ecosystem relationships, and leadership.
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