Reinventing the telecom customer experience with PWC’s Florian Groene and Nokia’s Hans Geerdes
Podcast episode 29
COVID-19 has put mobile and broadband providers under tremendous pressure. Telcos have seen their annual bandwidth demand forecasts reached within the first month of lockdown.
But to Florian Groene, a partner at PWC in New York, and business strategist Hans Geerdes from Nokia Software HQ in San Jose, the new normal offers opportunities for telecom providers to reinvent their relationships with their customers.
Michael Hainsworth: COVID-19 has put tremendous pressure on communications service providers. CSPs have breached annual bandwidth demand forecasts within the first month of lockdown. But for the business strategist Hans Geerdes of Nokia's San Francisco office, and Florian Groene, a partner at PwC in New York, the new normal offers opportunities for the telecom sector to reinvent its relationship with the customer. So we began by asking Florian to define the new normal.
Florian Groene: Your guess is as good as anyone's. I think everybody's still in the process of figuring that out. I think it's pretty clear that it's triggering a significant shift in how we work, how we play, how we engage. I think from a consumer perspective, it's really driving new kinds of behaviors, amplifying some trends that have been ongoing, but really accelerating those in terms of work, education, things like that.
On the flip side, I think it's also triggering a massive response from a government perspective, and is obviously also reshaping the way businesses in particular, telco providers, provide services, and think about how they develop and deploy their infrastructure, and how they transform their operations at the end of the day. So I think it's really touching all aspects of life, commerce, business, but frankly there's a whole lot of experimentation and discovery work still going on. So I think it's a scary but also exciting time.
Michael: Well, Hans, under the new normal, we've seen a surge in demand but a surge in capacity too, how has the global telecom fabric reacted to this new normal?
Hans Geerdes: The first thing that I think we can observe in terms of the role of telecoms in society is really how important the role that telecom technology and operators have played from the beginning in fighting against the COVID pandemic. From just educating the public to fighting at the frontline with health care providers and all that. So that's maybe the first learning we had -- how tightly interwoven this fabric of telecoms is with the fabric of modern society that is affected by the pandemic. And then since you asked about capacity and demand, of course, we've seen demand shifting. We've seen capacity, actually requirements surging. Demand has shifted from, in those countries that went into lockdown, business and commercial areas, into residential areas because people work from home.
And demand patterns over time have shifted. Especially in the first days, for example, video streaming, Netflix and the like, were on a lot more and also on the weekend because people just couldn't go out. And as a aftermath of that, we had some service degradation because the networks had to cope and adapt a little bit. Some performance issues that we at Nokia measured in some customers where we do performance analytics, service analytics.
Last but not least, I think there also was a big impact in terms of the business processes and customer direction of telecom operators. One thing that probably was most existential to providers was payments. The moment you have to shut down your stores as a service provider, or maybe even shut down your call centers, how are you gonna collect payments, especially in countries that are very prepaid heavy? How would that work if it's not electronic fund transfer or anything of the sort? So I would say it has had big implications on this fabric of telecoms as a whole from the get go.
Michael: With so many people working from home, what are the implications for web scale? Does this mean to you telecoms are now competing against the Googles and Amazons in cloud infrastructure or are they complementing it?
Florian: I think it's really more a question of complementing it, although there are examples of crossover where you see deals that some players are making to invest in, for example, video conferencing capability, and really try to move into services that traditionally have been home of the hyper scalers or the SaaS providers. But I think the bread and butter will remain really on ensuring that capacity is there and that quality of service from a broadband capability perspective can be provided consistently.
This current situation really puts a spotlight on the critical importance of infrastructure and will, I think, also drive many governments and private-public partnership conversations to reconsider how to potentially accelerate or increase or tap into crisis response funds to also shore up and take digital infrastructure and broadband infrastructure to the next level. It's just so critical to everything we do. Not just to communicate but to work, to get groceries, to go to school, that's really turning into the backbone of everyday life and it's never been clearer than today.
This really provides an opportunity to telcos to reposition their brand and how they are perceived by consumers and businesses alike.
Michael: So it sounds like COVID-19 is revealing some market facing opportunities for those in the communication service provider space.
Hans: Yeah, I would say it definitely does. In the first reaction to the pandemic, a lot of operators have provided services for free. But that's actually been used by many as a vehicle to promote some digital services that they already had. For example, business conferencing, Microsoft Teams or Webex, a lot of operators have actually made those available for businesses for free for a limited time. And that's attracting new users that, in many cases will probably stay on that service. So from that perspective, there is an opportunity to position more digital services at a broader scale than ever before.
Florian: There's the direct market opportunity in the monetization sense. But I think there's the broader opportunity which is a little less immediate, but potentially more sustainable in the sense that this really provides an opportunity to telcos to reposition their brand and how they are perceived by consumers and businesses alike.
If you experience your telco as somebody who has your back in a time of crisis, either as Hans just alluded to, by getting you through a rough patch or by opening up capacity and critical services without hitting you with a hefty bill right out of the gate. But also potentially playing a visible and meaningful role to really address the challenges at a societal level. There's a lot of discussion and work going on around contact tracing apps, for example. That comes with privacy and security concerns and challenges, and I think that just offers a big opportunity to telcos to really clarify the position and the role they can play as regulated entities that really take those requirements or those priorities very, very seriously. And they are also in a position, from a compliance perspective, from a controls perspective, to really live up to those expectations and requirements. So in a sense, it is coming back to the web scale question you raised earlier. It's also an opportunity to reclaim some lost ground where the government or the society at large isn't ready to trust global tech companies, or the FANGs (Facebook, Amazon, Netflix, Google) so to speak with running that agenda, and really place more trust in their local telco. Because telcos are regulated and subject to different kinds of oversight, et cetera, which can actually be an advantage in the current situation.
Michael: Those FANGs being Facebook, Apple, Amazon, Google, Netflix. Tell me though, you brought up contact tracing as an issue. We've learned on Futurithmic with Sandy Pentland, the “godfather” of artificial intelligence at MIT, that our glowing rectangles offer a solution, but they create challenges too.
Hans: Yeah, so I think the opportunities obviously in contact tracing are that everybody carries a mobile phone in most societies nowadays, and just by seeing where people go and how their movements are, we can make a lot of ground against this pandemic by tracing specific contact, and also monitoring population movement and the like.
Now, the challenges are then around a topic that Florian already alluded to, which is the regulation, privacy, data security. So who actually has access to this data? Who controls the movement of the population? And we've seen from some very big telecom operators, all encompassing solutions that really border or cross over into Orwellian 1984 territory, because it's a very tight monitoring of a lot of aspects that people have not shared with any central entity or corporation or government before. So there's a lot of potential in technology on that side. But then again, there’s this aspect of surveillance privacy, what's the data used for, who has access to it? And that's been actually discussed, especially in Europe, I would say, with great detail.
Florian: There's not gonna be a single answer to this challenge, and to some extent, I think the answer or the path that a specific market takes also depends on the governance and cultural context.
For example, if you look at some of the Eastern markets, that really culturally are more centered around the collective versus the individual, you've seen very decisive moves that are just pushed down and mandated. And to Hans' point in Western markets in Europe or North America, I mean there's a lot of debate, there's a lot of more kind of entrepreneurial initiative-driven point solutions that, to some extent, compete with each other. So I think it will be more of a fragmented and chaotic response where I think things interoperability, and adoption that is required for these solutions to have a meaningful impact. I mean, that's something that we'll need to watch and see if that works.
Michael: What though of scale? You mentioned that because money is cheap right now and is expected to be for at least the next two years. What of infrastructure investments within the industry? How does a CSP know how much to invest and when to ensure an acceptable return on investment when you really don't know what the near future holds for demand?
Florian: I'm probably a little more bullish on this because I think if the current situation has shown one thing, it’s that the demand for broadband and connectivity is here to stay. And I think this current kind of economic downturn and related turmoil aside, the long term trend in terms of traffic patterns is intact or even accelerated, which in my mind at least makes the capex investment agenda from a 5G rollout perspective, a little bit of a no-brainer. It's kind of unavoidable as a generational upgrade anyhow. At some point as we say in German, you need to swallow that frog. I think it's inevitable, unavoidable. So I'm not sure I'm a big believer in tapering investment and to your point, if money is cheap, this may be actually an opportunity to claim a bit of a head start position and grab some market share, if your balance sheet supports it.
Michael: But didn't we already sort of swallow that frog? We consumed an entire year's worth of bandwidth growth in a single month. And so what does a CSP do when they see that demand has increased in a month that they were expecting it to take a year and then recognizing that at some point, we're all going to go back to work largely, and maybe that expansion sees a little bit of a tapering off or a leveling off? Am I just sort of trying to poke at your bullish argument here or is there a concern that we're not going to need to see the infrastructure expansion in a year, that we had seen in a month?
Hans: I think Florian is absolutely right. It is inevitable and we haven't really swallowed the frog, so to say because, as you say, the capacity of the networks, and maybe we should say first that there have not been big outages or big blackouts, anywhere. There was, in some cases, infrastructure creaking but it held up because there's this capacity reserve, as you mentioned, that’s always built in, right. And that's largely been used up in a very short time. So operators have to add capacity. And we see that in Nokia, we see that in terms of demand and orders actually coming in. But there's also some things that operators are doing now to be smarter about their money, to invest more into optimization, for example of their radio network. And that's actually the thing that our customers have asked for first.
It is though, coming at a time where a lot of operators, before everything started, had this big question mark. When is my 5G investment actually gonna pay off? And what should my investment curve look like? So it's not as if they were already to go and then got disrupted, they already had question marks. Maybe one thing to mention here as well is that there's some new areas that I think can merit some additional investment, one of them being security because we've seen a surge in malware, bad apps in the app store, fake COVID-related apps but really was only phishing and Trojans and that kind of stuff. Phishing attacks, playing on people's fear about the virus and all these things. So that's one of the areas where we've actually seen a really new surge of attacks and that probably merits some thinking by operators on how to secure their infrastructure.
I think generally speaking, periods of turmoil tend to drive people to take a bit more of a cautious approach.
Michael: Florian, is there a M&A opportunity in this as we see consolidation and restructuring as we evolve the digital workplace
Florian: Maybe. There's the current crisis environment which may offer opportunities as valuations shift. Although, I mean the stock market has held up surprisingly well so I'm not sure if that's actually gonna materialize and lead to these types of opportunities. And then there's also the kind of general observation on the sector that telcos going into the crisis, generally speaking, we're pretty highly leveraged already. So I think the opportunity for mega deals, I'm not sure if the current situation changes that substantially but there may be point opportunities for some consolidation moves. Plug some holes when it comes to backhaul fiber densification capabilities, although from some of the work that we're doing with private equity investors, for example, it seems as if there aren't enough fiber assets on this planet to satisfy demand from investors.
So I don't know where that leaves us. I wouldn't take it off the table, but I'm not sure if the COVID environment has amplified or opened up new opportunities, per se. I think generally speaking, periods of turmoil tend to drive people to take a bit more of a cautious approach, but I mean, we have seen tuck in acquisitions go through regardless.
Hans: Although I would say in terms of investment opportunity, I would love for operators to think about it this way and M&A might be one but there's actually some more immediate, tangible ones that operators might be forced to do now that will pay off in the long run.
One example is actually the touchless telco and digitized customer experience. So that's actually a topic that a lot of operators have had on their agenda one way or another. And a lot of operators actually don't yet have, for example, a good app that lets the customers do most of the interactions in a digital touchless way. And because this pandemic is here to stay for at least well, a couple of months, 18 months or however long with some sort of restrictions on physical interaction, on retail, brick-and-mortar retail and all these things, that's actually an opportunity to really digitize telco operations which will pay off in the long run. Customers actually want to be taken on this digital path, to not have to call a call center or go anywhere. To just interact with the operator on an app is very easy, very seamless.
So that will be an investment that will pay out for a long time, even if they're forced to do it now or to accelerate it now because of the special situation. From that perspective, I would say it's not a fundamental shift in what operators have to do but maybe an acceleration in some areas. It's the same with the capacity we talked about before. Some, there's more demand, demand is shifting somewhat. So this might accelerate some capacity investment but that's something that was on the agenda anyway.
Florian: A challenge has been consumer adoption to some extent. So at least the kind of incumbent facilities-based carriers excluding some of the M&O and digital MVNO and digital pure players are here. I mean, they've been able to drive digital sales, to 15-, 20- maybe 30 percent of overall sales, but that was kind of the ceiling. And I think that that was largely due to kind of learned and ingrained consumer behaviors that were pretty sluggish to shift. And guess what, the current situation shifted that overnight. To have a catalyst event all of a sudden makes some things very acceptable or even desired that may have seen more resistance in the past.
I think there's a massive opportunity there not just to create a better customer experience, but also make carrier operations more what we call fit for growth, where you basically have an opportunity to challenge the traditional way of structuring operations and work, which was traditionally done in a channel-type logic. Where you have retail and indirect distribution and contact centers, et cetera. In the current situation, where stores are closed and people are working from home and things are, to some extent, being done in a bit of a stateless situation, really opens up new opportunities to rethink how you organize your workforce.
Also how you improve the employee experience, frankly, by adding flexibility and providing new options in terms of how you work and choose to be employed. Which then in terms of cost economics means that you can optimize utilization and productivity in ways that were previously constrained by traditional channels structures. So I think this really puts a spotlight and almost forces people to challenge some of the industry orthodoxies, and some of those are going out the window as we speak.
Hans: Yeah, and this topic of breaking barriers is really something that we've seen, as Florian mentioned, now within the telco industry but it's also happening beyond that.
One area I'm thinking of is healthcare, digital healthcare, for example. We've seen within a couple of weeks, actually hurdles, obstacles and regulatory barriers, for example, falling at a record speed. Here in the U.S. for example, there were a lot of regulatory approvals that had been chased by companies for years. For example, for interstate reimbursement of digital healthcare services. And that's really only just getting started. And some telecom operators are actually investing already into being a part of that and playing a role in digital health; so virtual visits to your doctor, virtual patient monitoring and these kinds of things.
Barriers are breaking in terms of digital interaction, digital services, and will just make things possible that haven't been possible before. App adoption, driving beyond ceilings that were maybe for digital healthcare, working from home conference services, all these kinds of things. So it's really opening up in a way and ushering us into a new world way faster than we would have hoped, in many aspects.
I think [this hardship] presents a challenge and responsibility for telcos to have people's backs.
Michael: COVID-19 has simply accelerated an already evolving telecom fabric.
Florian: Yeah, and pulled out some of the stops or removed some of the roadblocks to some extent. From a consumer behavior perspective, yes, but also, frankly it’s forcing executive teams to really push the envelope and challenge the kind of orthodoxies of the industry in new ways, so.
Michael: You sound cautiously optimistic.
Hans: Yeah, I would say cautious optimism for the telecom sector is right. I mean, of course, there's not a lot of optimism around this healthcare crisis that we have. I mean, that's just a terrible thing. And we're glad that telecoms can help but then in the long run, for the telecom sector, there's not really, I think, a fundamental strategic shift. There's an acceleration of some trends, but there's no reason to panic. I think there's actually a lot of positive developments happening at the same time, especially with the telecom fabric, and the fabric of society being closely interwoven.
Florian: Yeah, but that also comes with a large degree of responsibility, I think, right? Because if you look at some markets and the level of unemployment and economic hardship consumers are being hit with, I think that also presents a challenge and responsibility to telcos to as I said earlier, have people's backs. That may involve thinking about what you charge for and pricing in different ways. That may involve rethinking the way you do credit checks and what hurdle consumers need to pass to qualify for service. It may be that they need to rethink billing. And then people who are living paycheck to paycheck may need or definitely need a little extra flexibility and maybe even payday advance type services to make it through this situation.
Now, there are some examples where the telco just cut service. That obviously paints you into one corner you don't wanna be in. But then there are other players who are experimenting with new models and also trading credit scores, for example, with their own slightly more sophisticated or nuanced risk prediction algorithms, to do people justice, and really kind of meet them where they are at the moment, which is crisis mode. I think in the digital era connectivity and the access to digital service is so fundamental to everything we do. And if you're unemployed and you want to be employed, you need broadband to get out there, and get that next job opportunity. Some of the gig workers, those jobs wouldn't be possible. So I think it's both an opportunity but also a tremendous responsibility and an opportunity to do good, in addition to making money.
Hans: Which I would say Florian has already happened. I mean, there has been a lot of positive impact of CSP's and operators worldwide on the situation and a lot of that good has already been done, especially in the early days, I would say. So telcos so far have lived up to their responsibility and many things have changed in the new normal that will actually be in the long run beneficial for the telecom sector and society as a whole, I would say.