Mobile Network Operators (MNOs) have been facing unprecedented challenges over the past decade. As traditional revenue streams decline and network investments surge to meet escalating performance and capacity demands, operators find themselves in a critical stage. The emergence of 5G technology presents both opportunities and difficulties, requiring strategic navigation of capital expenditure and revenue generation. Amidst these dynamics, revenue diversification has emerged as a focal point for major operators, prompting a shift towards services beyond their core offerings. The recent global shift towards digitalization, accelerated by the pandemic, has further underscored the importance of adapting to evolving consumer and enterprise needs. However, against a backdrop of competitive markets, declining Average Revenue Per User (ARPU), and inflationary pressures, operators face a formidable margin squeeze, compelling them to explore innovative solutions to sustain profitability and relevance in the digital age.
Key Challenges Facing Telcos
Telcos are facing with a multitude of challenges that are getting in the way of profitability and the struggle to keep a competitive edge in the market. Intense competition within the telecommunications sector has led to margin squeezes, exhausting the impact of economic turbulence on their bottom line. The loss of traditional value further compounds these challenges, necessitating a reevaluation of revenue streams and business models. Moreover, the fact that MNOs are being cutting out as the financial intermediary in transaction and allowing customers to buy directly from wholesaler threaten telcos as they contend with the intrusion of app-based providers offering voice, text, and payments services, leveraging valuable customer data. In terms of product offerings, telcos predominantly focus on payments, with limited offerings in savings, credit, insurance, and investment products. Additionally, the extensive network of agents facilitating cash in/out services represents a significant cost base for telcos. Amidst these challenges, telcos are falling short in meeting evolving customer expectations and achieving personalized service delivery, highlighting the need for strategic innovation and adaptation to remain competitive in the dynamic telecom landscape.
Gateway to New Horizons
MNOs should unlock new avenues of growth by leveraging their widespread accessibility and inclusivity. With more individuals worldwide owning mobile phones than holding bank accounts, telcos have a unique opportunity to tap into this vast market segment. According to a study by the CAREC Institute, out of the 1.7 billion unbanked adults globally, a staggering 1.1 billion possess a mobile phone. The advent of 5G infrastructure further amplifies this opportunity, paving the way for innovative services such as IoT, smart device, and machine-to-machine payments. By venturing into the realm of fintech, telcos can capitalize on these trends to diversify their revenue streams and enhance their competitive positioning in the digital ecosystem.
From Connectivity to Fintech Expansion
The future of financial services becoming deeply integrated across various sectors appears inevitable. In Asia, governments actively support the expansion of financial services through non-financial players, innovation in products, and strategic collaborations. M-PESA, a mobile-based service launched by Vodafone and Safaricom, transformed money transfers and micro-financing, expanding beyond traditional payments. Telcos are exploring niche segments within their customer base to identify growth opportunities and offer tailored financial solutions. Neobanks, like MTN MoMo, operate digitally, offering financial services such as checking and savings accounts, payments, and money transfers, typically accessed through mobile apps and web platforms. Thanks to their lower overhead costs compared with traditional physical banks, neobanks can offer lower fees and competitive rates. Recently, the Saudi Central Bank approved the transition of STC Pay, the mobile financial services arm of Saudi Telecom Company, into STC Bank, signaling a significant development in the telecom industry's expansion into finance.
The AI and Data Advantage
the role of artificial intelligence (AI) is increasingly crucial for telecom operators, as margins shrink and digital transformation becomes imperative, AI presents a significant opportunity for telcos to gain a competitive edge. The value of data in this landscape cannot be overstated, driving industries toward data-driven processes. Telcos are swiftly adapting, learning to harness data as a valuable asset. Additionally, the sheer volume of data generated by the explosive growth in traffic, connected devices, and interconnected applications makes AI, machine learning (ML), and machine reasoning (MR) come into play. These technologies empower telcos to navigate complexity, process events, correlate insights, and guide strategic remediation efforts efficiently. With AI integration already underway among MNOs to navigate complexity, leveraging the vast data reservoirs they possess. This integration positions MNOs uniquely to drive financial inclusion and evolve beyond their traditional roles. By offering digital banking services, MNOs can tap into substantial new revenue streams, capitalizing on their extensive reach and technological prowess. With AI at the helm, MNOs can not only address operational challenges but also proactively seize opportunities in the evolving digital landscape.
The Path Forward for Mobile Network Operators
The integration of digital banking services by Mobile Network Operators (MNOs) presents a strategic opportunity to diversify offerings at minimal cost and risk. As telco margins continue to shrink, expanding into financial services offers a promising avenue for revenue growth. Moreover, MNOs are uniquely positioned to drive financial inclusion, leveraging their extensive reach to serve underserved populations in rural and remote areas. This expansion not only enhances customer retention and loyalty but also provides invaluable insights into customer behavior and preferences. Furthermore, integrating digital banking services creates synergies with other digital ecosystems, further bolstering the competitive advantage of MNOs in the rapidly evolving landscape of telecommunications and finance.