The global telecommunications industry is now facing a dilemma that was unimaginable until decades ago.
Cellular operators are no longer a company full of excitement, their profits are high – imagine Telkomsel with revenues of under Rp 100 trillion with a profit of around Rp 25 trillion – beating its parent, PT Telkom.
The telco industry, which has so far dominated, which even flourished when the pandemic cut down all types of businesses and industries, must start to improve if it doesn’t want to die in the next two to three years.
Telcos must immediately transform, to explore new businesses that have been underestimated by telco operators, because the potential for growth is very high.
Data service tariffs in Indonesia are the second lowest after India and operators cannot be complacent by relying on the network infrastructure and technology they already master, because technology is advancing rapidly, the duration is getting shorter and shorter.
Until now, the operator’s investment for third generation (3G) networks and services has not broken even, when 4G has appeared, which continues to move into 4G LTE (long term evolution).
Now 5G has arrived, and that doesn’t mean the continuation of 4G as 2G to 3G continues to 4G. The technology is different, the form of service is different, the need for frequency spectrum is also different, so 5G is more suitable for business, be it industry, manufacturing, agriculture, smart cities, smart homes, health, and smart transportation in the form of self-driving vehicles.
This is where the importance of M&A (mergers and acquisitions) because if left alone, small operators whose EBITDA (earn before interest, tax, depreciation and amortization) is below 8 percent will not be able to survive in the next 3 years. Several telco operators in India that collapsed can be a lesson.
With M&A, strengths are gathered to strengthen the purchasing power of technology whose growth is enjoyed by technology vendors who always charge high prices for new technologies.
Do operators not just stick with the technology they have mastered so they have minimal capital expenditure and only focus on adding customers?
Hungry for data
The nature is different, telecommunications services that have been controlled by telco operators have shifted from network services to devices and applications, which resulted in 347 million active numbers of subscribers of six Indonesian operators all moving to data hunger.
The pandemic gave wisdom, the virus immediately made customers hungry for data because all work, study, shopping activities, all from home, online, all of which need data.
Until two years ago, operators were still proud to expand their network, build BTS, increase the number of subscribers and provide value added services (VAS).
But if the operator only peddles the network, selling its data, it will be defeated by the application that passes over the network (OTT – over the top) because its revenue exceeds the income of its “host”.
The latter will take advantage of the operator, if the telco operator does not change its business pattern, transforms. According to Teguh Prasetyo, Founder of the Indonesian IoT Association, the role of the network in the telco business in the near future will only contribute 9 percent of its revenue, because of which 13 percent is taken by devices (device) and 70 percent is taken by application providers.
For example, the pandemic has made smarthome application users (smart homes) in 2019 only 1.5 million homes, by the end of this year will be 12 million and will continue to grow with a potential of more than 60 million homes in 2024.
Telco operators are still needed, because all industries, all activities and applications, must use their services so that the telecommunications industry must be maintained and healthy, but the network is no longer the mainstay.
To get out of a defensive position to reach a healthy and growing condition, said Chairman of the Telematics Society (Mastel), Sarwoto on a different occasion, operators are forced to turn themselves into technology companies.
It could be by acquiring startup technology companies which, although full of risks, are “cheaper” compared to acquiring existing technology companies, while still investing in infrastructure.
Citing the results of a Kearney survey, the growth of technology companies globally is growing rapidly with market capitalization growing 29 percent (CAGR 2009-2020) which was accelerated by the impact of Covid-19, while telecommunications companies grew stagnant at only 3 percent.
In 2009, the income of telco operators was 140 billion US dollars and new technology companies 32 billion US dollars, but in 2020, telco revenues were only 114 billion US dollars, technology companies soared to 252 billion US dollars.
Indosat Ooredoo Hutchison (IOH)’s direction to turn into a technology company was strengthened by the combination of all resources, and Indosat Ooredoo had started from the beginning. In their latest financial report, there is revenue from business solutions that have reached a revenue figure of IDR 3 trillion. ***
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