Why are Telcos Repositioning Themselves as IT Companies?

Last week, Safaricom CEO Peter Ndegwa announced major changes in the structure of the company. One of the notable changes was the merging of the Networks and Information Technology departments into one to be known as Technology and Information Organization. This is but one of the many moves the telco has made in recent times to reposition itself from being a purely telecommunications company into an IT service provision company without losing focus on its main reason why it holds a license from the regulator while at it.

Other than Safaricom here in Kenya, Liquid Telecom South Africa relaunched its brand as Liquid Intelligent Technologies and dropped the word Telecom from its name altogether. According to its press release, Liquid is now focusing on becoming a digital services provider in South Africa. There was also a recent announcement by Telkom Kenya that it has a new strategic focus on being the digital transformation partner of choice for enterprise and SMEs.

Why are these Telcos all over sudden reorganizing their service offerings and focus as they move to becoming integrated digital services providers?

Reason number 1

When it comes to total spend on ICT services, most organizations spend about 15% of their ICT budget on communication and connectivity with the remaining 85% going to other ICT services. With many organizations embarking on or already in the process of Digital transformation, IT budgets are experiencing higher and higher budgetary allocation as organizations work towards being future ready. These telcos are realizing that they are leaving a lot of money at the customer’s table by just providing connectivity.  This desire for a bigger slice of enterprise IT spend is the reason why the focus on the provision of enabling technologies for digital transformation. With many organizations planning or in the process of digital transformation, IT budgets are getting larger allocations and this money is what these telcos are eyeing.

Reason Number 2

With OTT providers such as Facebook, Google and others, building their own telco infrastructure and in some cases partnering with Telcos in rolling out networks and services, the infrastructure space is now awash with new non traditional players who see infrastructure not as an end in itself as telcos do, but rather as a means to another more lucrative end of driving user traffic to their platforms. With deeper pockets, these players are investing money into research and development in new ways of delivering telco services to the masses and have also a better grip of the end user than the telco has. For example, an Android phone user watching a Youtube video or google search on the Telkom Kenya network has more touch points with Google than with Telkom Kenya in their online experience. With Google Loon coming into the picture to offer 4G for Telkom, nearly the entire experience will be powered by Google. This consigns many telcos into irrelevancy in the ever-increasing online user experience. Also, with most of these content providers hosting their content locally within the country and bringing the content via their private links, commercial undersea cable and regional carriers have started to see below projected demand for internet traffic as most content is locally cached. Facebook on the other hand,  is already zero rating their WhatsApp and Facebook services on many mobile telco networks including here in Kenya where many data bundles now include ‘free’ WhatsApp. I discussed this trend in a different blog post here. With Facebook pioneering mobile money transfer via WhatsApp in Brazil and India this year, they will in no time avail it in Kenya and Africa in general. This will be a big upset to M-pesa because the M-pesa experience is always offline and away from where people spend most of their time online. WhatsApp payment will bring payment into Facebook and Instagram and any online portal where many online businesses exist today. The fact that you have to leave the browser or the app to complete a transaction is M-pesa’s Achilles heel. With traditional telco losing their space in the online experience of their subscribers other than providing the internet bandwidth, their focus better be in ways they can become more relevant to their subscribers online experience.

In a nutshell, traditional telco revenue models are under threat and the re-organization we are witnessing is a realization of this and taking action when there is still time.

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