Churn, Convergence, 5G: Takeaways from Deloitte’s 2021 Report on the US Telecommunications Industry

If you are looking for a 50,000-foot view of the major changes occurring in the US telecom, media, and entertainment industries, you could do a lot worse than to read the most recent report out from Deloitte consulting.  It highlights big trends impacting consumers and enterprises, and their implications for service providers and network managers.  And from our perspective, there are some key messages for anyone interested in telecom and technology expense management.

Consumers: More Cost-Conscious and Willing to Churn

According to Deloitte, the economic hardships created by the COVID-19 pandemic made many consumers and businesses more cost-conscious when it comes to buying telecom, media, and entertainment services.  The reason is simple: many of them saw a decrease in their income, at least on a temporary basis.

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What does this mean?

First, customers are more open than ever before to advertising-supported services (such as media and gaming services) that reduce their direct, out-of-pocket expenses.  Even in the business market, there has been growth in advertising-supported teleconferencing services.

The other result of the economic downturn is churn.  Following the pandemic, businesses and consumers became much more willing to switch service providers to save money.  One example: for “Over the Top” (OTT) services, Deloitte’s research indicates that the churn rate rose from 35% in Q1 2019 to 41% in Q1 2020.

For “Over the Top” (OTT) services, Deloitte’s research indicates that the churn rate rose from 35% in Q1 2019 to 41% in Q1 2020.

All that churn has cost implications for service providers: they are incurring costs as customers leave or sign-up, and they have to spend more sales and marketing dollars to retain their customer base.

Convergence Accelerates

Under the category of changes that may not immediately affect enterprises but are worth watching, the Deloitte report argues that the convergence of telecom, media, and entertainment is now accelerating.  Consumers who were forced to stay at home during the pandemic increasingly turned to video gaming for entertainment.  Not surprisingly, musicians and other entertainers have taken notice.  For example, Travis Scott staged a virtual concert within the video game Fortnite that attracted 27.7 million unique players, making it Epic Games’ most successful in-game event ever and helping to launch the rapper’s newest single, “The Scotts,” to No. 1 on the Billboard Hot 100.

The Growth of 5G and Edge Computing

While the convergence of media, telecom, and entertainment are more focused on consumers, 5G wireless networking and the edge computing approach it enables will have significant consequences for all businesses – and for technology cost management.

Deloitte estimates that 5G will generate $700 billion in economic value, with enterprises representing 68% of the market, led by retail, government, and finance applications.  A key to achieving this value will be edge computing, which goes hand in hand with 5G.

5G networks migrate computer processing (typically hosted in the cloud) closer to the edge where data is generated, analyzed, and acted upon. The combination of 5G and edge computing can support business applications such as contactless shopping, smart warehouses and virtual medicine.

Conclusion: The Cost Management Dimension

As a provider of solutions that help businesses manage telecom and technology costs, we are always interested in the expense management implications of these trends.  In this case, a few key points jump out.

“Cost-sensitivity” is here to stay.  While the Deloitte report highlights how consumers became more price-sensitive during COVID-19, there’s no reason to believe the same does not hold true for businesses as well.  CFO’s and controllers want more visibility into their expenses, and they want to streamline the process for finding savings.

Investments in Technology Have to Be Paid for With Savings Elsewhere. There’s no doubt that technologies such as 5G have tremendous upside potential for businesses.  But these benefits take time to unfold, and in the meantime, the new technology has to be paid for.  In many cases, that means executives need to reduce telecom and technology costs elsewhere.

Spreadsheets Can’t Keep Up with Technology Changes.  The Deloitte report makes it clear that the portfolio of technology and telecom services used by businesses is continuing to change.  Shouldn’t the tools that businesses use to manage those services change as well?  Yet we see many businesses still relying on manually updated spreadsheets to (for example) maintain their inventory of network services.  Whether a business decides to build its own solution or invest in a platform such as our gpxcloud SaaS platform, it’s clear that having a scalable tool can pay big dividends in a rapidly changing industry.

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