Telco Innovation in the Age of (Responsible) Privacy

The telco sector continues to be at the forefront of customer-centric innovation, including Vodafone’s recent ten-year strategic deal with Microsoft to bring generative AI, cloud, digital and enterprise services to more than 300 million businesses and consumers throughout EMEA. Amid the incredible growth in data and the increasing prevalence of connected devices, telcos are in a great position to leverage their extensive networks and customer bases to deliver tailored products and services.

PwC's inaugural Global Telecom Outlook 2023-2027 predicts significant growth in global data consumption over telecoms networks. Driven largely by video traffic, data consumption over telecoms networks is expected to nearly triple from 3.4 million petabytes in 2022 to 9.7 million petabytes in 2027. However, revenue from internet access will only rise by a modest 4%. 

The customer remains at the centre of telecoms growth as demand for data rises. New devices with higher requirements for data and the rapid growth in video content - which will account for 79% of all data consumed over telco networks by 2027 - continue to drive the demand for data. Virtual reality and the growth of the metaverse will also claim 5% of total data consumption by 2027. 

The sector faces a broad set of challenges and increased regulatory scrutiny, ranging from climate-related disclosure rules to Pillar Two tax legislation and the prospect of potential net neutrality rules. The introduction of Europe’s ePrivacy regulation will have a major impact on telco operators and their data processing and direct marketing activities as well as the control and confidentiality of communications over their networks.

Telco operators must develop a deeper understanding of regulatory challenges to manage and mitigate risk and ensure compliance is embedded within the broader innovation and product development cycle. To meet ePrivacy requirements, telcos will have to take steps to put processes in place to ease consumer opt-in and opt-out from direct marketing communications, provide greater transparency over cookies used on their websites, review the use of pre-ticked boxes with regard to cookie preferences, and generally ensure settings are user-friendly and transparent to make it easier for consumers to provide explicit consent.

Beyond regulatory compliance, however, telcos must undergo an urgent process of reinvention to ensure their business models remain viable. The latest PwC Global CEO Survey reveals that 45% of business leaders believe their company will no longer be viable in ten years. 

For telco operators, this process of reinvention should cover three vital elements: 

1. building capabilities to meet changing customer demands 
2. optimising revenue by unlocking underutilised opportunities for new products and services, as well as driving greater efficiency
3. rising to regulatory challenges by leveraging compliance as a competitive advantage. 

Success in the sector may depend on how telcos balance these elements to meet compliance requirements and deliver on customer expectations whilst ensuring they can adequately capitalise on revenue.

In the face of an urgent need for business model reinvention, telco operators are seeking to leverage technology to transform their customer experiences and take advantage of the benefits of the emerging Age of Privacy. 

As traditional telco revenue streams such as voice and data deliver dwindling revenue returns, telcos are increasingly exploring adjacent services across a range of categories. In more developed markets, telcos are leveraging their networks and the rollout of 5G to enable industry adoption of IoT, digital twin technologies, and greater automation. In less developed regions, telcos are filling the gap left by poor penetration of financial services, leveraging their networks and large customer bases to offer mobile money, payments, insurance, healthcare and more.

This makes commercial sense: telcos have a wealth of customer data and enjoy relatively high levels of consumer trust and brand loyalty, especially in Africa, where many of the most valuable brands are telco brands. By leveraging this incumbency, telcos can develop tailored products and services that meet quantifiable needs within a well-understood and clearly-defined customer base. 

However, the confluence of experience, privacy and technological disruption is introducing additional risks to telco operating models and hampering broader innovation efforts. 

In a customer context, the rise of adjacent services represent enormous commercial opportunity but also a range of immediate risks to telcos. Almost 80% of UK consumers agreed in recent PwC research, that its important for them to know that their information is being kept private and only a quarter felt that the benefits of personalisation outweigh privacy concerns.  If there's a data breach in a telco's Mobile Money service, for example, consumers may lose trust and even opt to move to a more privacy-minded competitor. In addition, the data breach could invite greater regulatory scrutiny, adding even more complexity to the telco's operating model. We also know from our research that telcos generally have more work to do to earn trusted status than their digital or technology counterparts, with only a third expressing strong levels of trust amongst telco brands.  Protecting and enhancing consumer brand trust in the sector should be paramount.

In a B2B context, the growing trend of telcos offering white-glove services to enterprises – especially in Western Europe - also pose a risk. The risk lies in the balance between developing the requisite insight into user preferences while also maintaining high levels of security and privacy in line with prevailing regulations. Considering such services are by nature experience-led, and not technology- or solutions-led, telcos seeking competitive advantage typically focus on the quality and level of personalisation inherent in the provision of such services. 

A lapse in security - or a poor end-user experience due to an overtly cumbersome security policy - can undermine that differentiation and reduce the telco's competitiveness. The answer is not to reduce risk by halting innovation, but in taking steps to understand how trust and privacy have been built into the service from the outset. 

Trust, privacy and safety should not be seen as opposite to the delivery of exceptional customer experiences. The sector has the opportunity to evolve new services that are built from a privacy-by-design perspective, where regulatory compliance is embedded in the customer-led business transformation process and built into new business models or revenue streams from the ground up. 

One of the biggest challenges is that privacy and regulatory compliance are often viewed as a burden to telco operators. Compliance efforts are only introduced at the end as an overlay to the broader innovation effort, instead of an integral part of product and service development. 

Telcos that develop adjacent services - such as new financial or entertainment services - but fail to embed regulatory compliance into the product development cycle from the start will inevitably have to make technical concessions that undermine the ultimate quality of the customer experience. 

Understanding the risk landscape – both at a customer as well as regulatory level – can help telcos develop more effective business transformation initiatives that support broader efforts at reinvention. While telcos may seek to de-risk their business at the lowest cost and with the least amount of change possible, this would represent a significant missed opportunity. Instead, telcos should embrace risk and build new product and service innovations with privacy and compliance in mind. This ensures that the broader privacy drive is not a burden, but a competitive advantage that can unlock new revenue streams and position the company for success and growth well into the future. 

One of the most pressing priorities for telcos is to de-risk their business models at the lowest cost and with the requirements of the Age of Privacy top-of-mind. While the impulse is to do so with the lowest amount of change, telcos should rather - and somewhat counterintuitively - seize the opportunity for customer transformation that enables new capabilities and unlocks new revenue streams for future growth.

To achieve this, an effective and simplified roadmap to customer-centric business transformation in the telco industry needs to emerge, involving three essential aspects:

• First, telcos change how they view the customer by targeting the right customers in a safer, more ethical way while also seeking cost efficiencies through greater automation, for example. 
• Secondly, the focus shifts to improvements through greater operational efficiency and effectiveness to drive higher levels of profitability and differentiation.
• Finally, telcos expand their offering by exploring new markets or product segments, delivering sustained growth.

In the Age of Privacy, this entire process unfolds as a point of differentiation, where telcos embed privacy and security into their products and services to deliver responsible customer experiences that leverage privacy as a competitive advantage.