In these new digital business services, CSPs increasingly use the digital technology and business approaches of webscale providers. The business motivation behind digital services is primarily to gain new revenues, but some of the payoff is in protecting the CSP’s connectivity revenue. 

4.   Cost transformation

The digital transformation efforts we have already mentioned inherently offer some cost benefits but, for the most part, revenue protection and growth are the primary goals. For most CSPs, cost transformation is never the primary goal of digital transformation, although some CSPs – notably AT&T, Telefonica and Telstra – are pushing dramatic changes in cost structure alongside digital transformation. CSPs' investments in SaaS-based software for telecom-specific applications is an example: in the past CSPs favored traditional on-premise license-based deployments for such services, but that is changing as spending on SaaS-based solutions is expected to grow over 300% by 2021.

For many CSPs, digital transformation is fundamentally about changing the way they run their businesses. Most CSPs are weighed down by legacy systems architecture, siloed organization structure and outmoded process frameworks. Besides accounting for significant operations cost, this setup also slows down CSP response to market changes. CSPs anticipate significant cost savings from adopting AI/automation and cloud-based technologies in software architecture and process frameworks, which in turn will reduce the number of employees required.

5.   Becoming valued as technology companies

CSPs and most of their suppliers dread the idea of being considered utilities. Investors hope for the kind of growth that justifies the high valuations of technology companies such as Amazon, Google, Uber and others who created wealth for investors built on the backbone of internet connectivity provided by the CSPs. CSPs made the really big investments, but the OTT investors got the bigger payoff. Investors have been pushing the CSPs to be more like the webscale providers as a way to get these greater returns. Much of the CSPs' public posturing for digital transformation is a response to these investor pressures. However, to date investors are not impressed by the CSPs' efforts and have grown skeptical that traditional CSPs will ever be more than utilities.

Being a utility or commodity provider, however, is not all bad. CSPs generally have good margins and provide steady profits. They rarely have more than two competitors. There are serious regulatory and investment barriers to new entrants. CSP service revenue globally is approximately $2 trillion, more than 2% of global GDP. The current business is not a bad business if one values steady, reliable profits. Nevertheless, some CSP boards and investors feel that the telecom industry faces an existential threat from webscale providers. Physical/ wireless connectivity infrastructure will always be necessary and valuable. But most of CSPs' costs are operational expense. Webscale providers, some with extensive IT and communications networks, have fundamentally lower cost operating models. They also use digital methods to reach customers at a much lower cost.

At the very least, CSPs' opportunity to participate in accessing new revenue streams depends on using the methods of webscale providers. Some CSPs view the prospect of digital transformation as a threat that they can turn into an opportunity if properly embraced. They realize how really difficult it is to transform the long-established ways of telecoms. Those that figure it out may have massive competitive advantages which they can parlay into valuations that are more like that of technology companies.

Conclusion

An improved financial standing – measured by revenues, margins or valuation – is at the heart of CSPs' motivation to invest in digital transformation. Although concerns persist on the viability of some of the new business cases and the absence of mature tracking mechanisms to review progress of transformation initiatives, CSPs will continue to make steady investments in digitizing their infrastructure and operations.