11 October 2022
Telcos should leverage Communications Platform-as-a-Service (CPaaS) to create new revenue streams, protect their key assets, and enhance customer experience and stickiness if they want to stay competitive and relevant, writes Deshbandhu Bansal, chief operating officer, messaging solutions, Comviva
That the future is hyper-digital is passé, the real question now is how soon we can get there. And telecom infrastructure is the road to take. Telecom forms the backbone of the digital economy today, with fibre optic playing a central role in transmitting about 99% of all data, tremendously enhancing day-to-day communication, bridging gaps in business communication, and unlocking massive, new possibilities. Fiber has helped businesses create more productive workplaces, increase output, significantly lowered costly downtimes, reduce latency, and ensure high-quality, disruption-free streaming and conferencing.
It is no surprise that telcos have spent hundreds of billions on bolstering their fibre-rich infrastructure and providing access to networks that power the digital economy. Without the power of fibre, it would have been near-impossible for over-the-top (OTT) service providers and digital natives to embrace and adopt disruptive business models and succeed at the scale they have reached. OTT vendors and their investors owe tremendous gratitude to the telcos. And yet, somewhere along the way, telecom players have fallen behind on the opportunity to monetize their own infrastructure.
CPaaS: a glaring example of telecoms missing out on the revenue pie
The CPaaS industry is booming. Industry research pegs communication-platform-as-a-service (CPaaS) sales to touch US$34bn by 2026. And by 2025, 95% of global enterprises will leverage API-enabled CPaaS offerings to expand their competitive edge. Interestingly, while telecom companies provide the foundational infrastructure for this aggressive growth of CPaaS, they have failed to translate the opportunity into revenues. A Gartner report agrees. “Telecoms only achieve modest wholesale profits in their role in the high-growth CPaaS market, while retail CPaaS vendors accrue enormous success.”
Modern, digital-native businesses such as Uber, Zomato, and Airbnb have been using CPaaS services to their benefit for about a decade. OTT players like Netflix and Amazon also have registered significant growth from application and service delivery on the back of telecom infrastructure. Somehow telecoms missed out on the opportunity to monetize their assets while everyone else made a killing. A telecom company’s wholesale role in driving CPaaS offers poor margins and little brand visibility. However, this equation is about to change.
Since 2020, several telecom players have been rethinking their CPaaS positioning and looking to increase visibility in retail CPaaS to generate higher margins. By 2023, at least four large telecom companies are set to make significant CPaaS retail commitments, up from zero in 1H21. To sustain and grow, telecoms must invest in developing a retail CPaaS strategy with a keen focus on:
- Improving margins through direct-to-enterprise offerings
- Ensuring C-suite buy-in to drive to corporate urgency
- Developing API and software CPaaS core competencies
The CPaaS monetisation opportunity for telecoms
Telecom operators worldwide are under pressure posed by constantly evolving technologies and fast-moving challengers, placing increased financial stress on networks. However, they are also sitting on a massive gold mine that could unlock billions of dollars—their assets and infrastructure, which is now being made stronger with 5G. When complemented with a valued enterprise brand, strong business relations, deep sales skills, and the right team, this robust infrastructure can be a significant source of revenue. Telecom leaders must look to building competitive, customized CPaaS business by investing in API tools that allow them to engage and sell directly to enterprises and boost their margins.
The COVID-19 pandemic accelerated the need for digital transformations across operations and customer and employee experiences leading to rapid growth in CPaaS innovation and flexible APIs. Many enterprises were quick to harness CPaaS capabilities to improve customer engagement and proactively send messages on purchase and appointment confirmations, transactions, and reminders. Also, increasing security with two-factor authentications, ensuring high availability, and enabling advanced analytics and a flexible deployment were additional capabilities that CPaaS provided rapidly.
Telecom providers can rise to the challenge posed by CPaaS players by monetizing established technologies in new ways, increasing market share and margins, and building an ecosystem of digital technology partners. Telcom companies already possess a mega customer base. By connecting with cloud-based platforms and implementing APIs, CSP can proactively vie with OTT and CPaaS providers and maintain their competitive edge. Additionally, given their advantage of being a trusted player in the telecom tech space, they can build collaborations with top CPaaS suppliers to offer best-in-class solutions.
Take CPaaS Video API, for instance. As more and more companies adopt this new capability for increased customer engagement, telecom companies can tap into this high-growth opportunity by adding videos to their product portfolio. CSPs must “evaluate video API development solutions in education, healthcare, banking, gaming and entertainment, servicing, and contact center solutions.” The report adds that this capability will be especially critical as video APIs are expected to emerge as foundational communication offerings among 60% of CPaaS by 2024.
Why telecoms have been slow in harnessing the CPaaS opportunity
According to the Gartner report, 4 Key Pillars to Telco Success in the CPaaS Market, telecom players are not leveraging the CPaaS opportunity to its fullest potential, a market experiencing about 30% revenue CAGR with high growth ahead. This is primarily due to the following:
- CSPs have been slow to create a developer-friendly infrastructure with no ecosystem supporting APIs and related resources to adopt a CPaaS business model.
- The current CPaaS market is highly advanced for carriers to build a viable business organically at this stage. CPaaS providers offer cutting-edge functionalities that are easy to consume and have a broad footprint.
- While the telecommunication provider’s communications assets—SMS, SIP trunks, DIDs, fiber, and 4G/5G—offer an unprecedented competitive advantage, they must reposition these assets for today’s API economy.
But how can telecoms quickly move into the CPaaS Market?
The easiest way, of course, is to partner with a CPaaS provider and share risks while simultaneously kickstarting CPaaS innovations for customers. Some other ways carriers can look to monetize established tech and create new revenue streams include:
API marketplace: This is the easiest and fastest way to deliver real-time communication capabilities. Telecom players such as KPN and AT&T have already launched an API marketplace to address the challenge posed by CPaaS providers, grow their business, and generate new revenue streams.
OTT with CPaaS: Because CSPs limit access and usage of over-the-top solutions to their own subscribers only, they have generally been unable to deliver a holistic and successful OTT solution. That said, by offering value-added managed services and quality of service, telecoms can still turn the tide. Also, operating and selling in countries with a low credit card and banking penetration provides an edge to carriers as they can leverage their existing pre- or post-paid billing mechanism for subscribers to subscribe to an OTT solution.
Selecting the right CPaaS provider: Partnering with the right provider with the appropriate platform to support enterprise needs is principal to success. A carrier should opt for a CPaaS solution provider who has the flexibility to deploy in their private or hybrid cloud environments. Moreover, as many CPaaS players offer either messaging or voice calls, having a full-stack CPaaS solution will streamline customized voice, video, or messaging solution delivery and build an authentic omnichannel experience.
Telecom white-label CPaaS offerings: With turn-key, responsive and adaptive CPaaS, explicitly built for MNOs to boost the enterprise product offerings and generate new revenue streams. White label CPaaS offerings developed specifically for MNOs can be a sure path to gaining a first-mover advantage and maximizing market share. Utilizing CPaaS to monetize non-core telecom products and SMS traffic will drive innovation and help develop new use cases. Telecom providers can also look to creating omnichannel solutions by ensuring faster time-to-market for new communications offerings and channels in their portfolio.
As the CPaaS market matures, it is pushing demand for innovative digital communication. Having evolved beyond fundamental APIs for messaging and voice services to now offering more sophisticated services that can be customized for specific markets, CPaaS is fast emerging as the way forward, especially for telecoms. Who is able to maximize this opportunity remains to be seen.