Insight

COVID-19 and developing recovery plans in the Telecom Industry

Improving business performance involves developing plans that align go-to-market motions and the operating model with changing conditions

  Sean Sullivan

Sean Sullivan

National Telecommunications Industry Leader, KPMG US

+1 303-296-2323

In my previous blogs on industry dynamics and resilience, I discussed how the economic disruption caused by COVID-19 has hit the telecom industry and how companies could build resilience against the recession. Here I will focus on the approach telecom companies should take to develop forward-looking business plans and improve performance as we work toward recovery.

At the highest level, business value is a function of profit, which in turn is driven by revenue and cost. Performance improvement needs to consider both.

Revenue/Commercial Effectiveness

Understanding customer behavior is key to a successful plan. The recovery planning process can create an opportunity for operators to bring additional analytic capabilities to the commercial function, which can increase effectiveness and in many cases reduce costs. It can also help leaders establish a data-driven culture across their commercial teams.

A recent KPMG survey found that 42 percent of fixed broadband and 53 percent of wireless customers are likely or very likely to consider upgrading service as a result of needs changing due to COVID-19.1 The same survey found that 32 percent of wireless customers are likely or very likely to consider switching wireless carriers to reduce costs.

Operators’ recovery plans should provide a road map for how they can best capture these upgrade, cross-sell and new customer acquisition opportunities while also minimizing customer losses. Comprehensive plans to optimize revenue should include changes to product portfolios, pricing, marketing, sales channels and customer support / retention operations.

Cost / Operational Efficiency

Operational efficiency should be viewed not as a way to simply reduce costs, but instead as a vehicle to ensure investments can be made in the areas that are most critical to recovery and long-term success. In 2009, in response to the recession, the four major U.S. telecom operators reduced capex spend by an aggregate $5.5 billion.2 With 5G investments a priority for major wireless providers in 2020 and 2021, driving operational efficiency will help reduce the need to defer or scale back buildout plans – and perhaps even enable some plans to be accelerated.

Recovery plans should incorporate operational improvements, either through enterprise-wide or focused initiatives. It is important in such initiatives to ensure that savings in one place do not quickly re-appear as increases in another – a core role of a program management office. Savings should be carefully evaluated and either captured as bottom-line improvements or as investments in other priority areas, such as expansion of call center and digital interaction channels or 5G network deployment.

A focused approach

The authors of a 2010 Harvard Business Review article “Roaring out of Recession” analyzed business’ strategy selection and corporate performance during three of the past global recessions. Their research concluded that progressive companies that deploy the optimal combination of offensive (i.e., growth-oriented) and defensive (i.e., cost-oriented) moves have the highest probability of achieving breakthrough results during a post-recession recovery period.3

We believe this insight is particularly relevant for telecom companies developing recovery plans. Plans should not focus purely on cost reduction or growth, but instead companies should look to make selective and surgical moves to increase operational efficiency and invest intelligently in areas that enhance commercial effectiveness.

For example, operators may consider closing some retail stores to reduce costs and leverage analytic modeling. This would also help to:

  • Identify the optimal retail footprint to maintain
  • Invest in a differentiated digital channel experience
  • Consider pricing models to attract new customers with usage patterns that minimize incremental operating costs

The new reality that emerges will create many opportunities in the telecom market. Now is an ideal time for operators to assess their overall performance, develop capabilities around data and analytics, and launch performance improvement initiatives targeting both the top- and bottom-lines. Operators that are agile, strategic, cost conscious, and driven by data and analytics will be best positioned to benefit.

Learn more here about how KPMG can help companies navigate to a new reality as the economy emerges from the current disruption.

  1. Resilience – Immediate actions to preserve cash, give confidence to customers and employees and ensure business continuity - the “Four C’s” (Customer, Cash, Cost, Capital):
    1. Customer examples: adjusting late fee and overage policies, evaluating renewal price / commitment tradeoffs, monitoring service quality under new usage patterns
    2. Cash/Cost/Capital examples: evaluating debt financing opportunities, monitoring working capital, assessing short-term cost savings (e.g., discretionary marketing spend)
  2. Recovery – Performance improvement actions to make it through a likely recession and maximize options in the face of uncertainty:
    1. Customer examples: updating customer retention programs and models to minimize churn, adapting offers and acquisition activities for changing conditions and behaviors
    2. Cash/Cost/Capital: Revisiting network capital investment plans in light of changing demand and usage patterns, shifting spend from retail to call centers, adjusting advertising mix and messages, proactively managing bad debt expense
  3. New reality – Actions resulting from assessing new opportunities that arise as customer and market disruption settles into a ‘new reality’, such as:
    1. Taking actions to better serve the needs of customers who permanently increase work-from-home, remote-learning, and over-the-top entertainment activities
    2. Adapting retail store footprints, subsidies and distribution models to maximize value in an environment where customer purchase drivers may be different

Over the coming weeks I will examine each of the components of this integrated framework in detail, with dedicated blog posts identifying specific actions and considerations for telecom companies as they navigate this challenging time. While market dynamics are shifting quickly and the future remains uncertain, companies that focus on moving from short term challenges to recovery and preparing for the new reality, will emerge in the best position.

Learn more about how technology, media and telecommunication companies are playing a crucial role in addressing the COVID-19 challenge.

Footnotes

  1. “Pulse check: How COVID-19 is changing wireless and broadband demand.” 2020,
    https://advisory.kpmg.us/articles/2020/covid-19-changing-wireless-broadband.html
  2. CapitalIQ and KPMG analysis.
    https://www.kpmg.us/insights/2020/covid-19-resilience-readiness/tmt/telecommunication-companies.html
  3. Ranjay Gulati, Nitin Nohria and Franz Wohlgezogen. “Roaring Out of Recession.” Harvard Business Review, 6 Oct. 2014, hbr.org/2010/03/roaring-out-of-recession.