The Telecom

Consumer
of the Future
What are customers looking for from their
telecom operators, and how will that impact
the industry going forward?

The Telecom Consumer of the Future

A year ago, in The Future of Telecom Operators, we looked at a landscape for telecom operators
(including mobile, fixed-line, and convergent players) fraught with uncertainty as revenues and
profits sink and threats from inside (competitors) and outside (over-the-top players as well as
regulations) the industry increase. The industry is evolving, and our research made it clear
that operators cannot afford to be mere passive observers in a world of changethey must
work actively to forge their own future.
In embarking on this same study this year, we adjusted the point of view a little bitfrom
operators to customers. As conditions change from a supply standpoint, how is demand
changing? What do consumers want in the future when buying digital and communications
services? How much have consumers embraced mobile commerce? What are their product
preferences in terms of pricing, networks, handsets, apps, and entertainment? How do they
prefer to interact with operators with respect to sales and service? What do consumers
believe are the important factors in making a purchase, and which factors make different
operators stand out?

European telecom consumers are

active in the digital sphere.
Furthermore, we sought to build on our 2014 analysis of the four primary scenarios for
how the operator market may play out in the future. Our research last year uncovered four
primary scenarios regarding this development: network companies (pure wholesale access
providers; no end-consumers); data utilities (retail access providers; value-for-money
offerings); premium players (access and access-ear service providers; premium offerings);
and digital navigator (retail access and digital service providers; premium offerings). From a
profitability perspective, the data utility and digital navigator scenarios had higher potential
profitability than the other two. Our ambition this year was to determine which scenario
consumers would prefer.
Our online survey included more than 15,000 customers in 20 countries in Europe.1 In addition,
we ran the survey in both the United States as a whole and in California specifically, using that
country and its most populous state as benchmarks for Europes results. The findings highlight
the trends that operators must contend with as they seek a path forward in an uncertain
environment. In this paper we look at several key findings and then look at them in the context
of the industrys possible scenarios going forward.

How Europeans Use Their Phones

Todays consumers are, of course, very active in the digital worldin both developing and
developed nationswhile actively continuing to move away from classic voice calls toward data
and app usage.
European consumers are active in the digital spherefor the most part as active as their counterparts in the United States (when looking at mobile digital usage and m-commerce spending),
The countries included Austria, Belgium, Czech Republic, Denmark, France, Germany, Italy, the Netherlands, Norway, Poland, Russia,
Romania, Serbia, Slovakia, Spain, Sweden, Switzerland, Turkey, Ukraine, and the United Kingdom.

The Telecom Consumer of the Future

despite the impressions that U.S. consumers are ahead of the pack (see figure 1). But how they
use their phones is quite different. Europeans seem to be more focused on saving moneyusing
apps for calls (57 percent say they have used them in the past three months, compared with
46 percent in the U.S.) and buying physical goods such as electronics, books, and clothes online
(41 percent this year vs. 35 percent in the U.S.). Apps for calls are most popular in countries such
as Serbia (86 percent) and Italy (72 percent), where penetration of flat rates is low. Consumers
in Russia, Ukraine, and Italy (all at around 50 percent) are particularly keen on physical purchases
using their phones. On the other side Americans are spending more time on the Internet and
using apps (36 percent of total usage of the phone vs. 25 percent in Europe) and use more
digital purchasing options (53 percent have downloaded digital content such as music and
games in the past three months, compared with 44 percent of Europeans).
Interestingly, the wide differences among countries do not follow the typical lines of developed
versus developing regions, as one might expect. Some developed markets such as Belgium,
Denmark, and Norway show low mobile digital usage and m-commerce spend, mostly the result of
low numbers for digital downloads, physical m-commerce, and app-based calls; generally mobile
Internet use in these countries is rather high. On the other side, less developed countries such
as Russia, Serbia, and Ukraine have higher digital usageclose to U.S. levelseven as digital
spending is lower. The high usage is mostly driven by high numbers of digital downloads, physical
shopping, and, in particular, enormous use of app-based calls, a way to save money versus traditional voice calls. Pure Internet usage, while not very low, is slightly below the European average.
Still, overall, the average European spends about 30 per month in m-commerce (both for
digital and physical items), more than 10 behind the average in the United States. It begs the
questionhave operators truly capitalized on the digital consumer? As consumers connect
constantly on apps, and considering how some countries see m-commerce spending close
to U.S. levels, are operators missing an opportunity to tap into their spending as well?

Figure 1
Mobile digital usage vs. m-commerce spending
60

No Frills

Share of
consumers
engaging in:

Trailblazer

50
Spain

Ukraine
45
Serbia

35

United States
Switzerland

Poland

Norway

Czech Republic

30

Denmark

France
Austria

Belgium

25
20

Sweden

Netherlands
United Kingdom
Slovakia

40

Italy

California
Germany

Russia

Digital usage index

Digital usage index (%)

55

10

Physical purchase
via phone

20

25

30

35

40

Preferring to buy
connectivity online

Prospects

European average
15

Digital purchase
via phone

Calls via app

Laggard
0

Internet and app

usage via phone

45

50

55

60

65

70

Digital and physical m-commerce spend ( monthly)

Note: Digital usage index is calculated using the five factors on the right
Source: A.T. Kearney analysis

The Telecom Consumer of the Future

A Deeper Look at the Customer

Beyond usage data, the study findings point to insights on how customers interact with operators,
what products they want, and what buying factors they look to when choosing operators.
Global app stores dominate, but operators have room for improvement. Half of respondents
say they will buy apps in the future, with local differences ranging from levels of more than
70 percent in Italy and Russia to well below 40 percent in Austria, Belgium, the Netherlands,
Norway, and Slovakia. The vast majority are looking to global app stores (like those operated
by Apple and Google) to make those purchases (see figure 2). Most also prefer the instant
payment structure, where a buyer simply pays for the product he or she wants rather than
joining a monthly plan. However, one-quarter of respondents say they prefer buying from
their operators app store, and another 19 percent have no preferenceeven though in reality
more than 90 percent of these purchases are indeed being made in global app stores. Operators
can fill in some of that opportunity, but they will need to find the right triggers to attract
consumersby guiding them smartly to their own app offerings, bundling popular apps in their
tariffs and services, or offering apps with a strong local flavor or popularity (for example,
smart-home functionalities). Up to now, few operators have successfully launched their own
app stores, but we dont believe they have to give up that fight just yet.
European consumers prefer bundles, flat rates, and post-paid. Consumers in Europe prefer
bundles for their fixed and mobile lines, including a large number that prefer those that include

Figure 2
Global app stores dominate the app market
Are you planning to buy apps in the future?
Yes

No

Europe
United States

57%

43%

52%

48%

Who do you prefer to buy from?

Local operator
app store

How do you prefer to pay?

Monthly payment

25%
15%

Global app store

(Apple, Google)

19%
15%

Instant payment

53%

47%

73%

No preference

21%
12%

61%

No preference

34%
24%

Europe
United States

Source: A.T. Kearney analysis

The Telecom Consumer of the Future

TV options (for example, quad-play bundles have been successful in Spain and France). Flat
billing rates are preferred over metered options and bucket pricing. Few respondents in any
market had much interest in buying access bundled with content. Although that concept has
been in discussion for a few yearsand applied for instance in the Amazon Kindleconsumers
have not embraced that idea yet (or do not fully understand the advantages), which is good news
for operators as they seek to protect their current business.
In terms of payment, post-paid plans are the preference in most countries, with hybrid
models iTunes-like system where products and services can be bought on an ad-hoc basis
are on the rise and may even be accelerating if operators can get hot billing fully working.
(U.S. consumers show even more preference for these.) Italy, Russia, and Ukraine remain the
major prepaid-dominated countries in Europe, but even there people say they are open to
alternative offerings.

There is significant demand for pay TV

and video-on-demand in Europeand
many operators have a major opportunity.
Customers say reliability is the most important network attribute. Having the most reliable
networkin terms of the fewest dropped calls and outages, and constant access to datais
overwhelmingly the most important attribute in terms of network choice. It ranks ahead of
coverage (the amount of access to voice and data networks) and even Internet speed (the
smoothness of video streaming and speed of browsing)quite remarkable considering how
much of the mobile experience is predicated on speed. One reason that European consumers
may not be valuing speed is that its hard to touch and feel, and because it depends on several
factors at any given time or location. Interestingly, this perception can be changed, as operators
in Spain proved. There, constant communication about the value of speed has pushed
customer preference for speed to 43 percentthe highest level in Europe and even higher
than the 23 percent of Californians we surveyed.
Operators still have a grip on handset sales. Although alternative options are emerging,
consumers still seem to prefer obtaining both their SIM card and handsets from telecom
operators, aside from some traditional SIM-only markets like Russia or Ukraine. A sizeable
number still access their cards from an operator and handsets from a different source, but it
appears that operators can influence customers choices by making smart offerings and shifting
demand slowly. This is again good news for operators, as the connection between handsets and
SIM cards remains a major factor in increasing customer stickiness.
Pay TV offers a growth possibility. The survey indicates significant demand for pay TV and
video-on-demand in Europeand operators in many markets are well positioned to capitalize.
In the United States, providers like Netflix, Amazon, and Hulu have become forces in this market,
developing their own shows and making a big dent in how TV and movies are consumed in that
country. In Europe, these providers still havent taken a dominant positionlocal telecom
operators have an even share of the market compared with local cable and pay-TV providers,
and both are a bit higher than the Netflix-like options. The more than one-third of consumers

The Telecom Consumer of the Future

who say they have no preference indicate a growth opportunity, and many operators are
considering going into content production to tap into this (see figure 3). However, operators
have little time to waste in capitalizing. In some markets, the preference for global offerings
(Germany: 37 percent; Denmark: 34 percent) are already close to the numbers in the United
States (42 percent) and California (47 percent).
Brand matters with handsetsbut not when it comes to the operators handsets. When
it comes to purchasing handsets, customers indicate that the big brandsnamely Apple and
Samsunghold the greatest sway. When acquiring handsets, our respondents say the brand
is the most important attribute, although many say their goal is to acquire the handset with
the best functionality. Few say they are just looking for the cheapest handset, and even fewer
have interest in operator-branded handsetswhich, in any case, are typically positioned on
the lower end of the handset portfolio.
In sales, operator-owned physical stores and online shopping are popularbut operators
are not yet capitalizing on the opportunity. Operators have a big opportunity to meet the
desires of their customers both offline and online, and to stave off threats from indirect retailers
and unaffiliated online sellers.

Figure 3
Operators have an opportunity in the pay-TV and video-on-demand market
Are you planning to buy mobile pay-TV or video-on-demand?
Yes
Europe

No
21%

United States

27%

52%

37%

21%

42%

From whom?
Local operator

24%
11%

Global provider
(Netflix, Amazon,
iTunes)

California: 47%
19%
42%

Local cable or
pay-TV provider

23%
19%

No preference

34%
28%

Europe
United States

Source: A.T. Kearney analysis

The Telecom Consumer of the Future

The survey results bear out the size of the opportunity. Online sales of telecom services account
for only one-fifth of all sales, yet 39 percent of consumers say they prefer to shop online rather
than in stores. In some countries, including Germany (56 percent) and Norway (53 percent), the
majority of respondents prefer to make their telecom purchases online. Although brick-andmortar selling is still preferred, it is clear that more consumers want to go online and operators
havent quite capitalized on that, as either an opportunity for better service and convenience, or
for significant cost savings. Remarkably, some operators show that consumer preferences for
buying online can even pushed higher by a consequent and early-on focus on digital sales
such as the 79 percent who buy online with Telmore in Denmark, the 78 percent with
TeliaSonera in Norway, and the 73 percent with 3 in the United Kingdom.

When it comes to purchasing handsets,

the big brands hold the greatest sway.
At the same time, 63 percent of those who shop in stores prefer operator-owned shops over
indirect retailers, yet the share of physical sales in operators stores is only 38 percent. Here
operators have a nice window to further increase their own shop networks over time and push
more traffic from indirect to directa move that is already becoming evident in many European
countries. Orange France with 84 percent, T-Mobile Poland with 84 percent, and Slovak
Telekom with 82 percent are good case examples of how to convince consumers about the
value of their shop network.
In those offline stores, reduced wait times, qualified sales agents, strong customer service, and
the ability to touch and feel handsets were all cited by a majority of respondents. Less important
are omnichannel integration, store design, and location.
A focus on consumers buying factors yields important opportunities and needs for action.
Price and network quality dominate the factors for how consumers select their operators,
although price leads in Europe on average and network leads in the United States by a distance.
In Europe, only three countries see consumers preferring network quality over price (Russia,
Serbia, and Ukraine), while the highest attention to cheap offerings can be found in Belgium,
Denmark, and Norway. This lines up directly with our observations about how individual
countries are using their phones, with Russia, Serbia, and Ukraine high, and Belgium, Denmark,
and Norway low.
Overall, this is a key intricacy, as it shows how many European operators have struggled to
drive customer perception about quality; as pricing campaigns have dominated, customers
are now immune to the idea that you have to pay extra for superior networks, quality offerings,
or high-value sales and service.
Operators must act urgently on this subject, since endless price wars can harm the marketand
profitabilitywhile also hampering opportunities in the digital world. If consumers just see
operators as access providers that should only be offering cheap connectivity, then they will
go directly to OTT players for the interesting stuff. Good examples of companies succeeding
by being clear leaders in network quality are Swisscom, Telia in Sweden, Telekom Austria, and
Orange in France.

The Telecom Consumer of the Future

The data also shows other opportunities to focus on additional buying factors that could be put
together in one holistic consumer offering. Security ranks fourth overallimportant in light of
the discussions of both cybersecurity and government snooping that have captured headlines
in recent years. Sales and service are also important, but handsets are becoming less of a
differentiator, a remarkable turnaround from the situation just a few years ago, when the best
handset portfolio was often the number one factor in choosing an operator.

Consumers and the Industrys Future

When it comes to the four scenarios we outlined at the beginning of this paper, from a profitability perspective the second scenario, which we call data utility, and the fourth, called digital
navigator, had higher potential future profitability than the first and third (network company and
premium player, respectively).
At the same time, a strong majority of the companies included in our survey preferred the path
of digital navigator, where their companies were true leaders in digital, even though the data
utility option was quite viable. Eighty percent of operators included in the studyand basically all
of the classic incumbents and market leaders preferred that optionsay they prefer the navigator
option; only the third and fourth players in markets were attracted to the data utility scenario.
Based on our consumer data, we analyzed 13 different customer preferences that characterize
digital navigator customers and found striking differences between digital navigator and data
utility customers (see figure 4). For example, their digital usage is 32 percent higher than that of

Figure 4
Digital navigator customers offer many opportunities for operators
Digital navigator index: digital navigator customer preferences,
as a % of data utility customer levels
Digital usage
Is willing to pay
for quad play

278%

Values network
speed

133%

Prefers operator
SIM bundle

135%

Will choose superior

handset brand

Connectivity spending
( per month)

132%

114%

Smartphone and
phablet penetration

Plans to
buy apps

140%

Plans to buy apps

from operator

Plans to
buy pay TV

182%

Plans to buy pay

TV from operator

Prefers operators
own shops

115%

Likes all-in
service

115%

Values network
quality over price

131%

Data
utility

Digital
navigator

104%
231%
145%

18

+71%
30

Digital m-commerce spending

( per month)

2
4

Data
utility

10

+28%
Digital
navigator

12

Source: A.T. Kearney analysis

The Telecom Consumer of the Future

data utility consumers, they say they value network speed by 33 percent more, they plan to buy
apps by 40 percent more and TV by 82 percent, and they prefer their own shops and all-in
customer service by 15 percent more each. More importantly, digital navigator consumers also
spend more71 percent for connectivity and 28 percent on digital m-commerce.

A majority of the companies in our survey

preferred the path of digital navigator.
However, the reality of becoming and remaining a digital navigator is hazyand proving quite
difficult. First of all, when we average the 13 factors for various operator types from incumbents,
mobile leaders, and challengers, the results differ widely across the group. It seems that its not
easy to become a digital navigator. The truth is that many of today's leaders are not even the best
navigators in their own markets; the colored bubbles in figure 5 demonstrate the landscape in
two European countries.

Figure 5
Many operators lag in being true digital navigators

Incumbents
Classical operator with
fixed line and mobile
Mobile leader
Either market leader
or close No. 2
Challenger
Larger distance
to market leader
Average
Example country 1
Example country 2
1

32

33

34

Low

35

36

37

38

39

40

41

42

43

44

45

46

Digital Navigator Index (average of 13 factors)1

47

48

49

High

The 13 factors are outlined on the left side of figure 4.

Source: A.T. Kearney analysis

Operator attitudes are just one aspect of this discussion, however. What do customers want?
The study points to some interesting insights. First of all, when presented with the scenarios,
respondents overwhelmingly choose the data utility, with premium player and digital navigator
next, and network company well behind those (see figure 6 on page 9). This is striking, since
in todays markets incumbents and mobile leaders normally capture half of the market at
minimum. Forecasting our data to the future indicates that there might be a massive shift
of customers to what are todays challengers, and that the leaders of today may be laggards
within three to five years.

The Telecom Consumer of the Future

Figure 6
Consumer data indicates that data utility is the most popular model among consumers

% customers opting for a scenario

Network
company

9%
11

Preference
weighted
by revenue
13

Data
utility

48%
53

Premium
player

22%
44

20

Digital
navigator

Europe
United States

21%
26

17

17

Source: A.T. Kearney analysis

To fight that trend operators have two primary choices for success:
Become true data utilities. In this option, operators would accept consumer preferences and
become true data utilities, maintaining that B2C connection but moving away from doing
more than offering good-value network access. The focus would be on low-budget consumers
and digital natives seeking good value for their money. Network quality and simple pricing
plans would be critical, but bundling, handsets, and app stores would not be needed. In terms
of customer interaction, sales would ideally be digitally focused, and self- and peer-to-peer
service would be pursued, with call centers (perhaps with a fee) an alternate option. The most
important element of the data utility approach would be strong and radical focus on operational
excellenceremoving about half of todays cost positions.

When presented the scenarios, customers

overwhelmingly choose the data utility.
Adjust customers demand in pursuing the digital navigator model. At the start, this may mean
including premium player customers to broaden the target base. But ultimately, the goal would
be to tap into the potential revenue available from the most digitally active users. The most value
added would come from tapping into m-commerce, having the best and most popular handsets
available, and offering access to high-value options such as smart homes and connected cars.
The key is building an omnichannel approach to meet customers in any scenario.
Revisiting profitability in these two scenarios, data utilities would remain profitable, particularly
if they reached their 50 to 60 percent market share potential. Digital navigators, on the other
hand, will have to defend market share. While above 50 percent market share is realistic today, the
potential to lose share could seriously imperil profitability. It will be crucial for digital navigators
to capture the potential spending, and to tap into some of the premium player customers.
The Telecom Consumer of the Future

Facing a New World

The transformation of the old world of operators selling connectivity and the new world of
operators embracing digital has begun. Operators have plenty of opportunitiesto save money
via the online channel, to expand bundling of fixed and mobile, to embrace TV, to shift more into
direct sales, to expand the footprint in apps (particularly complex apps with local customization
needs), and to design innovative customer service offerings.
But the big decision comes down to which path to followthe still-profitable but limited
influence of data utilities, or the digital navigators who can influence consumers behavior
toward digital offerings, the traditional strength of OTT players. Whatever the case, operators
must start the journey now if they want to succeed tomorrow.

Authors
Florian Dickgreber, partner, Dsseldorf
florian.dickgreber@atkearney.com

Soeren Grabowski, principal, Moscow

soeren.grabowski@atkearney.com

The Telecom Consumer of the Future 10

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