Over the past four years, Communication Service Providers (CSPs) have merged or sold their network assets to help address the issue of a lack of differentiation and counteract the gradual decline of their stock market valuations. Many have turned to private equity firms to help revitalize their position in the market and we’re seeing more examples reported each day. Virgin Media 02 is reportedly exploring the partial or full sale of its stake in the mobile tower network, Cornerstone, while Liberty Global has already bought 1.34 billion Vodafone shares earlier this year.
The debt problem is still very real and CSPs are looking for a solution to improve their financial situation. With more CSPs open to similar investments, this opens the door for more private equity (PE firms) to play an increasingly important role in the industry. In fact, private equity investment in TMT reached £191.6 billion in the first 10 months of 2022 alone.
However, PE-backing has its own implications. They have high expectations and want to see a strong return of investment (ROI). The pressure to make money will force CSPs to get real about diversification and step into a new role that can prioritise growth in the B2B sector to drive a significant revenue increase. But this starts with shifting mindsets, getting real about diversification and embracing partnerships
The good, the bad and the beneficial
Backing from a PE firm can offer different benefits. Not only can they provide substantial capital injections to help CSPs pay off their existing debts or refinance them at more favourable terms, but they can offer operational efficiency improvements and strategic guidance.
PE firms typically bring extensive experience and expertise in managing businesses. With their backing, CSPs can benefit from their guidance in streamlining operations, optimising costs and implementing effective strategies that can lead to higher revenues and profitability. Additionally, can be a real asset to help identify new growth opportunities, including the exploration of new potential partnerships.
However, this also comes with the added pressure of making sure that the CSP can deliver a substantial return on investment. While PE investment can provide valuable financial and strategic support, and help CSPs financially, they must carefully consider the implications of ownership and ensure alignment between their business objectives and those of the PE firm, and other additional CSPs that may be supported by said PE that also want to be involved.
Luckily, the B2B sector is growing and CSPs have a prime opportunity to diversify their models and capture this audience — in fact, the SMB industry alone represents a $1.42 trillion (Analasys Mason) global market opportunity. Now is the time to diversify and step into a new role, and this starts with rethinking the current business models and looking towards partnerships for guaranteed success.
Redefining the business model
To successfully overcome the debt problem and meet the expectations of PE firms, CSPs must redefine their business models and work with partners in an ecosystem tailored to creating sophisticated solutions — and only then will their efforts to scale become successful. This means putting customer needs first, embracing collaboration with technology specialists and becoming digital-first.
- Understanding today’s tech-savvy customers
Businesses, particularly SMBs, are tired of managing multiple technology suppliers and are looking for a single platform provider to service all their technology requirements. Sixty percent of SMBs said there are gaps in off-the-shelf technology products and having multiple disconnected technology providers is difficult to manage. Instead, they’re looking for a single platform provider to free them up to focus on their business’s priorities.
CSPs can address this challenge directly by shifting mindsets from a service provider to a platform provider – reimagining themselves as ecosystem orchestrators, bringing together specialist partners to develop tailored and in demand solutions.
- Collaborating with specialists
Becoming an orchestrator means bringing together specialist technology providers and sector experts in a collaborative ecosystem to support each other with the co-creation and co-selling of solutions that solve customer needs. Creating agile environments for experimentation and providing a platform that brings partners together can empower CSPs to create new services and exchange data and ideas
Companies that adopt platform business models grow at twice the rate of those that don’t, simply because it allows them to generate value from their partner ecosystems.
- Setting up a solution based digital marketplaces
Solution based digital marketplaces directly solve customer challenges whilst also creating the scale for CSPs to grow and build revenue. No one CSP has all the skills and product sets needed to solve these challenges but having the orchestration capability, platform and market, gives them access to a broader set of capabilities to be that all-in-one solution provider customers need.
Digital marketplaces enable CSPs to provide a breadth of offerings at scale while also giving them the efficiency and lower cost of sale that is needed to build a viable business case. Simultaneously, it also gives commercial customers the ability to reduce cost of sales while serving such big and diverse segments.
Reaching out to PE firms to help counter high amounts of debt has its benefits but it can also put pressure on CSPs to innovate, win customers and grow topline revenue to ensure PE firms get the ROI they expect. In building an ecosystem of like-minded partners where solutions are co-created and co-funded, CSPs can benefit from repeatability and scalability, ensuring continued success and the growing revenue PE firms are seeking. In turn, customers will also be relieved of the overhead challenges that accompany technology adoption, such as the lack of time, skills and resources, which can significantly aid in their business resiliency efforts.
Overall, it’s the perfect solution to benefit all parties involved. While the ecosystem orchestration model requires a major shift in operating models and culture, having buy-in and might from C-level decision makers to diversify business models will put CSPs in a better place to meet the PE firms’ expectations. From the PE firm to CSPs and their customers, each party gains from this ecosystem.
