Global telecom giants currently find themselves at a critical crossroads. Although coverage is improving and speed is increasing with investment in 5G networks, revenue growth from voice and data is slowing in many markets. At the same time, the industry continues to have difficulty with meeting rapidly changing customer expectations, which are shaped by simple, personalized interactions that are made available by digital giants such as Airbnb, Amazon, Apple, Netflix, and Uber. Telecom operators’ average net promoter score (NPS), a key customer-satisfaction metric, has typically been in the 20s, versus more than 50 for many digital powerhouses.
There is nothing simple about most telcos’ product portfolios, and that complexity is part of their problem. What started as a broad range of plans for a diverse customer base has evolved into a dizzying array of options that are difficult to understand and navigate, damaging the customer experience, especially in comparison with that offered by ascendant digital-native alternatives.
To better satisfy and hold onto their customers, some operators have started to build their own separate digital-native-attacker units. This approach has turned out to be less expensive and disruptive—and in some cases, more successful—than a holistic digital transformation of the core business. The nimble, new brands are also proving to be strong growth vehicles for their parent companies. Within four quarters from launch, the typical digital attacker has contributed close to 25 percent of overall gross additional subscribers (gross adds) to the incumbent operator, while showing total profitability that is more than five percentage points higher (exhibit).
Most importantly, 70 percent of these gross adds are new to the operator and not cannibalized from legacy parts of the business, with an acquisition cost that is roughly half that of the parent brand. These units not only can reduce the “cost to serve” per customer by 50 to 70 percent once they reach scale but also consistently deliver a better customer experience, with an NPS that can be as much as 30 to 40 percentage points higher than the incumbent competitors.
When launching a digital attacker makes sense
Choosing to embark on a digital-attacker strategy in the first place is not a simple decision for a parent operator to make. In our experience, the organization’s leaders need to address several key questions before taking the plunge:
- Would the digital attacker help accelerate customer acquisition with a differentiated brand and value proposition that will serve an underserved or underindexed segment?
- What would be the cannibalization impact? Even if it is potentially significant, is there merit in a preemptive self-cannibalization strategy to protect “share in digital” (that is, cannibalize yourself before others cannibalize you)?
- Do the company’s existing technology and processes provide the means to test and learn quickly?
- Do the existing operating model, brand perception, customer expectations, technology stack, and business processes pose any challenges to launching a new proposition that is fundamentally lean and nimble?
- Is there an opportunity within the existing operating model to experiment with a more open ecosystem and telco adjacencies?
- Is there a cost advantage to explore by moving to an end-to-end or hybrid digital proposition?
What it takes to launch a digital attacker
The competitive rationale for launching a separate attacker brand is compelling, and the potential impact is substantial, but it’s nevertheless a daunting prospect for many legacy operators given the duplication of roles and potential cannibalization. Encouragingly, we have found that if operators follow five steps in launching their digital attackers, they can see a positive return on their investment within six to nine months: Create a radically simplified and differentiated product; adopt customer-tested design and create an ultra-easy user experience; build flexible technology that helps fuel innovation; use digital-marketing tactics as well as advanced analytics to drive digital sales; recruit digital talent and organize in agile, autonomous teams.
We have seen this approach adopted successfully across geographies. For example, Sunrise Communications in Switzerland launched yallo as a digital-attacker brand to pursue aggressive growth with a primary focus on digital offers and digital marketing. Orange Flex in Poland, Yaqoot by Zain in Saudi Arabia, and by.U by Telkomsel in Indonesia have all positioned the digital attacker as a new, fully digital value proposition, including digital customer journeys such as onboarding, activation, and service. Some of these digital attackers have even started expanding into true digital-services platforms (for example, video, gaming, and messaging).
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All of these players have shown that the key to a digital attacker’s success is having an agile, lean operating model that gives it the flexibility and nimbleness to make rapid changes, shift its business strategy, and go to market quickly. The five steps that we have identified are critical to achieving that goal.
1. Create a radically simplified and differentiated product. Telecom operators’ product portfolios have grown exceedingly complex over time. Taking various options into account, operators might offer more than 20 separate mobile plans, each with many pages of fine print and often featuring late fees and other charges that surprise customers at the end of the month.
To appeal to today’s demanding customers, digital attackers make their offerings much less complicated. They look to Netflix as a model for ease of use and transparency. The streaming giant has just a few different plans based on the number of screens, with monthly rates that have no hidden fees or charges. The average legacy telecom company has three to four times more mobile-package variations compared to digital attackers. In fact, many attackers—including FUNK by freenet and yallo swype by Sunrise Communications—only have two different offers.
Yet, it isn’t just the sheer small number of different plans that makes these upstart brands stand out. The plans themselves are transparent, easy to understand, and easily can be changed to fit a customer’s shifting needs. This instant adaptability is key to their growing popularity. If customers suddenly decide they need more data or roaming for a trip, for instance, they can order it from their mobile phones with just a few clicks or swipes, and the plan will automatically be updated in real time.
2. Adopt customer-tested design and create an ultra-easy user experience. Even if a digital-attacker brand does a great job streamlining its service offering, it won’t reap the full benefits without an equally simplified user experience. That means having a seamless, intuitive interface and simple wording and communication. Design professionals must work closely with customers to create and test the user interfaces (UI) and user experiences (UX) every step of the way (for example, making sure customers navigate as few screens as possible to accomplish a task and easy switches to turn options on and off).
For example, one operator used internal cross-functional teams and collaborated with more than 4,000 customers across the whole country to create its digital operator: the process included quantitative research with several thousand customers during the discovery and research stage, individual testing sessions on UX/UI design with several hundred customers, multiple co-creation hackathons, and preproduction delivery testing with approximately 60 customers. After the launch, the operator reviewed more than 1,000 chats per week and addressed customer feedback.
The operator used this rigorous process to design end-to-end journeys that are 100 percent within the app, from onboarding to support. Customers can upgrade or downgrade their data plans in real time and easily purchase (and immediately use) additional data in roaming or international call minutes. Moreover, there are no loyalty contracts. Customers can subscribe and unsubscribe by simply swiping on or off on their phone.
This marriage of a simplified offering and user-tested design means that customers end up having fewer questions and, as a result, the cost to serve drops significantly. One operator made self-service one of the building blocks of the new customer journey, going so far as to eliminate the inbound customer-care call center altogether. Its digital attacker now has a two-tiered customer-service structure. The first level makes self-guided and self-help online tools available 24/7. Chatbots, for example, have evolved from serving information to processing requests. If that doesn’t resolve the issue, the problem is escalated to a second level. Ticketing captures inquiries in a structured format and then progressively addresses root causes and automates answers. Phone contact is only possible as an outbound callback.
Moreover, the company built its new billing system with keen attention to the UX and UI. For example, it created an interactive self-care website that offers complete transparency on payment status. The customer can drill down to understand charges. As a result, the number of bill-related inquiries to customer care fell by 30 percent.
3. Build flexible technology that helps fuel innovation. Digital-attacker brands need to launch and experiment with new features and customer experiences rapidly. That requires a new IT stack that is flexible, modular, and operates independently of the incumbent telco’s IT systems.
These new IT stacks should leverage cloud-native deployments whenever possible to simplify IT operations and reduce operational overhead. Cloud adoption is gaining momentum with the advent of 5G because 5G standards are pushing for cloud-native architectures for telco infrastructure. Vendors of business and operations support systems are pushing cloud-based offerings to the market.
Another key component of these new IT stacks is a microservices-based architecture, especially for the software modules that integrate with the digital channels. For example, a digital attacker in the Middle East built more than 25 microservices that simplify the integration with front-end channels while simultaneously implementing customized user experiences for digital-ID verification, rewards, digital payments, and subscription management. These microservices-based modules allowed the digital attacker to iterate, test, and continuously improve the digital front-end experience to achieve product–market fit within eight months after the initial launch.
By selecting the right technology and adopting the best engineering practices (for example, business and operations support systems to maximize automation in the software-development life cycle), the digital attacker will benefit from a faster “build–measure–learn” loop.1 The faster the learning cycle, the faster the route to innovation and product-market fit.
4. Use digital marketing and advanced analytics to drive digital sales. To fuel revenue growth, telcos also need a much faster time to market for new promotions and campaigns. Being successful in digital sales requires continuous reinvention (for example, adopting new channels, formats, creatives) to tap new pools of subscribers.
Accordingly, digital attackers operate their new promotions and campaigns on a very short idea-to-execution cycle: a few days versus several weeks at most incumbents. For example, yallo by Sunrise Communications implemented weekly marketing sprints. Each Wednesday, teams decide what they will launch the following Monday. The entire marketing system is configured to move at pace, including all external partners.
Advanced analytics can turbocharge the learning process and help digital attackers to personalize offers based on a customer’s current plan and circumstance; for example, knowing when a customer is landing in a new country and needs international data roaming or recognizing when a customer is seeking specific help and linking them to relevant tutorials.
By leveraging marketing tools from outside the industry (rather than traditional telecom customer-relationship-management systems), digital attackers can build marketing technology stacks that rapidly implement such personalization strategies through all channels. One digital attacker runs more than 200 personalized microcampaigns in parallel for specific use cases. Meanwhile, everyone on a digital-attacker sales team, not just the analytics specialists, needs visibility into sales data through tools such as web analytics, and managers need performance-management tools to track results, progress toward milestones, and drive accountability. Targets should be managed daily.
Connected world: An evolution in connectivity beyond the 5G revolution
Promotion and sales are further improved by embedding partners such as marketing agencies much deeper into daily operations than most telcos do today. One operator linked the marketing agency’s compensation to the sales target of the attacker rather than simply paying a service fee and, as a result, was able to achieve its goal by 120 percent.
5. Recruit digital talent and adopt an agile working model. The digital model requires more specific, technology-savvy skill sets than exist within most incumbent telcos today (that is, designers, product owners, tech leads, developers, data engineers, and data scientists), along with new agile ways of working. In an agile setup, small squads with a combination of these skills operate with a fair amount of autonomy and continuously perform customer testing and gather customer feedback in two-week sprints, delivering updates frequently.
Traditionally, large telecom players have lacked much of these skills, relying instead on an outsourcing model. Digital-native organizations, however, cannot afford to use that kind of approach, given their need to learn and respond faster and rapidly adapt the digital experience. Building up the necessary internal talent and capabilities requires new approaches, such as recruiting on university campuses, creating a work environment that is attractive to passionate and skilled individuals, and ensuring autonomy and a culture that is accepting of failures. One attacker used hackathons as a main source of recruiting. Another focused on fostering a lean and nonhierarchical organization, even creating a separate physical work area with plenty of open space and screens with live dashboards to foster a lively and more collaborative environment.
While team empowerment is crucial, it is equally important to ensure transparency and a performance-based culture. Two digital attackers defined objectives and key results (OKRs) as an approach to set and measure the targets for the teams and individuals. For example, the OKRs for digital marketing and growth were linked to the cost of acquisition and the number of gross adds, while OKRs for engineers were linked to availability and uptime of the system.
Creating and preserving this environment—without sacrificing expectations for speedy results—also requires commitment from top management. To help maintain that commitment, leaders can validate key elements of the launch by reviewing specific markers. Successful digital attackers have tested the product-market fit early on by analyzing changing consumer needs and behaviors, interpreting user data, and tweaking the proposition, user experience, and interface accordingly. One telco in Asia ran a very effective beta program that attracted more than 30,000 subscribers well before launch; they not only provided valuable insights to help tweak the offering and interface but also remained paying subscribers after launch.
Finally, from a broad structural standpoint, operators have succeeded with digital attackers by building and operating them under a separate organization (business unit or legal entity). All too often, the existing operating model, technology practices, working culture, or talent pool within the legacy organization did not seem to be conducive to launching such a different and lean offering. This design approach helps ensure agility from planning to execution, including faster decision making and a more flexible approach to budget allocation, while enabling the creation of new organizational structures, job families, and performance management. It also provides the necessary autonomy and grounds to experiment and innovate in a relatively risk-free environment with the aim of applying the learnings back to the parent company gradually.
Many telecom operators are in dire need of transforming themselves to cope with new market conditions but have had difficulty making an organization-wide overhaul. We believe launching separate digital-attacker brands is an alternative route to digital transformation and a way to address customers’ changing demands rapidly. Once at scale, the digital attacker can become the main growth driver for the parent operator.
