With the complex effects of inflation, supply chain problems, and economic downturn on both businesses and consumers, 2022 has been a challenging year for telecom retail.
2021 saw an explosion of retail activity as consumers hungry for a return to pre-pandemic holiday traditions drove an 8.5% total increase in holiday shopping revenue—the largest annual increase in 17 years. This year, however, is seeing a net decrease in holiday spending after taking inflation into consideration.
In such challenging times, understanding the market is more critical than ever. In the following pages, we’ll discuss the recent history of telecom retail, trends driving change right now, and where we see telecom retail heading into the future.
Understanding the Recent History of Telecom Retail
Telecom retail is going through some dramatic changes that can seem overwhelming. As the pace of technological change has accelerated, a rapidly evolving market has become the new normal. Over the past 10 years, a series of seismic shifts in telecom have forced retailers to continually evolve the day-to-day running of their business to keep up with the rapidly changing market.
Looking back, however, it can be a bit surprising realizing how many major shifts the industry has already weathered.
The Decade’s Major Changes In Telecom
- Margins out of hardware sales transformed by the iPhone: Because it virtually eliminated the margin on devices, the iPhone forced a major change in how retailers operated their stores and sold devices
- Contracts with fixed terms replaced with financing: The change from fixed-term contracts to device financing required retailers to reimagine what selling and activating a device looked like, even if financing still locked consumers into their carriers meant that not a whole lot changed for consumers
- Prepaid carriers gained momentum: The massive growth of prepaid has been something many never anticipated. At its inception, prepaid wasn’t considered a threat to post-paid carriers. However, over time they’ve gained lots of traction and prepaid carriers like Cricket have become massive players in this space
- BOPIS and ROPIS: Buy (or Reserve) Online, Pick up In-Store took off quickly thanks to the pandemic. However, unlike other pandemic shopping trends, BOPIS and ROPIS are predicted to continue growing as a share of retail sales
- 5G becomes network focus: The first 5G mobile towers went online in 2018. However, the expansion of 5G service has been slow, especially compared with previous transitions from 3G to 4G and then to 4G LTE
- Carrier bundling begins to impact subscriber churn: Another change that started small and has really taken off is bundling of wireless plans and other services like streaming, or — as in the case of a recent announcement by Boost Mobile — banking. Bundling activity is growing increasingly fierce, with offerings changing daily and creating intense competition among all carriers
- Increased carrier consolidation: While the pace of consolidation slowed in 2022, the past three years have seen more consolidation of wireless carriers than we’ve seen in the past 20 years
- Wireline carriers emerge as competitive threat: Telecom carriers are also facing competition from entirely new sectors — such as wireline carriers, who have emerged as an increasing threat to the Tier 1 carriers
- MVNO with no retail front gains momentum: MVNO as a sector is growing very rapidly; at time of writing, there are more than 130 MVNO brands in the United States alone
- eSIM technology strategies emerge: The recent iPhone 14 launch has propelled this trend into the lead as one to watch. However, it’s still too early to assess the impact yet, and it’s still uncertain how carriers and retailers are going to operationalize or monetize this technology.
Telecom Retail in 2022
The six major trends influencing telecom as we close out 2022 and move into 2023 are:
- The shift toward eSIM
- An increasing telecom space race
- 5G service deployments and the digital divide
- Red-hot telecom sector competition
- This year’s holiday retail outlook
- Ongoing supply chain disruption
1. Apple Disrupts the Market with eSIM Only iPhone 14
Apple has long been a market leader in pushing the adoption of new technologies, and this year’s iPhone 14 launch only continues that trend. Apple’s announcement that the new iPhone would get rid of the physical SIM card tray has propelled the market forward very quickly, forcing carriers and partners to change how they operate in order to retain iPhone users who want to upgrade to the newest model.
Previously, there hasn’t been a lot of support for eSIM in North America. Only a few handsets have been eSIM only over the past 5 years, and only one T1 carrier – T-Mobile – supported it prior to the iPhone 14 announcement.
Event Poll: How do you feel about Apple’s eSIM announcement?
We asked Telecom Industry Address attendees to vote in a flash poll asking how they were feeling about this new eSIM announcement. Were they…
- Nervous about how this could disrupt carrier’s existing business
- Excited for this new technology and the consumer choice it offers
- A little bit of both of the above
- Feeling nothing about it
Those who said they didn’t have any feelings about this were in the clear minority (13%). The same proportion (13%) said that they were nervous about disruption to carriers, while a third (34%) said that they were excited for the technology and consumer choice. The remaining 40% said that they were both nervous and excited.
2. The Telecom Space Race
In the past year, every Tier 1 North American carrier has announced strategic space partnerships. T-Mobile and SpaceX have announced plans to connect phones with StarLink satellites. Verizon has announced plans to use Amazon’s planned Project Kuiper satellites, while AT&T has similar plans with OneWeb.
In addition to strategic carrier partnerships, we’re also seeing handset manufacturers starting to implement satellite messaging technology. Both Apple and Huawei have announced emergency satellite messaging capabilities in their latest flagship phone launches. Additionally, support for satellite messaging will be implemented as part of Android 14, though the updated OS isn’t set to release until Q3 2023.
Because the technology is so new, it’s unclear what the impact of satellite messaging will be. Additionally, there are currently severe technical limitations.
- The bandwidth to deliver service is extremely limited — in many cases too small even for SMS messaging.
- Not all emergency services can receive text messages. Apple’s Emergency SOS required workaround where messages in some areas will be intercepted and resent because of this limitation.
3. 5G’s Bridge Over the Digital Divide
After several years of slower-than-predicted deployments, the pace of 5G network expansion is finally starting to pick up. However, with the focus shifting to next-generation networks, it’s easy to lose sight of the millions of people who don’t have access to the internet or wireless services.
26.7 million people in the United States remain unconnected; globally, that number is a massive 2.96 billion. Additionally, access varies widely; Nearly 90% of people in developed economies use the internet, compared to only 27% of people in the least developed economies. While internet access rates are growing faster in least developed economies, the gap between advanced economies and the least developed economies remains very wide at 63%.
The gap is even more stark for those living outside of urban areas. Globally, people in urban areas are twice as likely to have internet access than people in rural areas, and four times more likely in the least developed economies (47% versus 13%).
The expansion of 5G networks represents an opportunity to connect people in people in rural communities and create new economies and ways of living. It also represents a new market for carriers with much lower acquisition costs; in a market where 28% of rural people remain unconnected, acquisition costs are much lower because companies can deliver net new services.
4. Shifting Market Competition
T1 carriers have partnered with wireline MVNOs for several years, but there is a growing shift in how well they’re doing in the market with companies like Cox, Altice, Charter, and Xfinity growing very rapidly.
In Q2, cableco and wireline carriers represented one third of post-paid activations in the United States. During that same time period, Xfinity added 700,000 activations, but still only have an 8% penetration of their wireline base — indicating that they are likely to experience huge continued growth.
Additionally, Verizon and T-Mobile are continuing to steal post-paid subscribers from traditional carriers. They’ve also expanded rapidly into providing internet connectivity, with approximately 69% of their internet subscribers onboarding within the last 12 months.
Lastly, acquisitions and divestures continue to change the competitive landscape, as in the case of Boost Mobile. Previously, Dish acquired Boost from the Sprint and T-Mobile divesture, but have recently said that they might be interested in divesting Boost to a new group.
5. Inflation Dampens Outlook for 2022 Holiday Spending
At the time of writing, consumers are set to spend less this holiday season. Deloitte projects a holiday sales growth of between 4-6% this year, well short of the US’ 8.3% average monthly rate of inflation in the first half of 2022. Given the skyrocketing price of necessities, consumers are planning to spend less this year:
Event Poll: Are you predicting a more successful Black Friday compared to last year for your business?
Our second flash poll at the Industry Address, held in mid-October, asked attendees how they were feeling about Black Friday this year; did they think they would be more successful than last year, about the same, less successful, or were they unsure?
Sentiment in response to this question was pretty divided, with a lot of uncertainly. Close to two thirds (63%) said they thought they would be either about the same or less successful than last year. Those who said they weren’t sure made up nearly a fifth (17%), with those feeling they would be more successful accounting for the remaining fifth (20%).
Online spending on Black Friday totaled $9.2 billion, an increase of only 2.3% over last year, as compared to a 7.7% U.S. inflation rate in October; Cyber Monday, however, saw online spending increase by 5.3% to 11.3 billion.
6. Supply Chain Disruptions
Supply chain disruptions have remained a challenge for retailers in 2022. Some retailers are still struggling with stock shortages, while others struggle with inventory surpluses caused by over-corrections as orders stuck on container ships for many months all arriving at once.
Unfortunately, supply chain problems don’t look to be going away any time soon. Some of the many factors influencing the supply chain include:
- Global labor shortages caused by the pandemic and inflation
- Ocean freight bottlenecks
- Global port congestion and shortage of warehouse space
- Regulatory changes aimed at increasing sustainability
- Widespread resurgence of COVID-19
With supply chain disruptions set to continue into 2023, right-sizing inventory will continue to be an ongoing challenge for telecom retail.
The Need for a Unified Customer Experience
Given all the above challenges facing telecom retailers today, it is more essential than ever that retail operators create a unified customer experience that delights shoppers and keeps them loyal to their brand.
However, there is often a lot of friction in the telecom retail experience, with much of that friction being caused by complex legacy systems that run the backbone of the activation process. For large enterprises, those systems are even further weighed down by the necessity to run ERPs, CRM, warehouse management systems, billing systems, among many others.
It’s not enough to just have a good retail experience and a good digital presence and a good call center. These need to be unified experiences that are consistent across all the retail brand’s touchpoints — and the only way to do that is with deeply integrated systems.
The disconnects between many different systems add complexity and friction to the day-to-day processes for your teams and get between you and your customers, which makes it very difficult to give customers the uplifting experiences needed to excel in today’s hyper-competitive environment. In order to create those experiences, retailers need to focus on the retail interaction, how the customer feels about that interaction, and the overall buying experience. Systems that put the user first allow agents to focus on the customer instead of the swivel chair.
The traditional approach to creating that type of integration is to everything with one single system powering all of the needed business functions. But this approach sacrifices the quality and fit of the experience of one team and customer group — whether that’s in-store or at head office — for a better experience in a different channel.
A better approach is selecting modular solutions that connect to their existing system. This approach offers the flexibility for businesses to pick and choose the solutions that are right for them and empowers retailers to create the experiences that make sense for their business in one technology ecosystem. Being able to make best-in-class choices for every element of your system empowers teams in every part of your organization with the right tools for the job.
Some important considerations in creating unified customer experiences across all channels include:
- Seamless consistency: a consistent flow from RMS to POS, whether used as a whole system or as modular solutions. Seamless experiences improve agent experience and reduce transaction times by reducing swivel chairs
- Integrated ecosystems: Wireless retail requires a lot of vendor connections. This is true for retailers that need partners for things like trade-in or warranty, and for national retailers and manufacturers who are supporting multiple carriers in addition to those partnerships.
- Data and reporting:Businesses need access to real-time data — whether that’s in the field, at head office, or in other channels.
- Open API economies: Good API economies can improve developer experience and reduce time-to-market through reduced development time. IT teams can use open API systems to reduce complexity in IT solutions and infrastructure by replacing legacy and custom solutions with tools that are user-friendly and seamless. Lastly, they allow room for innovation through self-serve integration.
The Future of Telecom Retail: Industry Roadmap and Beyond
Telecom retail is complex and ever-changing and success often hinges on the ability to be agile, forward thinking, and informed. However, this need for agility is often hampered by the requirements for multiple vendors, systems, processes, and complicated legacy tech stacks — which ultimately costs a lot of time and money.
It’s easy for telecom retailers to feel held back by technology and frustrated by heavy tech stacks, but that can lead to losing sight of what really matters: meeting ever-increasing customer expectations by delivering uplifting experiences to consumers.
Looking ahead to 2032
Here are the trends that we’ve identified through our relationships with dealers, carriers, and partners, and where we believe things are headed:
- The importance of digital-enabled sales interaction doubles, with consumers increasingly embracing self-service customer care. This presents opportunities for retailers and operators to rethink their processes and win sales through delightful customer experience.
- Telco analytics will be highly automated, driven by cheap computing power, APIs, and advanced algorithms.
- Telco will provide value-added services directly to customers as they become willing to pay for premium customer experiences.
- The concept of pay-per-minute will grow increasingly irrelevant to digital native consumers, who see connectivity as a basic need.
- To survive growing competitions, carriers will move away from selling network services and move toward selling outcomes.
- eSIM will cause the separation of end-user from the network by enabling easy switching of network operators even as telcos become enabling partners of IoT.
- Customers will expect perfect connectivity with bandwidth matching their demand, having little to no interest in the underlying infrastructure connecting them.
- AI will enable carriers to operate their customer-facing functions (support, marketing, advertising) at much lower costs as customers continue to become more comfortable with self-service automation, eliminating the need for expensive stores and call centers and reducing the need for field technicians.
- Data security will be more important than ever as digital technology continues to create new and exciting ways of living.