The global telecommunications service provider market is in a state of rapid evolution—and is being rocked by business model disruption. The once relatively stable market, known for its capacity to welcome and absorb new technologies, has been blind-sided by savvy new market entrants (e.g., large cloud service providers) that can deploy new services to online subscribers in just a few hours.

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As the demand thus grows for instant (real-time) access to digital services, ABI Research predicts that many Tier 1 telcos will transform into digital service providers (DSPs) to better compete with over-the-top (OTT) service providers, like Facebook and Google. ABI Research analyst Sabir Rafiq says this is the “ultimate goal” for telco operators, as the transformation is apt to increase revenue.

While smaller telcos will likely remain access-oriented due to resource limitations, larger operators can leverage their vast data holdings to gain valuable insights into how best to complete the digital switch, Rafiq explains. Upgrading traditional operations support systems (OSSs) and business support systems (BSSs), which provide basic services such as configuration management and billing, won’t be enough to successfully accomplish a digital transformation that will survive long-term market disruptions, per a recent report from ABI Research.

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Instead, Rafiq recommends that telcos invest in DevOps and Agile development models, which will enable them to quickly launch new services, as well as adjust existing services in real time in response to customer feedback.

The necessity for change among old-school TV and communications companies comes from the growth in popularity of streaming Internet video services from OTT players. These enterprises, including Amazon and Netflix, are eating into cellular business and even home Internet services. Threats from all sides are driving telcos to move into media, where they are buying up TV shows, TV channels, and even movie studios, reports ABI Research. The trend ramped up in 2011 with the acquisition of NBC Universal by cable TV giant Comcast.

Case in point, consider CenturyLink’s $34 billion agreement to purchase Level 3 Communications, whose Internet-related services are aimed directly at businesses. Level 3 makes most of its money connecting different Internet providers together—a business called “transit.” Yet, while the deal may help CenturyLink in the short term, the reality, according to a November 2016 Wired article, is that the transit business is going away! 

The Wired article references an essay by Geoff Huston, the founder of Australia’s first Internet access provider, that explains this scenario. According to Huston, more and more companies are opting to host their data with content delivery network (CDN) and cloud services providers like Akamai and Cloudfare. These companies run servers in data centers that connect customers to Internet access providers, bypassing transit providers.

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Other companies are going even further to avoid transit service, building their own data centers, buying up unused fiber-optic infrastructure, and funding new undersea cables to connect data centers—hence, bypassing traditional telcos almost completely, Wired reports. No example could make clearer the telecom market’s rapid evolution. 

Before you worry too much over CenturyLink and Level 3 solvency, know that they both provide their own CDN services, along with other business networking services, which should keep them afloat for a while.

The market never sleeps, however. Already, Akamai and other CDN providers are under threat from Internet giant Amazon, which is building its own CDN service. New Google and Facebook programs may also undercut CDN providers.

Keep in mind, as always, the necessity of staying attuned to market sea changes that can cast a pall over your business. To determine the best path for your digital transformation, hitch your wagon to Star2Star! We are a long-time provider of cutting-edge telco technology that supports business communications.

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