What will it take for Singtel, StarHub to win clients with new digital services?

GLOBAL spending on digital transformation could hit US$2.4 trillion by 2024 - more than double what was spent in 2019, according to Statista.

So it's no surprise telcos are gunning for this immense market potential. For instance, Singtel last month teamed up with subsidiary NCS to launch a new "Telco+" business group, with the goal of helping telecom companies transform digitally.

NCS's decision to target regional telecoms is apt and promising, given that market research shows the sector has room for more digitalisation.

Room for improvement

But potential enterprise clients may well be asking: Are telcos digitally mature enough to spearhead the digital transformations of others?

That's as analysts at consultancy Kearney, after looking at a global database of more than 100 telecom operators, characterised only about 15 per cent of these as "digital leaders".

Separately, Kearney digital transformation partners Kaushik Sriram and Varun Arora told The Business Times (BT) that telcos around the Asia-Pacific - not just in Singapore - still have room to improve internal capabilities and boost operational efficiency.

Meanwhile, in recent digital transformation rankings from Boston Consulting Group (BCG), only 30 per cent of global tech and telecom companies made it to the "success zone".

The rest of the companies under scrutiny in this sector missed their value creation targets. They showed either limited long-term change, or no sustainable change achieved at all.

Granted, Singapore's telcos are already attempting digital journeys.

Joongshik Wang, from EY's Asean technology, media & entertainment, and telecommunications practice, told BT that Singapore's telco sector "is relatively more mature compared with those in the region and even globally", on the back of its investments in talent and infrastructure.

Indeed, Singtel said it saved S$386 million in the 12 months to March 31, 2021, partially thanks to "good progress made in its digitalisation and cost transformation programmes".

Meanwhile, StarHub's three-year "Dare" programme - which includes digitalisation for operational efficiencies such as customer support automation - is expected to yield S$210 million in cost savings by end-2021. Some 17 per cent is earmarked for re-investment in transformation.

Cost savings are not the only benchmark for successful digitalisation efforts, though. Another measure is how much new business such digitalisation can help generate.

That's as telcos that are digital leaders generally report earnings before interest, taxes, depreciation and amortisation that are eight to 10 percentage points higher than their peers', as well as compound annual growth in revenue of four to six percentage points more, according to Kearney's estimates.

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In recent years, Singtel has begun to report its "digital revenue" - referring to revenue from services such as data analytics, cloud strategy, Internet of Things solutions and cybersecurity. Yet this share of business remains low: Non-digital revenue still made up three-quarters of Singtel's group enterprise revenue for its latest full year to March 31, 2021. Similarly, close to half of StarHub's enterprise services revenue in the year to Dec 31, 2020 came from data, Internet and voice services - rather than from new digital offerings.

Sluggish digital income should not be read as an indictment of the telcos' internal digitalisation efforts. But it may reflect the challenge that telcos have in growing this type of business.

An EY poll of more than 1,000 firms recently found only 16 per cent of Asia-Pacific respondents see telcos as digital transformation experts.

Laying out some possible reasons, EY's Mr Wang told BT: "There is a lack of clear and specific commercial cases on digital transformation initiatives, and telcos need to demonstrate a more thorough understanding of the evolving demands of enterprises, as well as greater agility to meet these with a broadened set of offerings."

Now, though, a maturing 5G landscape and Covid-19 may have prompted a U-turn in sceptical attitudes towards telcos' digital capabilities.

Said Fitch Ratings senior director Janice Chong: "Globally we are increasingly seeing telcos reconsidering what their strategic priorities are, and what is driving that is 5G and the pandemic."

And although not that many tech and telco companies are particularly successful in their digitalisation efforts, BCG added that - as a sector - they form the most digitally mature industry worldwide, and the most successful at digital transformation.

Maybe telcos appear to be always running to keep up because they operate in an industry that is both perpetually advancing and also unforgiving.

The critical question is thus whether telcos can convince potential clients that they are indeed leaders in digital maturity. If they manage to position themselves as partners for other firms' digital transformation, they are playing for huge rewards.