Telecom’s Rebirth via API
From the earliest times of civilization, people have sought to discover ways to communicate with each other over a distance. Throughout human history—from pre-historic days to the 400s BC—people relied on smoke signals and drums. For the next 2,200 years communication was limited to relatively simple means: carrier pigeons, arrows, flags and basic optical and audio methods all combined to define early humanity’s version of the “telecommunications industry.”
The Industrial Revolution of the late 18th and early 19th centuries introduced technology to the world — but the real game-changer was electricity. I won’t bore you with History of Telecommunications 101, but suffice it to say that communication methods changed drastically as technology itself evolved. Computers, the Internet and the Cloud have all dramatically transformed how we look at information and how it is conveyed.
Telecom Digital Transformation
Since a few years, we are again entering a period of Digital Transformation wherein traditional telecommunication operators are encountering a new player on the block: CPaaS (Communications Platform as a Service). CPaaS players use Cloud technology to add real-time communications functionality to solutions without the need for backend infrastructure.
This new provisioning model has a number of bottom-line benefits, all of which account for the sector’s exponential growth: from a $2 billion industry in 2017 to $10.9 billion by 2022. CPaaS is currently disrupting the telecommunications industry in terms of this revenue & margin shift.
The reason is that CPaaS players are bringing a new model to the table that provides unique options, such as:
- Growth Acceleration: Cloud-based technology—delivered by affordable & innovative methods such as APIs—enables enterprises to quickly scale into new market segments at low cost. Virtual numbers, SMS messaging and voice-based APIs all empower enterprises to provide highly useful, engaging features directly to their customers;
- Cost Savings: The old school world of landlines, physical infrastructure and on-prem frameworks have successfully leveraged the concepts of stability and security for years. That sense of comfort, though, came at a high cost. CPaaS players have changed the rules of the game by using the Cloud to offer superior technology at a much lower & flexible cost structure; and,
- Deeper Engagement: Many players in the CPaaS industry rely on APIs to deliver their product functionality. For enterprises, this means a significantly faster rollout of customer-centric features without the costs of extensive in-house development. For example, a ride-hailing app can partner with a CPaaS player to introduce API-driven number masking to ensure customer data confidentiality.
Not Dead Yet
The rapid growth of the CPaaS sector is quickly changing the dynamics of the telecommunications industry as a whole — to the extent that many observers are predicting the ultimate demise of traditional telco players, such as telecom operators and aggregators. Stuck in their world of old school solutions—and often entrenched in large-scale brick & mortar business models—many believe that the biggest players will simply be left behind by modern competitors that are able to deliver services using technology that is, by definition, highly scalable & flexible.
Those commentators, though, often overlook the fact that CPaaS technology is built upon an infrastructure owned by telecom operators. The entire framework on which CPaaS services are delivered exist on a foundation established by old school telecom companies.
Telecom operators, slow though they may be, rely on a trio of advantages derived largely from hard-won assets accrued over many years. These include:
- Infrastructure: Telecom operators own the underlying infrastructure that enables CPaaS players to deliver services; specifically, voice and SMS technology;
- Regulations: Over the years, regulators—typically in collaboration with telecom operators and aggregators—have created a wide array of government and industry implemented regulations designed to protect both consumers and the operators themselves. This protective wall has enabled traditional telecom operators to establish market dominance while providing governments with policing mechanisms. The CPaaS industry, being a relative newcomer to the telecommunications world, is often unaware of these regulations and/or doesn’t know how to navigate within these protocols; and,
- Brand Awareness: AT&T was founded in 1877, Vodafone in 1991, Verizon in 1983 and China Mobile in 1997. These are the four largest telecom companies in the world and, collectively, have existed for more than 220 years. If you ask 100 people on the street if they recognise the name “AT&T,” a majority of them would likely answer in the affirmative. The same can’t be said for CPaaS players such as Twilio, Nexmo or MessageBird.
A Look Ahead…
The rise of CPaaS has made a significant splash in terms of sector-level performance, but the effect on the telecommunications industry as a whole is still in the very early stages. CPaaS players will continue to gain traction and momentum as enterprises realise the financial and growth benefits that CPaaS brings to the table. As mentioned, the industry will continue to grow exponentially and will be seen as one of the fastest growing in the world (particularly in Asia).
The Smart Nation initiative, launched in Singapore, is a government-level program designed to foster innovation and promote easier access to technology facilitated by the public sector. The concept is being looked at by other countries in Asia as they seek to drive digital transformation and hasten the process of connecting technology with real-world consumer expectations.
Trends such as these, coupled with the fiscal growth of CPaaS, have pushed traditional telecom operators and aggregators to a realisation that they need to adapt or will eventually be left behind. This industry-level transformation may parallel the path taken in the Financial Services and FinTech sectors, where large old school businesses were forced to either acquire or partner with rising FinTech platforms in order to remain competitive.
Over the next 36 months we expect this transformation to be characterised by the following:
- Acquisition Spree: We expect that telecom operators and aggregators will initially seek to acquire CPaaS players as a means to quickly leverage expertise. Given the expected growth of the CPaaS sector, this could be done by large organisations seeking to dominate certain markets or by mid-sized operators seeking faster growth; and,
- Partnerships: In those instances when acquisition is not feasible—but a benefit could still be derived—we expect that partnerships between operators/aggregators and CPaaS players to increase significantly.
Old school telecom operators and aggregators are not dead yet by any means. We are still in the early stages of the game and the playing field will likely significantly change as acquisitions and partnerships increase. Operators are simply too large, and have too many assets, to warrant dismissal at this stage.
CPaaS players would be wise to partner with operators in order to drive growth and deliver products/services to new market segments. Such opportunities abound in Asia and particularly SE Asia, where a rapidly rising middle-class seeks to capitalise on their newfound wealth via access to modern communication solutions.
As a CPaaS player in the heart of the action, Singapore-based Toku has found its niche by empowering businesses to use its platform to broaden customer engagement via its family of API-based solutions and stand-alone business products. Our technology gives businesses the tools they need to meet the needs of modern consumers.
This article originally appeared on LinkedIn.