Insights: How telcos can unlock the potential of B2B ICT services

With core connectivity revenues plateauing, telcos are at a crossroads.

The B2B ICT services domain represents a crucial growth opportunity but also a challenge. Unlike the established telecom business, ICT requires agility, customer focus, and continuous innovation.

We’ve observed that telcos face a strategic dilemma: Should they integrate ICT into their existing operations, establish a standalone entity, or pursue a hybrid model? Each option carries distinct benefits and risks.

The models in play

1. Integrated model: Keeping ICT services within the telco’s existing operations allows for cross-selling, brand leverage, and seamless use of existing customer relationships. Verizon’s approach exemplifies this strategy. By merging core connectivity with ICT services, Verizon shifted from product-based sales to solution-based engagements, strengthening customer relationships and unlocking new revenue streams. However, integration may limit the agility essential to ICT’s fast-moving landscape.
2. Independent model: This approach involves setting up a fully independent ICT entity. It enables the agility, innovation, and entrepreneurial spirit of a tech firm. Deutsche Telekom’s T-Systems exemplifies this model. As a distinct unit, T-Systems forged partnerships with top software providers and adopted an agile, customer-first approach, allowing it to quickly respond to market shifts. But total independence poses risks like brand dilution, operational complexity, and reduced synergies with the parent company.
3. Leveraged model: A balanced approach, this model allows the ICT business to operate semi-independently while leveraging the parent’s infrastructure, brand, and customer base. Saudi Telecom Company’s Solutions by stc follows this path. As an independent entity, it benefits from STC’s client access while maintaining the agility of a startup. It’s a “best of both worlds” approach, but balancing autonomy with shared resources requires careful coordination.

The decision to adopt the right model for ICT diversification is influenced by various strategic factors such as market maturity, agility, strategic goals, financial priorities, brand, talent, and governance needs.

The core challenge

The real challenge lies not only in selecting a model but also in executing it. To succeed, telcos must shift from fixed pricing to value-based pricing linked to outcomes like revenue growth or operational efficiencies. This transformation calls for changes in operating models.

The cultural shift is equally significant. Telcos must adopt the agility of tech firms, retraining existing staff and bringing in fresh talent to drive innovation.

Success Factors for ICT Transformation

Clear service scope: Define the ICT entity’s scope. Will it be a full-service provider or specialize in cloud, cybersecurity, or managed services? This clarity shapes branding, operational focus, and market strategy.

Governance and delegation: Clear governance ensures that decision-making is efficient and aligned with corporate goals. This is critical in leveraged and independent models where autonomy must be balanced with strategic alignment.

Aligned incentives and KPIs: Ensure that incentives for C-level executives and account managers support cross-selling and ICT growth. Performance metrics should align with broader corporate goals.

Collaborative agreements: Collaboration agreements between the core telco and ICT entity should address sales, solution development, and customer support. These agreements reduce operational friction and enhance synergies.

Agile processes: Integrated models benefit from streamlined workflows, while independent entities need agile processes to stay competitive. Leveraged models require a hybrid approach that balances structure with flexibility.

Advanced tools and technology: Tools and platforms must support ICT service delivery and innovation. Shared platforms boost collaboration in integrated models, while independent models thrive on standalone systems. Hybrid models require tools that foster cross-entity collaboration.

B2B ICT services offer telcos a unique opportunity to move beyond connectivity and become transformation partners for businesses. Success lies in selecting and executing the right model—be it integrated, independent, or leveraged.

The telcos that confront this challenge head-on and act decisively will secure their role in the future digital economy. This shift from connectivity providers to transformation enablers represents a profound evolution — one with high stakes but equally high rewards.

Read: GCC telcos embrace tech to diversify revenue streams

Vidhitha Kanakamedala and Gergana Rangelova are principals at Arthur D. Little