Telefónica’s Innovation Day highlighted a few global communications service provider (CSP) trends that I have observed recently. Telefónica comes across as very grounded, pragmatic, and focused on its core competencies. In the event, it emphasized two primary territories for innovation:

• The network: this includes 5G, cloud, and edge computing among others.
• The home: this covers video communications, smart WiFi, media, gaming, and entertainment for consumers.

Telefónica’s approach is to innovate “in” and “on” its digital platform. The focus is very much on its core businesses and how innovation can be brought to bear on different aspects of customer experience and product features. At the same time, Telefónica continues to focus on partnership ecosystems (no CSP can do everything on its own) and investments in start-ups (through its Wayra initiative). Decent returns on investment can be achieved from astute, early investments (e.g., its investment in Altiostar which is being acquired by Rakuten) but this should not be seen as a main focus for any CSP.

All these are not surprising. There is a growing sense of pragmatism among CSPs worldwide. They have been scaling back their direct thrust into adjacent markets (via acquisitions) in favour of partnerships. Many CSPs have spun off their cellular tower assets, emphasised operational efficiencies, and refocused on their core businesses. Strategic reviews of non-core businesses are also happening.

In my opinion, there are many innovation-related challenges facing CSPs. Some include:

• Building new, significant sources of revenue from accelerator/incubation initiatives. This is difficult given the size of traditional telecom revenue. CSPs face scaling-up challenges as well.
• Attracting and retaining talent who will gravitate towards “born-digital” companies that offer more exciting career paths and challenges.
• Sustaining the innovation culture/mindset. For some CSPs, they simply run out of motivation and patience particularly when quick wins are far in between.
• Building a large innovation funnel. This is important as many ideas do not make it to the product commercialization stage.
• Addressing internal competition for resources (e.g., existing product enhancements/evolution vs. unproven new product concepts).
• Sales operation. Should one establish a separate sales channel or simply leverage existing ones?

Telefónica has had many years of experience in innovation activities and this puts them in good stead.