Telecommunications Innovation: What Would a Telco That Goes Beyond Connectivity Look Like?

This article is part of our Beyond Connectivity series that focuses on telco innovation to better engage audiences and to explore new diversified non-telco revenue models. This is the first article in the series that focuses on envisioning what a telco that has successfully gone beyond connectivity and cemented its place in people’s digital lifestyles could look like.

Executive Summary

Telcos have been under pressure to diversify revenue and become more than ‘just another telco'. Core connectivity revenues are stagnating, and revenue growth is projected to be below inflation. With service commoditization and rising churn, price wars with new MVNO entrants are eroding value, and telcos risk being reduced to utilities.

While a telco’s core capability indeed lies in providing connectivity services, one large opportunity lies in going beyond connectivity by reimagining the telco app. These apps sit on every customer’s phone but are limited to account management. This level of distribution can become a gateway for new revenue models like growing ARPU through upselling and testing entirely new revenue models.

These approaches can transform telcos into digital lifestyle hubs that embed entertainment, education, finance and other value-added services into their apps; or using AI to forever change the way that users interact with telco apps.

This vision underpins Circles’ perspective on the future of telco apps, powered by data from Circles Xplore innovation engine experiments. Circles Xplore is an innovation sandbox for telco apps that enables low-risk tests to increase user engagement and trial new service offerings with zero disruption to core telco operations.

Initial results are promising. In the markets where Xplore is deployed, users spend 47% to 156% more time on the telco app. Additionally, the engaged telco app users are correlated with higher ARPU. While correlation is not causation, the observation supports Xplore’s core thesis that highly engaged users are more likely to lead to additional monetization opportunities.

Telcos have the opportunity to move beyond basic connectivity and reposition themselves as digital lifestyle hubs. Through embedding lifestyle services and experimenting with offers like generative AI, telcos can unlock new growth, strengthen customer loyalty, and create scalable monetization pathways at scale.

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The Pressure to Move Beyond Connectivity & The Telco App Distribution Advantage

Many telco companies see themselves mainly as connectivity providers with many of them choosing to compete on price, leading to a race to the bottom. When combined with today’s increasing adoption of contractless plans the result is a commoditized market with high churn risk and slow revenue growth in the low single digits.¹

But there’s an untapped opportunity for telcos: the widespread distribution of telco apps.

Every smartphone with a mobile connection needs a telco app, but these tend to be underutilized as Jackie Tan, Xplore Lead, Circles notes,

“The only time when they visit the app is when they need to look at their bill or there’s something wrong with their plan.” 

As every phone has a telco app, the customer acquisition costs for telco app distribution is essentially zero. This widespread distribution means that telcos have a unique opportunity to compete with other non-telco apps that have to compete to acquire their users organically or inorganically.

For telcos to make use of their distribution advantage, they need to push their apps beyond connectivity. Beyond just managing telco accounts, telco apps can become testbeds for non-telco and AI services. This opens new possibilities for greater app engagement and monetization opportunities that go beyond connectivity.

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The Next Frontier: Becoming Digital Lifestyle Enablers

With connectivity becoming a commoditized red ocean, telcos are now accelerating their search for revenue beyond their core. Two possible approaches include building a super app or building a more verticalized ecosystem that is tailored to the needs of specific services like education.

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Turning Telco Apps Into Super Apps - Go Broad or Tailor It

Super apps like China’s WeChat, Indonesia’s Gojek, and Southeast Asia’s Grab are great examples of super apps’ potential. They offer various services tailored to their target markets and regularly add newer demand-backed services, further cementing their position in people’s lives. 

Gaining a foothold in today’s digital services markets that are dominated by super apps needs telcos to draw on every advantage they have, especially their large telco app install bases. By embedding and testing lifestyle service offers from entertainment, comics, education, and even mental wellness into their telco apps, telcos can reinvent themselves as go-to digital lifestyle hubs in people’s lives. 

However, building standalone innovation sandboxes on telco apps can be an expensive endeavour. Some telcos invest very heavily into innovation, like Vodafone and Microsoft’s US$1.5 billion, 10-year long innovation partnership aimed at bringing AI to its consumers.² These high costs push other telcos away from innovating to instead focus on their core stack. 

This is where a standalone telecommunications innovation tab, like Xplore’s innovation engine, can be embedded into the app for low-cost, low-risk testing of different services without affecting the functionality of the rest of the app. Within this tab, different applets, third-party services, and even AI assistants can be embedded and tested powered by - Circle’s official AI partner - OpenAI API. These test results can then help telcos identify digital lifestyle niches that telcos could own.

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Tailored, Segmented Super Apps

Finding a niche or competing against existing super apps could be challenging, but telcos have another advantage available: customer data. Data-driven telcos can use their stores of detailed customer data, as well as launch surveys and research-oriented phone calls to their customers to learn their preferences and in-demand services. This depth of research allows telcos to test and tailor various services and offers on the innovation tab for different market segments.

For example, Grab in Southeast Asia focuses on functional services like ride hailing, deliveries, and finance. On the flip side, Grab currently doesn’t offer entertainment or education streaming services. The flexibility that this approach has even allowed for more experimental services to be offered, like mental health services. In this fashion, telcos can carve out a super app niche to gain a foothold before expanding their service portfolio.

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Vertical Use Case: Going Deep into A Few Offers

While the super app strategy goes for horizontal breadth in terms of services, another option is to build highly specialized services such as financial education. For example, an innovative telco app could offer an AI-powered service that provides accurate, up-to-date information on financial markets, or even a conversational tool that helps with mental wellness in today’s stressful world.

This approach already has potential customer segments. When researching telco customers in Australia, Japan, Taiwan, and Singapore, Circles uncovered various customer ‘super segments’ who could benefit from these deep verticals:

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Companies That are Going Digital Are Reporting Growth

Telco companies around the world are starting to see the results of going beyond connectivity. While these examples are focused on customer loyalty and rewards apps, the potential to branch out to monetizable non-connectivity services is clear.

In 2023, Etisalat credited its Smiles app with contributing to its revenue growth.³ The Smiles app is a rewards points super app where users can earn and redeem points for everyday activities like ordering shopping, booking home services, dining out, and more.

Meanwhile, T-Mobile’s T-Life customer loyalty act also garnered higher than expected uptake, as T-Mobile’s President and CEO, Mike Sievert, mentioned in a recent earnings call that their flagship digital platform saw incredible engagement with over 50 million downloads, 10 million more than they estimated. T-Life is part of T-Mobile’s goal to tap on digital to transform customer experiences.⁴

While focusing on engagement via customer loyalty is one thing, there is still room to expand the functionality and engagement with the main telco app itself. And this is where generative AI can come in.

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The Long-term Vision: To Create the Most Personal Relationships Between Humans and Technology

Generative artificial intelligence (AI) has changed the way that people work and play. With how powerful large language models have become, AI can permanently change the way people interact with telco apps as well.

Jackie Tan has shared his vision for what telcos can achieve through Xplore:

“To create the most personal relationships ever between humans and technology.”

Likening telco apps’ potential to the JARVIS AI from Marvel’s Iron Man, he shared that his vision for AI technology in chat apps was a friend and ‘butler’ who was not only a friendly chat buddy, but could also be a confidante, or help with tasks such as making restaurant reservations. 

Circles.Life, Circles’ proprietary telco brand, offers CirclesAI which powers international brands like KDDI Digital’s Povo AI.⁵ Powered by cutting-edge LLMs like ChatGPT and Perplexity, telco users can now access generative AI help from within their telco app. 

These AI initiatives have generated a lot of buzz and users are also starting to take notice. With how quickly technology is advancing, telco apps have the potential to push beyond today’s generative AI capabilities and truly change the way people interact with technology.

Introducing Circles Xplore: Innovation That Starts With Engagement

These AI initiatives and ecosystem tests are part of Circles Xplore innovation engine. The Xplore platform was created as a low-cost, low-risk telecommunications innovation engine to help telcos grow their app engagement first, and eventually test lifestyle engagement models. By embedding modules such as casual games, bite-size news, horoscopes, and even AI chat into existing telco apps, Xplore provides a ready-made sandbox for experimentation.

Initial results are compelling. In markets such as Japan, Singapore, Mongolia, and Pakistan, Xplore tab users spend 47 to 156 percent more time in-app. This segment of engaged users showed clear differentiation in their spending behaviour: cohorts that spend more time on Xplore recorded higher ARPU. While the relationship is correlational rather than causative, the uplift is significant in a sector where ARPU growth typically inches forward in the low single digits. 

Xplore’s SaaS delivery model ensures that telcos can embed and launch the innovation tab within 4 weeks. Led by an experienced team and using proven models, this approach saves partner telcos months of internal development time and resources and delivers immediate feedback loops. 

This team will coordinate with the destination telco app’s team both to integrate the innovation tab as well as run the experiments. Client telcos can access a dashboard to see experiment results while getting regular updates on new insights and learnings from the Xplore team.

Povo AI’s launch also helped to position KDDI as an innovator rather than a follower, spurring rivals to accelerate their own AI initiatives. Telecommunications innovation sandboxes like the Xplore tab provide dual benefits: direct monetization through direct ARPU uplift (for example, charging a premium for AI features) and indirect monetization through identifying user segments who are highly engaged with the telco app.

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The Way Forward: Evolving from a Utility to a Digital Companion

Overcoming commoditization requires telcos to rethink their role. Moving beyond connectivity revenue requires them to leverage their apps’ large install bases, the richness of their customer data, and the partnerships they can build to truly be digital lifestyle hubs. Those that experiment now through low-risk, modular innovation engines can uncover what customers truly value and scale with those learnings across their portfolios.

Telcos that reposition themselves as digital lifestyle hubs can capture at least three distinct sources of value: 

Looking ahead, the potential that lies in being digital lifestyle hubs extends even further. Generative AI and hyper-personalized digital services could transform telco apps into everyday personal assistants who are always-on, always-relevant and deeply embedded in people’s daily routines. 

The telco industry has begun to explore these possibilities, and low-risk, standalone innovation sandboxes that can optimize metrics like increasing app engagement and test embedded AI initiatives can help fast-track their journey to becoming techcos.

Telcos who are willing to move beyond connectivity can take this chance to transform into beloved digital service providers who listen to their customers to unlock sustainable growth and secure their positions as true techcos in the digital economy.

Innovation sandboxes like Circles’ Xplore continue to uncover more insights and products for telcos in Japan, Singapore, Mongolia, the Middle East and more. Want to find out more about the other results that Circles Xplore uncovered, or want to see these innovations for yourself?

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