The importance of innovation in the telecommunications sector

Without innovation, a company will not survive for long in today’s world. Large companies have lost market share within a few years because they did not recognize in time that their products and services were no longer needed and that other competitors, start-ups and new market players were entering the market with attractive, innovative products and services…

• DEC management failed to develop the PC (although prototypes were available from their own engineers) and lost it to IBM
• AGFA lost the entire business after the advent of digital cameras
• Blackberry and Nokia lost their market position because they recognized Apple far too late

The pace of technological advancement and changes in consumer preferences has accelerated, and companies that fail to innovate run the risk of becoming obsolete.

Several factors contribute to why innovation is so important to a company’s long-term survival:

• product-related: Agile start-ups, technological progress and shorter product life cycles
• market-related: Global competition, adaptability to external factors and strategic advantage
• customer-related: changing consumer needs, customer experience

To summarize, the ability to innovate is crucial for companies to remain relevant and competitive in a rapidly evolving business environment. Continuous innovation helps companies not only survive but also thrive by staying ahead of the curve and meeting the changing needs of their customers.

Innovation is not only just disruptive things

Innovation could be new and disruptive, such as a completely new product that has never existed before and that customers have never thought of before.

Examples:

• APPLE with iPod, iPad and introduction of first Smartphone iPhone – it combined phone, music player, and internet communication in a single device.
• Fiber to the Home (FTTH) marked a significant advancement in broadband connectivity:  fast and basis for video streaming, cloud and online-gaming
• OTT (Over the top)- Services like Netflix: Streaming services, WhatsApp and Skype for completely new way of sharing content and communicating – offering free or low-cost alternatives to traditional voice calls and messaging and changing global communication patterns

This has led to a completely new way of living, consuming and using these new innovative products and services – which can be seen as a real change in the way people live, work and consume.

But you don’t have to reinvent the wheel, usually a combination of different ideas leads to a fruitful new product or service and helps to solve problems or even create new customer needs.

Successful innovations are often created by recombining or integrating existing elements rather than completely reinventing the wheel.

This approach can lead to the development of new products, services or business models, to name just a few examples:

• Microsoft simply took existing office software offered by other companies and developed it into one package (Office) to create a seamless suite for word processing, spreadsheets and presentations. Copying and combining in this integrative Office package was much easier and the new Office was born and other companies like Lotus Notes, HP Harvard, … lost their business completely.
• 5G – several telecommunication companies are developing this new standard which is suitable for IoT services as well as autonomous driving, health and smart cities. 5G is not just an incremental improvement, but represents a strategic combination of technologies that can support various applications such as the Internet of Things (IoT), autonomous driving, healthcare and smart cities.

Innovation often thrives at the intersection of different disciplines, industries or technologies. Creative combinations, adaptations and integrations of existing elements can lead to breakthroughs, satisfy unmet needs and even create entirely new markets.

This collaborative and integrative approach allows companies to leverage the strengths of existing solutions while adding a new layer of value or tackling new challenges.

Innovation in TelCo Companies benchmark figures in Germany compared to other sectors

Telecommunication Industry is quite dynamic and more innovative compared to other industries.

In 2021, the innovator rate in the broadcasting and telecommunications sector in Germany was around 72.2% compared to 54.3% average for economy as a whole. The innovator rate indicates the proportion of companies that have successfully completed at least one innovation product within the past three years.

This shows that companies in the telecommunications industry are actively engaged in innovation, with a significant proportion having introduced new products within the past three years. This is a positive indicator of the sector’s responsiveness to technological advancements and changing market demands.

Also, the innovation intensity – Share of innovation expenditure in total turnover in the economic sectors in Germany in 2021 was among the higher rates in information & communication with 7,3%:

In 2021, innovation expenditure in the broadcasting and telecommunications sector in Germany amounted already to around 5.86 billion euros, expected further increase in the following years. These investments will go towards the development of new technologies, network infrastructure, digital services and other areas that contribute to the progress of the industry.

The statistics underline the dynamic and innovative nature of the telecommunications industry in German and that telecommunications industry plays a crucial role in enabling connectivity, driving digital transformation and supporting various sectors of the economy.

The commitment to innovation, reflected in the high rate and intensity of innovation, enables the industry to adapt to emerging technologies, meet changing customer needs and contribute to the overall economic landscape. It will be interesting to see how these trends will continue to shape the telecommunications sector in the coming years.

Innovation Trends in Telecommunication sector

There are for sure trends in telecommunication, where innovation matters most: e.g .in areas like 5G, fibre, IoT, hybrid working, cyber security and cloud computing.

Telefónica is analysing and investing in the majority of the areas identified by Garner Hype Cycle, like Generative AI, Cloud-native, API centered SaaS for 2023.

By staying afront in these areas, Telefónica positions itself to provide cutting-edge services, remain competitive, and contribute to the ongoing evolution of the telecommunications industry.