The days of making money on traditional telecommunications have quickly faded. Digital disruption and companies like Google and Apple have set telcos back on their heels, seeking ways to increase revenues through a wider range of services and business models.
Key Points
- Telecommunications companies are seeing their revenue eaten up by over-the-top (OTT) communication services like WhatsApp.
- This is causing them to look for new revenue streams, with advertising being one of the biggest opportunities for telcos.
- AdTech is well suited for telcos due to the large customer data sets they have and the fact they sit on top of existing communication infrastructure.
- The main opportunities for telcos in AdTech include building their own walled garden and becoming an AdTech stack provider, developing a universal ID solution, building a data clean room, and building AdTech platforms for the CTV and OTT industry.
- The end of third-party cookies and Chrome presents challenges for all companies in the programmatic advertising space, but telcos are in a good position to help address these challenges.
- Many telcos have entered the AdTech industry. Some have succeeded while others have exited.
- The telcos that have entered and then exited AdTech typically spent millions, and even billions, of dollars on acquiring existing AdTech companies.
- To reduce the risk of failure, telcos should consider building the AdTech platforms from scratch to massively reduce costs and ensure the platforms align with their business goals and can integrate seamlessly into their existing systems.
The Thriving Telecommunications Industry
Despite the challenges telecommunication companies have faced in the past, there are many signs that things are looking up.
The telecommunications industry is making investments in 5G, fiber and cable networks to cope with the increases in data and cloud services provided by Netflix, Google, YouTube and Facebook.
Investments in Europe’s telecom sector grew to 52.5 billion euros (USD $59.4 billion) in 2020, which represented a six-year high.
But it’s not only technological innovation that is presenting new opportunities. Advertising is once again emerging as a new revenue stream for telecommunications companies.
2021 was the break-through year for the distribution of advertising spending, as 5G started to roll out worldwide.
It contributed to a significant shift in using telcos’ data for various purposes such as streaming content, live events, gaming, and other high-quality immersive and interactive experiences including new models for personalized marketing and advertising.
Telecommunication companies realize that to be able to compete with the biggest players in the AdTech space, they need to utilize their existing assets and create thriving advertising and data businesses of their own.
Many telcos have seen their competitors enter the AdTech market, leading them to devise their own strategies and invest in this space.
Opportunities for Telecommunication Companies in AdTech
One big opportunity for telecommunication companies lies in advertising technology (AdTech) because of the unique consumer data sets they have.
These are probably the richest datasets outside of those owned by Google, Facebook and Amazon. This data ranges from consumer location via base transceiver stations (BTSs) and online behavior via network traffic analysis, to demographic and socio-economic status (e.g. information from contracts and family plans).
All of this data can be used to build detailed and accurate audience segments and is very valuable to advertisers.
But, as with all data, it comes with privacy issues, and telcos must face the challenge of using data in a responsible and legal way, as well as navigate the changing privacy landscape being shaped by companies like Google and Apple.
Apart from data, another thing telcos have on their side is an array of advertising inventory available to monetize.
Telcos can offer ad space for different types of inventory, such as display, audio and TV advertising, and open it up to advertisers via programmatic media-buying channels.
Below are some of the biggest opportunities for telcos in AdTech.
A Walled Garden and AdTech Stack Provider
Telecommunications companies have access to immense amounts of user data, which means they are in a perfect position to build their own walled gardens and provide an alternative to the big tech giants of Google, Facebook and Amazon.
According to eMarker, ad revenues from those three tech giants exceeded $200 billion in 2021, growing 38.3% from 2020, which accounts for 74% of all digital ad spending.
By building their own AdTech and data platforms, telcos can offer a complete AdTech stack to advertisers and ad agencies that rival the likes of Google and Facebook.
Competition and consolidation will likely remain fierce — both in telecoms and AdTech — but data provides many paths for telcos to jump into AdTech with valuable solutions that will help them create new revenue streams and competitive advantages with new technologies.
A Scalable Universal ID Provider
Universal IDs have emerged as one of the main alternatives to the end of third-party cookies and mobile IDs and there are a few reasons why telcos are in a solid position to offer a scalable universal ID for advertising.
The first and most obvious one is scale. Many telcos cover 40% of a single geography, which presents huge opportunities for advertisers to target certain users in a given location.
The second is security. As telcos are one of the most regulated and privacy-compliant industries, they can be highly trusted with delivering secure universal ID services.
The third reason is connectivity. Telcos can leverage an entire network across mobile, fixed-line and broadband that sits above the over-the-top providers.
One telco that is already offering a carrier-level ID is Vodafone.
The telco has launched TrustPid — a persistent ID at the mobile Internet Service Provider (ISP) level that aims to be immune from cookie blocking and IP address masking.
The ID will be created using various parameters and will assign user activity to it. Advertisers will then be able to show targeted and personalized ads to mobile users without disclosing any identification details.
We’ll likely see more telcos test out the universal ID option as it will play a huge role in programmatic advertising in the years to come and emerge as one of the top three alternatives to third-party cookies.
Data Clean Rooms
Another opportunity for telcos is building their own data clean rooms to maximize the advantages of existing customer databases.
Data clean rooms allow for the exchange of data between brands and publishers in a secure way to match their first-party data together, while reducing the risk of breaching privacy laws and removing the need to use third-party cookies.
By building a data clean room, telcos can use it to match data from advertisers with their customer data to build new segments for ad targeting, create lookalike audiences, measure campaign performance, and run data analysis.
Data clean rooms are yet another solution telcos can develop to help companies succeed in a world without third-party cookies and mobile IDs.
“Telcos have access to huge amounts of valuable customer data, which is playing a huge role in programmatic advertising due to the increasing privacy changes. By providing identity solutions, e.g., a universal ID, or by building a data clean room, telcos can help advertisers and publishers to do the business,” said Piotr Banaszczyk, CEO of Clearcode.
The CTV & OTT Space
The evolving CTV and OTT space creates unique opportunities for telcos to monetize their data and optimize ad campaigns.
The pioneers are Verizon Media and Vizio that announced a data partnership in 2021 whereby Verizon Media gained access to Vizio’s Inspace viewership data from more than 18 million opted-in Smart TVs globally.
The partnership means that this data will be available exclusively to Verizon’s demand-side platform (DSP) and Verizon will be the preferred supply-side platform (SSP) for Vizio’s programmatic ad inventory.
Offering AdTech solutions in the CTV and OTT space can enable telcos to bridge the gap between TV and mobile and establish advertising experiences across different platforms and devices.
Telcos have access to premium inventory and data that, with the use of proper advertising technology platforms such as self-serve advertising and data platforms, can drive performance and efficiency in the CTV and OTT advertising space.
What the End of Third-Party Cookies and Mobile IDs Means for Telcos
Google announced that it will stop supporting third-party cookies in its Chrome browser by the end of 2023, while Apple and Mozilla have already implemented anti-tracking features in Safari and Firefox browsers that block third-party cookies and other tracking mechanisms by default.
Apple has also introduced privacy changes to its mobile identifier — identifier for advertisers (IDFA).
This privacy feature has changed the way app developers and AdTech companies can access an iOS user’s IDFA as it now requires them to ask for consent from users before they can collect it.
The opt-in rates are estimated to be between 4% and 40% depending on the survey and app category in question.
Consumers, privacy advocates and governments around the world are the driving forces behind the phasing out of third-party cookies and mobile IDs in an attempt to improve user privacy and transparency in digital advertising.
Therefore, there is a major opportunity for telecom companies to become leading AdTech players to help advertisers navigate and succeed in this new and challenging environment by pursuing the various options listed above.
What’s more, telcos are in a good position to play a key role in the future of programmatic advertising as they have access to large amounts of data that can be used to create universal IDs, which are regarded as one of the main replacements for third-party cookies.
However, they have to ensure they’re complying with the various privacy laws, like the GDPR, by properly collecting user consent etc.
Which Telcos Have Entered AdTech?
Telco companies enter the AdTech space in one of two ways: They either acquire AdTech companies or build their own AdTech platforms.
The idea of combining a telecommunications company with an AdTech company promises hope for huge revenue growth.
However, there are only a few companies that have managed to successfully acquire and drive revenue. These being Alticel, Ericsson and T-Mobile.
Some telcos that acquired AdTech companies to enter the AdTech market struggled to make their acquisition work and sold them off. Among these companies are AT&T, Verizon Media, and Telenor.
SingTel is also about to exit AdTech by selling Amobee to Tremor International, an AdTech company, for more than $207 million.
One of the main causes lies in the lack of AdTech domain knowledge and being unable to tackle the integration issues. Most telcos have found it hard to merge two completely different companies that operate on different business models to generate revenue growth.
Also, many telcos have entered AdTech with the goal of competing head to head with the likes of Google and Facebook, and taking a share of their ad revenue as a result, but this has proven to be a difficult task.
With the proper strategy and understanding of the current programmatic landscape, telcos certainly can compete with the tech giants, but there are more fruitful opportunities closer to home — i.e. the ones listed above.
However, acquisitions are not the only way to get into the AdTech industry. Telecoms can also choose to build their own AdTech platforms that are tailored to their business goals and can be easily integrated into their existing systems.
There are a few telecom companies that have built their own AdTech platforms and successfully operate in the AdTech space — Airtel, Reliance Jio and Vodafone Idea.
Custom-built AdTech platforms give telcos the opportunity to have full control over the features and roadmap of the platform, as well as ownership of the data.
By building AdTech platforms instead of acquiring them, telcos can also adopt an incremental approach to development and build the platforms piece by piece. This not only ensures they build the features that align with their business goals but also helps them to avoid failure by ensuring the platforms are meeting both their business goals and their clients’ needs.
Telcos can also cut down on costs if they build rather than acquire AdTech platforms. Over the past decade, telcos have spent anywhere from $300 million to $4 billion to acquire AdTech companies. Building the AdTech platform from scratch would cost a fraction of that.
In fact, telcos could build the minimum viable product (MVP) of an AdTech platform and continue development for five years for under $10 million.
One downside of building vs acquiring an AdTech platform is that you don’t have the customer base.
However, this can be solved by integrating the AdTech platform with other demand-side platforms (DSPs) and supply-side platforms (SSPs), allowing you to gain immediate access to thousands of advertisers and publishers.
Building AdTech platforms can give telcos a competitive advantage over their competitors and can successfully generate growth and revenue within the telecommunications and AdTech space. They just have to find the right development partner that can help build it for them.
