The two-engine telco: why digital sub-brands are on the rise
Ernst Fonternel, Chief Consumer Officer at MTN
The traditional telecoms model was built around a relatively simple formula: build a mighty master brand, invest in the network behind it, then use both to serve as much of the market as possible.
So why are some established operators now doing something that seems almost counterintuitive – creating entirely new digital brands alongside the ones they have spent decades building?
The answer lies in a market that can no longer be segmented simply by age, income or how much data people consume.
Increasingly, the dividing line is being determined by how people want to engage with their connectivity provider in the first place.
What is emerging are two distinct growth engines.
Some customers still want to visit a brick-and-mortar store, engage with a human being and receive in-person support.
Others are most comfortable with a fully digital experience; they want to sign up, buy, change and manage everything themselves, in real-time.
The challenge for operators is that these aren’t simply two customer segments wanting different products, but rather two groups expecting fundamentally different experiences from the same industry.
And that requires an entirely new approach to doing business.
When segmentation changes the business model
Traditional demographic segmentation has typically helped operators understand who their customers are and what they consume.
But digital behaviour is adding another important layer: how they want to consume it.
This shift also changes the basis on which brand loyalty is earned.
Customers judge brands and base loyalty on performance: does the service do what I need it to do, in the way I want it to?
When expectations differ this markedly between customer groups, relevance becomes increasingly difficult to achieve through a single experience.
This is why behavioural segmentation is becoming increasingly important.
When one group wants human interaction and another wants as little of it as possible, this may have very little to do with age or income.
Understanding this starts to redefine the operating model itself.
It also raises a pressing question for established operators: how do you build a radically different customer experience without alienating or forcing millions of existing customers into it – who may very well not want it at all – or dismantling systems that continue to work for them?
One answer is to build something new in parallel to the core business: a digital-native model designed around a different set of behaviours from the outset, without disrupting existing operations or legacy systems.
Another advantage? Agility.
Within large, established organisations, introducing new products and services across an entire customer base can be complex, time-consuming and costly.
A separate digital business has greater licence to test new ways of engaging customers without requiring the entire organisation – or its customers – to move with it.
Building digital-first from day one
Technology infrastructure built around traditional customer engagement can be difficult to retrofit for an entirely digital experience.
A digital-native model – on the other hand – can instead be built for that purpose from day one.
That means thinking about the whole journey differently: how customers discover the service, buy it, pay, manage their account and get support when something goes wrong.
This is the context in which Pi by MTN was developed.
More than a new connectivity product, Pi – as South Africa’s first digital network operator (DNO) – is an entirely digital business model, designed as a platform on which new services can be built over time.
And while its first propositions happen to be mobile and home connectivity, delivered through a digital platform where customers can manage their services themselves, the significance of the model lies in what that platform can enable over time.
Because it has been designed as a digital-first offering, it creates scope to experiment with more tailored propositions, different combinations of voice and data and more dynamic ways of billing and servicing customers.
It can evolve without disrupting MTN’s existing customer base or requiring customers to migrate to an entirely different operating model.
Moreover, as a DNO rather than a mobile virtual network operator (MVNO), Pi is built within the network infrastructure that powers it, rather than operating as a virtual provider on another operator’s network.
This gives the model room to retain the agility of a digital-first proposition while, over time, developing capabilities that extend beyond those of a traditional MVNO.
From segments to a market of one
The next evolution could take segmentation considerably further.
Digital platforms generate vast amounts of behavioural data and – when combined with increasingly sophisticated AI capabilities – these insights can give businesses a much richer understanding of how individual customers behave.
As AI and algorithms become more sophisticated, those patterns can increasingly inform what customers are offered and when.
If someone’s usage regularly increases over a weekend or holiday period, for example, the service should eventually be able to anticipate that need rather than waiting for the customer to run out of data.
This is when segmentation starts moving from broad groups towards something far more individual, creating the possibility of responding to how people actually use connectivity rather than assuming everyone within a broad segment behaves in roughly the same way.
For established operators, the future opportunity will increasingly lie in using the scale, infrastructure and trust they’ve built as a foundation for new business models that can respond more precisely to different customer behaviours, without throwing the proverbial baby out with the bathwater.
And that is the true value of running two engines: the emergence of one does not mean the other has become irrelevant.
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