Telecom companies (telcos) have come to an important inflection point. The mainstay of telco business models, voice and data minutes, are no longer as profitable as they once were, and telcos have largely lost the market for over-the-top services to digital-first competitors. Today, telecom companies are even having to compete with hyperscalers such as Microsoft when it comes to providing private mobile networks.
However, to think that telcos will become little more than utility providers and enablers for the innovation of others is to grossly underestimate the industry. Repeatedly, telcos have shown themselves to be resilient innovation leaders, and today will be no different – as the current rollout of 5G demonstrates.
This powerful new network technology will drive whole new business models and underpin $19.1 billion in revenue this year alone. By 2024, 60% of telcos will have commercialised 5G services in major cities. With 5G, telcos will bring to bear a powerful tool that will enable new service-layer plays that can help them drive new revenue streams, break into new markets, and win new customers. From Connected TV to home automation to content streaming, 5G will unlock the next generation of customer experiences that will help shape the future of telecommunications industry.
5G will also help telcos move into vertical industries with exciting new propositions. One particularly promising sector is also one that telcos have struggled to capitalise on in the past: digital media and adtech.
The size of the digital media and adtech market means that it has long tempted telecom companies. Those with enough financial clout have sought to acquire their way into the market. In 2015, for example, Verizon Communications acquired AOL. The company then went on to rebrand as Oath upon acquiring Yahoo! in 2017, before once again rebranding as Verizon Media in 2018. With this strategy, Verizon hoped to make Verizon Media an online giant to rival the likes of Google, Amazon, Facebook, and Apple (GAFA) and to take a slice of lucrative ad sales.
Another example of a telco trying to buy their way into the market is Telenor, which bought Tapad, a cross-device retargeting startup, in 2016. However, while the logic of such acquisitions is easy to understand, buying into digital media has proved to be highly challenging and both the above initiatives ultimately came to nothing. In 2021, Verizon Media was sold to a private equity company for £5 billion – less than the acquisitions had cost Verizon in the first place. Telenor also ended up selling its adtech acquisition, with Tapad moving on to Experian in 2020.
It’s easy to see why acquisitions are poorly suited for moving into a new market. Trying to merge distinct companies with different propositions under one banner is difficult. The underlying business models vary significantly and the basic systems on which the companies operate are unlikely to be interoperable. Any such acquisition will therefore require lengthy and complex integration before value can be unlocked.
It is for this reason that service-layer propositions are a preferable route into the market. Rather than relying on acquisitions, operators can instead leverage their own innovation capabilities and resources and build propositions that are based on their core strengths.
In this regards, telcos have immense capabilities in the form of infrastructure and customer intelligence that can form the basis of winning services for their own use and the greater digital media market.
Not only do telcos have the resources to make a compelling play in the online media and adtech ecosystem, but thanks to fundamental changes to the technology that underpins programmatic advertising the timing has never been better. To understand the opportunity, it’s first worth a reminder of how programmatic advertising works.
The adtech industry came into being as the internet achieved scale. From that point, it was no longer possible for brands to deal with publishers on a one-to-one basis. The first ad networks used automation technology to connect brands that needed inventory to publishers with inventory to sell. Next, ad exchanges emerged to increase transparency over where ads appear. Ad exchanges are digital marketplaces that enable the programmatic sale of inventory, auctioning individual impressions to the highest bidder.
Ad exchanges are accessed and operated through adtech platforms: Demand Side Platforms (DSPs) for buyers, and Supply Side Platforms (SSPs) for sellers (i.e., publishers). Concurrently – and importantly from our perspective – Data Management Platforms (DMPs)/ Customer Data Platforms (CDP) collect traffic data such as third-party cookies and Mobile Advertising IDs (MAIDs) to enable advertisers to target the right audiences across devices with customised content, and to measure the performance of their campaigns.
Third-party cookies and MAIDs have fuelled programmatic advertising, enabling publishers to identify audiences and sell right-sized audience segments to brands. These cookies are created by brands and publishers and tagged to websites where they can be used to store and retrieve information. This information allows brands and publishers to understand their visitors and how they navigate around the site, as well as to assist with online advertising, retargeting, analytics, and tracking services.
The trouble is that the age of the third-party cookie is ending. That represents disruption for the digital advertising industry and an opportunity for telcos.
The situation today is that all major browser companies and smartphone operating system owners are looking to ban or restrict the use of third-party cookies for advertising IDs. On current plans, Google will have phased out third-party cookies by 2023, while Apple, Mozilla and Microsoft have already implemented controls in, respectively, Safari, Firefox and Edge. Apple has also changed the way that users give consent for their ID For Advertisers (IDFA) to be used to track their activity on aps and the mobile web. The opt-in rates are estimated to be extremely low – between 20% or 40% depending on the survey you read.
The reason for this phase-out of third-party cookies for advertising IDs is clear: consumers and regulators alike are demanding a new, privacy-first model for digital media where people are not tracked around the web by third-party cookies and MAIDs. Today, 72% of people feel that most of what they do online is monitored by advertisers, technology firms or other brands, and 81% say that the potential risks of data collection outweigh the benefits. Led by consumer demand, browser companies are now acting, a trend that is being further catalysed by the privacy requirements of emerging global regulations such as the General Data Protection Regulation.
With cookies and MAIDs on the way out, the million-dollar question facing brands, publishers and adtech companies is how programmatic advertising will survive. What’s needed is a privacy-first digital identity solution that is compliant with global privacy regulations, convenient for consumers to use, and powerful enough to enable cookieless audience addressability as scale. Herein lies the opportunity for telcos.
Telcos are well-placed to deliver digital identification for advertising for several reasons. First is scale, with telcos often able to offer 40%+ reach into a single geography from a single telco. Second is security. As one of the most highly regulated and privacy-compliant industries in existence, telcos can be trusted to deliver secure digital ID services. Third is connectivity – telcos can leverage an entire network across mobile, fixed line and broadband that sit above over-the-top players.
Finally, there’s experience. Many telecoms companies already offer digital identity solutions to brands for a wide range of purposes. One good example is the ID verification service offered by a group of telcos under the af2m banner or the GSMA’s Mobile Connect initiative, an identity service for ecommerce brands that’s now supported by 70 telcos. In fact, the GSMA has estimated that digital identity could yield as much $7 billion opportunity to operators by 2024.
With the changes to third-party cookies, telcos have the opportunity to be the new, privacy-first digital identity service providers for the digital advertising ecosystem by verifying audiences without the need to track people online or use personally identifiable information (PII).
Now is the time to strike. Already new digital identifiers are being worked on that will enable this new identity play for telcos. In some cases, these digital IDs are being developed by telcos in-house. In others, telcos are forming bilateral partnerships with adtech companies. Alternatively, some operators are working with specialists like Novatiq, which have developed verification IDs and ID platforms that telcos can integrate with and gain immediate access to the technology they need to enable ID services.
As telcos consider which opportunity is best for them – to build, buy or partner – interoperability will be a crucial factor when it comes to successful ID verification services. With so much telecoms innovation taking place, there’s a danger that siloed IDs only capable of working with a given telco and its adtech ecosystem will emerge. Such verification IDs will have limited value to advertisers due to their lack of market coverage, and the adtech opportunity for telcos will be lost as the market coalesces around an alternative digital identifier. The underlying ID infrastructure therefore needs to be interoperable as well as scalable, secure, and convenient for consumers.
Novatiq is championing the interoperable approach with its Fusion platform. This is an enabling layer that interacts with all IDs on the market, even if the underlying technology is different. The Fusion platform also powers Novatiq’s Zenith and Hyper IDs: telco-verified identifiers that provide a clear vision for a new digital advertising ecosystem with privacy and control at its heart.
With the Zenith ID, publishers and brands use first-party cookies to verify consented users behind the telco firewall to create a 360-degree profile with no personally identifiable information (PII) exchanged. These profiles can then be used to create audience cohorts that are activated in real-time using a second dynamic transaction ID, the Hyper ID, which enables brands to bid for slots for specific audiences.
The telco verified ID is a privacy-first approach that rules out the ability for middle players to take advantage of exported identifiers. The process flows like this:
The process enshrines three important principles. First, the identity is owned by the telco, representing their subscriber. Second, the ID cannot be exported to third parties or sold on. Third, if the subscriber opts out, it is instant as no PII data was ever in the ecosystem.
What we are seeing is the convergence of an urgent need with a clear solution. With telco-verified IDs, brands can continue to receive the accuracy and scale they need for effective engagement with their most important audiences at scale. Meanwhile, publishers benefit from the ability to continue to monetise their content effectively by being able to verify users on the open web.
Importantly, the approach also benefits consumers. Telco-verified IDs promise to deliver personalised messaging in a way that respects users’ privacy. It is this ability to meet consumer demands for better, safer, and less intrusive experiences that make telco-verified IDs such a compelling proposition. Rather than being a necessary evil that consumers must tolerate to access content, with telco-verified IDs advertising becomes a service that adds real value to consumers’ lives.
To give just one example, working with telcos, publishers can help brands understand where and when a user has seen a specific piece of branded content. This information enables brands to serve a different experience the next time the user visits. Ads are transformed from being little better than spam to being a two-way dialogue that’s aligned to people’s likes and interests.
And, of course, telcos benefit too. With telco-verified IDs, telcos have the service-layer proposition they have been waiting for to crack the digital media market. What’s more, this is a proposition well suited to the capabilities 5G has to offer.
But the benefits of telco-verified IDs for telcos don’t stop there, for the simple reason that telcos can themselves use the IDs to improve their own telecom marketing strategies.
Today, the average telco in a mature market spends 15-20% of service revenues on acquisition and retention (that compares to the just 15% of revenue spent on infrastructure), with marketing an important part of this mix. The challenges facing telcom marketing teams are the same as for any brand: how to deliver relevant, personal digital experiences that are valued by customers. Using the Fusion platform, telcos can leverage their own first-party intelligence on customers to solve this challenge. Taking the 360o view enabled by the Zenith ID, telcos can use this deeper understanding of their customers for cross-sell and up-sell opportunities, and to ensure that they deliver compelling services that drive retention.
The approach also means that telecom marketing teams at telcos can reduce waste. The Fusion platform provides an immediate view of which users are existing customers, users that can then be passed over for acquisition campaigns, saving budget that can be better spent elsewhere. The ID approach enabled by Novatiq thereby optimises telecom marketing strategies and ensures that telcos get the biggest return on their marketing spend.
As the nearly $1.1 trillion that operators are investing in 5G worldwide continues to bear fruit, we can expect to see innovative telecom operators make exciting moves into adjacent sectors and launch new services and business models that will enable them to carve out a central role for themselves in the digital economy.
Given telcos’ existing experience in delivering secure digital ID services and given the digital advertising ecosystem’s pressing dilemma around the devaluation of third-party cookies, telco-verified IDs will be an important part of this mix. Through these services, telcos will place themselves at the heart of the privacy-first internet emerging today and help make digital content more relevant to customers. The telcos that choose to go with a broad-based, interoperable approach, will be able to provide the greatest reach and will ultimately come to dominate the market. Telco-verified IDs therefore represent a clear opportunity for telcos to carve out an important and profitable role in the new digital media market.