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How Standalone Innovation Sandboxes Can Overcoming Telco Innovation Challenges

Welcome to our Beyond Connectivity series that focuses on telco innovation to better engage audiences and to explore new diversified non-telco revenue models. This article focuses on highlighting the innovation challenges that telcos face and how innovation sandboxes can overcome them. Our earlier articles cover successfully going beyond connectivity and why telcos should focus on optimizing telco app engagement.

Executive Summary

With revenue from connectivity declining and new telco players focused on price competition, telcos are under pressure to develop innovative new revenue streams. 

One opportunity lies in turning their telco apps into profit centers. As every smartphone needs a telco app, telcos have large existing user bases that can be monetized. This large user base gives telcos an edge over non-telco apps who have to acquire users through other means. 

To upgrade their telco apps, telcos could pursue two strategies: upgrading their telco app into a super app that hosts various digital lifestyle services or building deep, specialized services within the telco app that could even feature AI. 

However, telcos cannot afford to innovate too quickly as they could risk disrupting their business-as-usual activities, making this a delicate balancing act of innovation and stability. Telcos tend to face three barriers to innovation: technical limitations, budget constraints, and resource and talent gaps.

One path forward lies with working with partners to embed modular, low-risk, and low-cost innovation engines directly into their telco apps. These innovation engines enable telcos to experiment safely by letting them test lifestyle services, third-party apps, and AI assistants. This tab can be integrated into any app within 4 weeks, saving months of work. 

Innovation engines like Xplore can optimize for business outcomes like app engagement, such as with Mobicom’s recent partnership. By focusing on leading KPIs like monthly active users and increasing users’ average time on the app, new profitable customer segments can be uncovered and catered to, potentially improving ARPU.

Early evidence from experiments to optimize app engagement shows that around 20% of all app users engage with Xplore features. These engaged users spend 47–156% more time in-app and additionally are correlated with higher ARPU. This is just the start as more experiments aimed at further optimizing app engagement and identifying new monetizable services will be rolled out.

Through innovation engines, telcos have the opportunity to reposition themselves as digital lifestyle hubs, accelerating their transformation into cutting-edge techcos.

The Untapped Telco App Opportunity

Telcos are under pressure to innovate beyond connectivity services, and those who don’t innovate risk going the way of Kodak or Nokia. Those who succeed could earn their place among technology giants like Meta or Google and become true ideal Digital Mobile Operators (DMOs) – telcos who have successfully diversified their revenue streams and entrenched their brands in customers’ digital lives without giving up their connectivity services.

One area with untapped potential that telcos can explore is upgrading their telco apps. Most telcos have developed exclusive apps to help both telcos and customers streamline processes from billing to tracking their plan usage. Yet, this is one of the most overlooked parts of the telco's business, as it is often treated as a cost center rather than a profit center.

On top of potential monetization, many telcos also tend to overlook another key advantage their telco apps have: their large existing install bases. As every smartphone needs a telco app for connectivity, telcos already have many customers who have installed their telco app. This gives telcos an advantage in user acquisition that they can use to compete with non-telco apps who have to acquire their users through other means.

Focusing on telco apps can take different shapes. In an earlier article in the Beyond Connectivity series, it was noted that these can include offering a variety of services like a super app similar to the way WeChat or Grab do, or offering specific premium telco app services like AI assistants or other non-telco partner services on their apps. 

Fortunately, this period has also seen massive gains in innovative new startups and generative AI tools. Working together with these providers offers telcos an opportunity to reposition themselves as true techcos. 

But every market is different and finding the right combination of services will require research and testing. And research and testing requires rapid testing, time, and resources, all of which carry risks.

Three Major Risks to Telco Innovation:

Risk of Service Outages

Many telcos rely on legacy software infrastructure. These tend to be custom-built, monolithic structures made of a patchwork of various integrations with many vendors. Any update to the system would require coordination with those third-party vendors to execute, making it a slow and gruelling process unsuitable for innovation if they don’t already have innovation sandboxes.

Innovation requires frequent updates to rapidly A/B test updates and offers, but telcos also need to insulate their core services from any of these changes. As Jackie Tan, Xplore Lead from Circles, observed:

“A telco for the most part is a very monolithic institution… if you move too fast, you break things. The challenge is being open to experiments that will not impact BAU.”

Technical debt was identified as a silent saboteur inhibiting innovation and growth according to 46% of Fortune 500 global technology companies. This was mentioned in DXC Technology’s study which also revealed that 99% of surveyed Fortune 500 executives say that technical debt is a corporate risk.1

Budget Constraints

Building in-house solutions sometimes involves high financial costs and locks up significant time and resources that most telcos cannot afford. For example, not many telcos can afford Vodafone’s US$1.5 billion, 10-year long innovation partnership with Microsoft to bring AI to its consumers.2

The financial pressure that telcos face comes from both revenues and costs. Between 2023 to 2028, telco revenues are projected to grow at a compound annual growth rate of only 2.9% which is below inflation. Meanwhile, costs are rising due to factors like higher energy and labour costs as well as general economic weakness.3

Resource and Skill Gaps

Building even a basic version of an innovation sandbox from scratch into a telco app could take six months of resources. Spending six months of resources without a well defined business outcome is also a risk that few telcos want to take, which makes getting internal commitment challenging. On top of that, there is also a shortage of tech talent across telcos worldwide.4

For executives already under budget and operational pressure, the risk of innovation is high and the ROI uncertain. To solve this, telcos can benefit from a low-cost and easy-to-implement innovation solution that insulates the core business from risks.

How a Telco Innovation Sandbox Can Be Low-Risk, Low-Cost, and Quick–to-Implement

Standalone Innovation Sandboxes Lower Risk to BAU Activities

Leading tech companies have shown that innovation can be done by separating experimentation from business-as-usual activities. Google is one great example of this, with Google News and Adsense being the results of Google’s 20% time technique which lets employees spend some company time on personal projects.5

Not to be left behind, telcos have been taking notes. Telcos have also been carving out innovation teams to protect their core services from risks that come from experimentation and among these are innovation sandboxes: environments where ideas can be tested rapidly, safely, and with minimal overhead. 

Innovation sandboxes can enable low-risk tests to increase user engagement and trial new service offerings with zero disruption to core telco operations. Those that are built with a standalone web-view based tab can be updated without affecting the telco app’s core functions.

Fast, Low-Cost Innovation That Pays Dividends

Most telcos don’t have access to a war chest like Vodafone’s, but they still need to innovate or risk getting left behind. Integrating a partner’s tried and tested platform can be one way to save money, time and resources.

When built using a webview and powered by an experienced team, the innovation sandbox tab can be integrated into any telco app in less than four weeks. This can save telcos five months of resources compared to choosing to build the same internally. Working with partners that have pre-built modules to enable rapid testing also helps to reduce additional development costs.

Quick and Easy Tests for Rapid Insight Generation

The value that comes from innovation teams depends on whether their products are implemented by the rest of the company and provide clear business value. That means the faster the innovation engine generates useful and valuable products and services, the better. With that in mind, generating valuable feedback loops is key. 

Innovation sandboxes that come with pre-built apps help launch tests from day one once they are integrated. This approach also allows MNOs and MVNOs to select and test specific pre-built apps to see which ones interest their target audiences ranging from casual games, to news, to horoscopes and more. 

These can then go through a stop-iterate-scale approach to see which apps perform the best and which ones should be swapped out in order to boost telco app engagement.

You can read more about how this approach helps KDDI’s povo here.

On top of that, innovation sandboxes can help test non-telco monetization opportunities. Using OpenAPI, the innovation tab can host various third-party lifestyle services and AI assistants without drawing resources away from core network operations.

Built to Overcome Telco Innovation Challenges

Overcoming the various challenges that hold telcos back from innovation is why Xplore was developed to be low-cost, low-risk, and easy-to-implement. 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 the core telco operations.

Its experienced team, standalone web view tab that can be easily integrated, and over 90+ pre-built modules helps telcos rapidly innovate their telco app experiences. Jackie Tan shares:

“Innovation engines like Xplore enable low-cost, low-risk telco innovation by having a tab that can be easily integrated as a webview within the telco app. We can essentially start understanding the user base from day 1 the moment we’re integrated.”
Some of the applets that can be tested in Xplore's innovation tab

Circles Xplore is usually bundled with Circles fullstack telco software suite, but can be integrated into any telco app. Using a SaaS model, Circles’ team will integrate the innovation tab into the target telco app and run the experiments for their telco clients. Telcos can then track progress through a dashboard to see experiment results while getting regular updates on new insights and learnings from the Xplore team.

Xplore’s first goal is to help telcos grow their app engagement and to test newer use cases like lifestyle apps and AI service models. Initial app engagement tests have yielded interesting results.

Initial Xplore Results: Highly Engaged Telco App Users Can Potentially Be Monetized

The current hypothesis that Xplore has been testing is that higher telco engagement can eventually lead to higher customer lifetime value and ARPU. One potential source of higher revenue could be from sending personalized offers to highly engaged user segments.

Early results are promising. Based on data from experiments in countries like Singapore, Japan, Mongolia and the Middle East, around 20% of app users regularly engage with Xplore features. These Xplore users spent between 47 - 156% more time in-app, with the most popular applets being bite-sized-news and horoscopes.

These highly engaged users indeed offer telcos an opportunity to upsell to. In the future, the next stages will test different types of offers and even track user engagement with AI-powered offerings. 

Towards the Future: Building Service Ecosystems and AI Monetization Pathways

The Xplore tab helps telcos innovate through two core functions:

Function 1: Building an Engaging Lifestyle Service Ecosystem

After testing different applets to boost app engagement, the next step is to find the right digital lifestyle services to offer on the telco app itself. 

To support the telco super app approach or select the most profitable deep, specialized services to build, the innovation sandbox needs to be able to rapidly onboard and test various non-telco services. With such a wide variety of options to consider and test, selecting the right set of services requires a careful approach.

Uncovering New Demand-Backed Services Using Research and Data

These monetizable services can be discovered in a careful, data-driven way to ensure that the services selected are backed by real consumer demand. 

In Circles, this experimentation pipeline uses various research methods. These research methods include regular customer surveys with Circles customers, user interviews, and detailed segmentation tools powered by customer data.

Circles’s BSS software also makes extensive use of CRM features to gather a 360 degree view of our customers, and this information is also used by Xplore to select service offerings with the greatest monetization potential.

Jackie Tan shares:

“For example if you want to develop an AI proposition, or to discover new partners to work with, we run surveys quite extensively every 2 or 3 months. We also pick up the phone to call existing users to kind of figure out how they are using our current products and to see if there’s room for more improvements.”

This careful, experimental approach is part of a journey to build up a partnership ecosystem with various service providers and build hyperpersonalized, diversified revenue streams. Instead of competing head-on with super app providers like WeChat or Gojek, telcos can explore different niches by experimenting with services like mental health capabilities and financial education. 

Function 2: Generative AI Embed - Xplore AI

In Japan, KDDI Digital’s “povo AI” made a splash.6 Embedded in the povo app, povo AI is an AI assistant powered by the latest LLMs that users can access at any time. Povo AI is also an initiative powered by the Circles Xplore innovation engine.

This is just one example of a diversified, non-telco premium service that telco apps can potentially offer. But there is a grander vision that telcos could achieve with AI.

Pushing the Boundaries Between Man and Machine

Innovation shouldn’t stop once telcos successfully become digital lifestyle players. With the power that AI provides, there’s an opportunity to go further and build telco apps that change the way that people interact with technology.

Circles Xplore’s long-term vision is to:

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

Jackie Tan shared that his vision for AI technology was to become a friend and ‘butler’ who was not only a friendly chat buddy, but could be a confidante, or help with tasks such as making restaurant reservations. 

To find out more about this long-term vision check out our post on going beyond connectivity.

With a partner like this in every smartphone’s telco app, the potential is stunning. Working with various AI business partners will allow the telco AI assistant to go deep on various topics from financial education to mental health, while creating bonds that improve customer stickiness.

Conclusion

Telcos now have a method to move decisively and scale what works, without worrying about breaking systems or the bank along the way. By leveraging platforms like Xplore, telcos can boost app engagement, unlock sustainable new revenue streams, strengthen loyalty, and begin the journey from utility providers to indispensable digital lifestyle partners.

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