It is not news that the digital transformation surrounds us and is changing the way we live. Throughout the history of AT & T, the parent company of Vrio, we have become accustomed to constant change, but the digital transformation is driving change at a pace that continues to surprise many. The implications of that for our lives and our industry would have been unimaginable not so long ago.
Last January I gave a speech at the Congreso Futuro, in Chile, my first speech in Latin America as CEO of Vrio Corp. Chile is a great promoter of digital transformation, and even has a so-called Chilecon Valley! I am convinced that an ecosystem that supports startups, hackathons and various entrepreneurs will create a multiplier effect for the benefit of all. For that to happen, we need action and we need it now.
During my presentation in Chile, I spoke about four key points. First, some reflections on the digital transformation that is revolutionizing communication and entertainment services. Second, what this means for consumers. Third, some ideas about Latin America. And, fourth, some observations about the inevitable changes for which we must prepare.
The digital transformation is here
Our industry has experienced an intense transition from wireless to wire and then voice to data transmission, with video content being an important part of the data transmitted through our network. In the US, data traffic has increased 470,000% since 2007 and video traffic has increased by more than 75% in the last year alone. This continues to be the biggest driver of network traffic growth, accounting for more than half of our mobile data traffic. By 2022, we estimate that video content could represent more than 75% of AT & T mobile traffic.
Given this dramatic change, we recognized very early on that we had to change our network radically. During the last five years we have been on the way to making the transition from our hardware network to software, from staying on site to moving to the cloud, from developing applications to developing services.
As CEO of Vrio, I am seeing this transformation happen in the pay TV industry in real time. DirecTV was one of the first pay TV operators to offer satellite TV. Now, with the evolution of the cable connection to the wireless and with the highest data transmission speeds, we can offer a high quality entertainment experience with platforms over the top, or OTT. An example of this is our DirecTV GO platform, which is already in Chile and Colombia since last year, and delivers an experience “live and portable”.
What does digital transformation mean for consumers?
Consumers had never had such a wide range of communication and entertainment services available at such a low cost. Among the most transformative changes are the use of social networks and how we consume and share audiovisual content.
Consider the pay TV industry, in which Vrio operates. Just 20 years ago, pay television revolutionized the television industry, giving consumers access to more than 100 channels, instead of the traditional three or four open television channels. Pay TV provided consumers with more options to watch programming and promoted the production of new and more contents that were oriented to the specific and varied interests of consumers. But that was nothing compared to what we are seeing now.
The digital transformation has allowed the delivery of content over the top. And this means not only more content, but also new formats such as VOD (video on demand), content generated by the consumer and the like. Consumers not only have more options, but they can also adapt what they see to their preferences in an unprecedented way.
These changes are driving consumer preferences and expectations. For example, people no longer see video content simply in homes. Instead, they want to interact with him, they want to have him available everywhere, they want to share it and discuss it with their friends. As my colleague David Christopher, AT & T Mobility & Entertainment, put it, consumers tell us that they want it to be simple, social and real.
First, people want their entertainment to be simple. Consumers do not care about networks, studies, platforms and license agreements. In fact, they do not even seem to care about the size of the screen anymore! They do not want to have to struggle to access their shows; They want them to be at the tip of their fingers, just a click away from wherever they are participating throughout the day.
Second, they want it to be social. Family and friends are our closest influencers, the people we trust the most. In social networks, sharing user-generated content is easy. But when it comes to higher value or premium content, things change. And still, today, the most credible form of advertising among consumers, by a wide margin, are the recommendations of friends and family. 83% of consumers trust these recommendations more than traditional advertising. More so if you are a teenager or millennial.
Third, consumers want their entertainment to be “real”. They are less interested in traditional celebrities, for which they had to wait for a movie to be released in the theater or a new album was released to listen to them. Fans want to interact with their entertainment, either by following their favorite actor on Instagram, leaving comments for a YouTube star, or finding another way to connect. They want to feel that emotional connection with their entertainment. They want you to feel close and accessible.
It goes without saying that digital transformation and the evolution of consumer preferences are altering traditional business models. None of us pays for long distance service or text messages. The broadband speeds that consumers considered acceptable some years ago are now inadequate. The geographical borders within which we have traditionally operated mean almost nothing in a digital economy. The digital transformation is also allowing new business models, whether social networks, retail sales, transportation or any of the other services we now trust, but we did not even imagine just two decades ago.
Our commitment to Latin America
For AT & T, Latin America is a key priority and Vrio is proof of that. In Latin America we see a region with greater economic dynamism than the most mature markets in the world. The economies of Latin America and the Caribbean are expected to grow between 2 and 3% over the next 5 years 5, well above 1 to 2% of the advanced economies.
We also see the emergence of a relatively young and urban population and the emergence of a new middle class 6 that presents a great opportunity for growth. One in four Latin Americans is between 15 and 29 years old (165 million people) and four out of five live in cities. The middle class in Latin America has grown from 21% of the population in 2002 to 35% today, with new consumption patterns and higher expectations that drive social change.
The penetration of broadband and pay TV is still relatively low in Latin America, compared to many other countries. However, Latin Americans are exhibiting the same preferences as consumers in other parts of the world. They want services that are simple, social and real.
In order to be prepared, we have to understand that the challenges for all of us are great and nobody is exempt from this accelerated digital evolution that we have undertaken.
The needs of consumers must be put first. Your preferences should be our priorities. And we need to earn and maintain your trust. The privacy of our customers and the security of their data must be an absolute priority. Systems to ensure these objectives will require collaboration among all parties involved in this ecosystem.
Finally, the success of digital transformation will depend significantly on the ability of governments and regulators to develop regulatory frameworks in a way that fosters competition. We will have to promote self-regulatory collaborative initiatives among industry stakeholders, and where regulatory action is justified, encourage light, flexible and well-coordinated regimes that protect innovation and facilitate market growth.
Also published on Medium.