The telecommunications industry faces unprecedented challenges in 2024. New European regulations mandate that companies with over 1 million customers must accept digital identity wallets by 2026, a requirement that affects most major telecom providers. These companies rely on costly bank-provided identity verification services for customer onboarding and authentication. At the same time, the industry grapples with high customer churn rates, with research showing that 46% of customers switched providers in the past year due to service quality issues.
These challenges emerge as telecom providers seek ways to differentiate themselves in an increasingly competitive market. Traditional revenue streams from voice and data services are stagnating while customer acquisition costs continue to rise. Digital identity solutions present an opportunity to address these challenges while opening new revenue streams.
This article explores why telecom providers are well-positioned to become digital identity providers, examining the market opportunity and how different companies are approaching this transformation.
The natural evolution from telco to techco
Telecommunications companies possess unique advantages that make them natural candidates for providing digital identity services:
- Established trust relationships: They maintain verified identity information for millions of customers through rigorous Know Your Customer (KYC) processes, with many having decades of experience in secure identity verification.
- Robust technical infrastructure: Their existing networks and security systems are designed to handle sensitive customer data at scale and have proven secure authentication and transaction processing capabilities.
- Extensive customer reach: Telcos can achieve the scale necessary for widespread digital identity adoption by directly interacting with hundreds of millions across Europe.
Market opportunity for telcos
The digital identity market is experiencing remarkable growth, with Visa reporting a projected CAGR of 16% from 2020 to 2025. This growth is driven by increasing digitalization across sectors and new regulatory requirements for robust identity verification.
Meanwhile, the traditional telecommunications market faces stagnation. With mobile penetration rates exceeding 100% in most developed markets, growth opportunities in core services are limited. Digital identity services represent a promising avenue for diversification and new revenue streams.
Digital identity use cases
The transformation from telecom provider to digital identity provider opens up several strategic opportunities:
- Digital identities for marketing
Telecom providers are uniquely positioned to challenge big tech’s dominance in digital advertising. Offering privacy-compliant identity solutions can help advertisers reach audiences effectively while protecting consumer privacy. This is particularly relevant as third-party cookies phase out and advertisers seek new targeting solutions.
- Digital identities for cross-border commerce
As the European Union pushes for digital wallet adoption, telcos can simplify cross-border transactions for consumers and businesses. Imagine a customer being able to sign up for services or complete purchases across the EU using a single, telco-provided digital identity, eliminating the current friction of country-specific verification processes.
- Customer retention through digital identity
Digital identity services can significantly increase customer “stickiness.” When a customer’s digital identity is integrated with multiple services – from online shopping to government interactions – switching providers becomes more complex, potentially reducing the industry’s high churn rates.
How telcos are participating
Telecom providers are pursuing digital identity through three main approaches:
- Independent initiatives: Some providers are developing proprietary solutions, particularly in markets where they have dominant positions. These solutions often start with basic identity verification services before expanding to full digital wallet capabilities.
- Industry consortia: Major European telecoms are forming joint ventures to develop shared digital identity solutions. For example, four of Europe’s largest operators recently announced a partnership to create a privacy-focused digital identity platform, currently being tested across 19 EU countries.
- Government partnerships: Several telecoms are working directly with national governments to support official digital identity schemes, positioning themselves as key infrastructure providers for national digital identity initiatives.
Looking ahead
The transformation to digital identity provider represents both an opportunity and a necessity for telecom companies. Success will require significant investment in technology and partnerships, but the alternative – remaining solely a connectivity provider – risks further commoditization of their services.
As the 2026 deadline for digital wallet acceptance approaches, we can expect to see accelerated activity in this space. The telcos that move quickly and execute well could find themselves at the center of Europe’s digital identity ecosystem, while those that delay may struggle to catch up.
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