From telecoms provider to tech innovator: Can the old guard make the leap?

Christian Goetz
Changing consumer habits, such as the use of Snapchat, pose a threat to the telecoms sector (Source: Getty)

The global telecoms industry faces the most challenging risk environment in living memory. Profitability is being squeezed by disruptive competitors, regulatory change and unrelenting cyber attacks.

The threats facing telecoms today are diversifying and multiplying. At BDO our recent industry report, 2016 Telecommunications Risk Factors Survey, highlights strategic and operational risks reported by sixty telecoms companies and reveals a wide range of issues, from interest rate fluctuations to new technologies, are playing more heavily on the minds of industry leaders today compared with in 2015.

What risks concern industry leaders most about the future of their industry?

1) Consumer habits

The communications preferences of consumers has changed dramatically. We now use mobile devices for streaming video content via Netflix or YouTube, and for communicating on apps such as Skype, Snapchat and WhatsApp. These changes have put strain on bandwidth capacity, and accelerated a shift away from voice telephony. Consumer habits will continue to dictate the future of telecoms. Providers that offer customers the fastest speeds and best service at the right price will outperform competitors.

2) Competition

Established players face competitive threats from both industry consolidation and new market entrants. A healthy level of telecoms M&A activity looks set to continue. Strategic deals, such as the acquisition of satellite television company DirecTV by global telecoms provider AT&T, will create new ways to bundle services and maximise the selling opportunities to customers.

3) Diversification

Telecoms companies need to make hard choices about their strategic focus, which may require ‘big bets’ on major capital expenditure projects. Although many may diversify, telecoms need to remain responsive to rapid market changes. For example, until recently data centres were considered a high growth market for telecoms providers. However, as specialist start-ups and global giants such as Amazon Web Services have compressed margins in this segment, many traditional telecoms businesses have retreated from this market or have taken an active role in the consolidation of the market to gain critical mass.

4) Cyber security

This has risen up the telecom industry’s risk radar, and spending on security infrastructure has increased year-on- year. Telecoms provider BT, for example, cites an ‘unprecedented increase in the volume and intensity of cyber attacks’. As customers become more conscious of security issues, the reputational damage caused by significant data breaches could result in an irrecoverable loss of customer trust.

5) Regulation

UK telecoms companies are particularly worried about the impact of the European Commission’s Digital Single Market initiative and possible Brexit. This has potentially far-reaching implications for net neutrality, spectrum policy and management, and roaming. The abolition of roaming charges is just one example of a change that is likely to hit the industry’s bottom-line hard over the coming years.

In order to fend off these risks, the telecoms provider of the future is going to have to think beyond the traditional remit of voice telephony. By adapting to become broad-based tech companies, traditional providers can break into new markets, win over consumers and withstand challenges from new market entrants more effectively.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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