Growing competition is top concern of executives in telecom industry

22 August 2018 5 min. read
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Dramatic changes in the political, business and economic environment means telecom companies are facing major risks on the horizon, as the telecoms industry must adapt to rapidly changing market demands and the accelerating pace of technological innovation.

The telecommunications industry finds itself in a period of upheaval as new technologies, new competitors and new expectations from consumers disrupt tried and tested ways of working. While digital, enabled by telcos, is disrupting a range of markets, from retailers to financial services, the telcos themselves are too finding that digital is equally important to their own market space. This is as many new up-and-coming firms have been able to launch and compete on a leveled playing field with long-term market incumbents, leveraging new technology to eat into their share of the pie.

As a result, according to new study by BDO, increased competition is a top risk for telecom executives. The poll of business leaders was conducted among around sixty telecoms companies worldwide, covering key markets in the Americas, EMEA and Asia Pacific regions, increased competition is the top risk.

One of the headline findings of the study was that there was that competition has now supplanted disruption as the top concern for the telecoms industry. While the rise of competition is partially a result of said disruption, the industry is also going through a period of continued consolidation, with regional and national competition for market dominance. In this regard, competition is not merely contained to the telecoms industry, as new entrants arriving more often than not from the technology sphere, continue to challenge existing business operations and solutions putting even more pressure on prices and earning potential.

The top five risks for telecom companies

Elsewhere, the telecoms sector is also nervous on the matter of protectionism and geopolitical tension. 2018 has so far seen exchange markets continuing to suffer from the same uncertainty which came to define last year. Alongside the trundling on of the Brexit saga, and the sustained volatility of the US Trump administration, shifting regulatory agendas and the sudden prospect of sustained trade wars are just some of the perils which stand to influence exchange rates. For telecoms, which are generally defined by a substantial international flow of capital, cross-border customer bases, and who traditionally engage in large M&A deals, the potential impact of such fluctuations can be extremely significant.

On the other hand, some fears have become less heightened since last year. BDO found that the fast arrival of tech has led to concerns about disruption from new technologies drop from 2nd to 3rd place. Services like Skype, WhatsApp and Viber have all taken substantial chunks out of the telecoms market, meaning it remains a significant fear, however it is one which telecoms firms have already spent some time dealing with, compared to the relatively new threat of trade wars. BDO wrote, “Most customers would consider an offer of ‘unlimited texts’ as a poor joke. Changing customer demands are tied to the arrival of new solutions and technology, making it imperative for telecommunication companies to react to the risk they pose to existing services and revenue streams.”

While the tempo of technological innovation shows no sign of slowing, then, risks are always set to arise from new technologies, but the industry has experience of adapting itself. This worry is followed by the fourth and fifth risks in BDO’s survey: access to finance and interest rate pressures.

Differences across regions

As is the usual case with such surveys, even in a global market, perceived risk differs across geographical lines. For example, operational risks are up in Asia, while falling away in America and EMEA. Asian telecoms also anticipate higher financial risks compared to other regions. This could be an indication of growing cross-border competition in the region, something which is always associated with uncertainty and risks, and factors into the perception that competition is now the top worry.

In Europe, meanwhile, one of the major stories of 2018 – and likely beyond – is the new EU General Data Protection Regulation, GDPR. Because of the huge fines associated with the landmark legislation, it is one of the key factors for European telecoms who report high risks connected to data outsourcing.

At the same time, regulatory risks are still pertinent for telecoms in the Americas, along with the perceived risks associated with increased competition and fast arrival of new technologies. This could be due to the region’s close proximity to Silicon Valley, which would see disruptive new firms originating from the tech hub hitting American telecoms players first.

Looking ahead, researchers at BDO highlighted that the mix of short-term and long-term pressures which have been felt by the industry as a whole means that winners in the telecoms sector are those companies which proactively find ways of updating and expanding their value proposition and managing the risks facing the industry.

Related: Telecom players that invest in digital outperform their peers.