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Can the traditional telcos adapt to survive in this climate?

04 October 2016

In short, yes, says Christian Goetz, leader of the Global Telecoms team at BDO. While the global telecoms industry faces the most challenging risk environment in living memory and profitability is being squeezed by disruptive competitors, regulatory change and cyber attacks, there are some actions telcos can (and must) take to endure

Read more: telecoms risk cyber attacks Christian Goetz BDO

Christian Goetz - BDOTo survive, companies need to become more agile, as well as acquire and join forces with technology companies to augment their offerings.

BDO’s 2016 Telecommunications Risk Factor Survey, highlights the strategic and operational risks reported by sixty of the world’s largest telecoms companies. The survey shows a 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. While myriad challenges face this sector, the findings also provide insight as to how companies can best adapt.

My top 5 tips are as follows:

(1) Match consumer needs

The communications preferences of consumers has changed dramatically, with the majority now using 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. Ultimately, consumer habits will continue to dictate the future of telecoms and providers that offer customers the fastest speeds and best service at the right price will outperform competitors.

(2) Consider M&A (carefully)

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 and it will be interesting to see what game-changing mergers take place in the coming year. 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. Now, more than ever, strategic mergers and acquisitions will be a popular option for telecoms companies trying to develop an ever more attractive proposition for customers and to share enormous investment requirements.

(3) Embrace innovation

Telecoms companies have hard choices to make about their strategic focus, which may require 'big bets’ on major capital expenditure projects. Organisations in this space 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. Pursuing growth via more radical innovations will certainly be the lifeblood for some companies and expect to see some investing more into proprietary mobile applications and content.

(4) Think defensively

Cybersecurity has risen up the telecom industry’s risk radar, and spending on security infrastructure has increased year-on-year. 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. It’s essential companies adopt an ever more defensive strategy to prevent failure in this increasingly high-risk area. 

(5) Think tech not telecoms

Telecoms companies are particularly worried about the impact of the European Commission’s Digital Single Market initiative. 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, a tactic for some telecoms companies will be to adapt to become broad-based tech companies, which can break into new markets, win over consumers and withstand challenges from new market entrants more effectively.

Ultimately, the pace of change faced by the global telecoms sector has never been more intense. This is a difficult market firms must adapt or they will not survive. While many are facing challenges across a number of fronts emerging technology, entrepreneurial new competitors, and financial instability – those that employ creative ideas around their existing services or infrastructure, enhance their financial planning and invest against areas of risk like cyber security will win out. 

Christian Goetz is leader of BDO’s Global Telecoms team and can be contacted on +49 69 95941-514 or at christian.goetz@bdo.de




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