Traditional telcos must adapt quickly to fend off challengers, says BDO survey
Market conditions in the global telecoms sector are changing faster than ever, putting major players in the industry under ever growing pressure to adapt quickly if they are to stay competitive.
This is the major finding of this year’s annual survey on risk factors affecting telecoms providers around the world, the 2016 Telecommunications Risk Factor Survey, compiled by accountancy and advisory firm BDO.
The study examines the risks identified by 60 of the largest fixed line and mobile telecoms providers across markets in the Americas, EMEA and Asia-Pacific.
The figures highlight the disruptive forces now at play in the sector including the constant flow of new technologies and competitors into the market, as well as the perennial risk posed by exchange rate fluctuation and the threat of cyber-crime.
Analysis points to challenges in four key areas:
With more than 80% of companies surveyed reporting exchange rate fluctuations as a concern, and the same figure pointing to interest rate changes, financial risk remains a major preoccupation for the sector. Telecoms businesses, particularly in the Western markets where interest rates are at historic lows, are employing scenario planning and derivative instruments to manage these risks. Cash flow is an issue, and telcos are having to balance the need for investment with cost cutting.
Market & strategy
Second only to finance, the risks perceived by most telecoms businesses are the threats posed by new technologies and increased competition.This year’s data highlights a growth in the number of companies citing these concerns, up to 55% and 60% respectively, with both factors now sitting above macroeconomic uncertainty and cyber security.
The landscape is changing fast. ‘Traditional’ providers must adapt their services to compete with new entrants. Incumbent firms often own legacy systems which are expensive to update and, like the large players in the banking sector, bear a heavier regulatory burden than the nimbler challengers poised to take advantage of new technologies.
Forward-looking companies are seeking ways to mitigate these risks, both by bundling new services for consumers and exploring strategic M&A choices to remain competitive.
Remains a concern for more than 40% of companies, and is one of the most commonly cited risks – particularly for those in America and Europe. Telcos point to the EU’s Digital Single Market rules and the abolition of roaming charges, as well as net neutrality as factors that will impact on the bottom line.
A number of risk factors enter the top 30 list for the first time, including terrorism, geopolitical instability and labour union unrest, as telecoms’ leaders now report a wider variety of risks than ever before.
In all, 42% of companies (up five percentage points on 2015) cite cyber threats as a concern and analysis shows that telcos are spending an ever-greater proportion of their income protecting themselves against these risks. Fears focus on concerns that a breach will undermine customer confidence, damage market share and shareholder value.
For those in the UK, the EU referendum result is an additional unknown fuelling uncertainty for the region.
Christian Goetz, leader of the Global Telecoms team at BDO, said: “The pace of change faced by the global telecoms sector has never been more intense. We are in a difficult market, as the recent financial results of many telcos bear out.
“It’s clear that firms must adapt or they will not survive. Our data points to an industry in which prescient telco leaders are alive to the threats they face: from emerging technology, entrepreneurial new competitors, and financial instability. Some have already begun to employ creative ideas around their existing services or infrastructure, sophisticated financial planning and strengthened cyber security, but they cannot afford to be complacent and must continue to evolve.”
The survey is BDO’s second annual review of the major risks facing leading global telecoms companies. In it, BDO has investigated the risks self-reported by 60 of the largest fixed line and mobile telecoms providers, across 16 different global markets in the Americas, EMEA and Asia-Pacific.
This year the survey also highlights risks to specific regions or markets. Top risks in each region were:
Americas: The most risk conscious about data, cyber security and data hacking. They were also most concerned about interest rate fluctuations and ability to access growth capital.
EMEA: Here, concern focused on regulatory change and also telcos ability to attract and retain talent.
Asia-Pacific: Overall, providers cited fewer risks, but highlighted concerns about liquidity and cashflow.
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