Failure to adapt to new technology is the number one risk facing telcos

London, 19 May 2014

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  • New growth opportunities in the industry require new value chain positioning
  • Attitudes to consolidation and cross-sector relationships are in flux
  • Industry faces trust issues over privacy and security concerns
     

Telecommunications operators (telcos) must reposition their business models and adapt to new roles across a growing number of new technologies or else risk losing major growth opportunities warns a new report by EY. This challenge, along with questions surrounding regulatory uncertainty, privacy and organizational flexibility represent the latest risks and opportunities facing telcos.

Top 10 risks in telecommunications 2014, the annual study based on the insights of EY’s Global Telecommunications Center and other leading sector practitioners, underscores that although the industry is starting to benefit from the global economic recovery, many structural challenges still exist. While operators stayed largely competitive during the downturn through defensive positioning, there is now an expectation for the industry to push new business models in the face of new technologies to unlock new growth.

Jonathan Dharmapalan, Global Telecommunications Leader at EY says: “Telcos’ legacy status as high dividend yield stocks is under scrutiny, and while there are a number of ICT growth opportunities, profitability remains under significant pressure. Many leading players have announced long-term strategic visions, but turning vision into reality brings a number of challenges.”

Realizing new roles in evolving industry

The biggest threat facing operators lies in the industry’s ability to embrace new digital technologies and the new competition this landscape creates. This environment, while both volatile and rapidly changing, requires new value chain positioning in areas as diverse as cloud computing and over-the-top (OTT) smartphone applications. In many instances, telcos will share ownership of customers with a host of players, whether partners or more disruptive competitors. Isolating new roles in complex and fast-changing ecosystems has never been more important.

Dharmapalan continues: “The constant evolution of value chains is forcing the industry to work more closely with OTT players. In many cases, OTT providers have created more appealing alternatives to traditional offerings, like mobile instant messaging with greater interactive features compared to standard SMS services. The challenge for telcos is whether to replicate these competitor offerings by developing their own apps, or do they partner with these newer players to deliver a richer customer experience. The longer operators wait to enter a particular segment, the potential for lost growth only escalates.”

Regulatory uncertainty

Regulatory pressures climb the list in this year’s study as the second highest risk as global operators seek greater scale efficiencies through more rational market structures. For example, European operators see consolidation as a route towards ultimately committing to higher levels of network investment in 4G. At the same time, ongoing uncertainty in both the US and Europe over net-neutrality regulation continues to undermine the industry’s ability to solidify long-term business plans.

Adrian Baschnonga, Lead Telecommunications Analyst at EY says: “Operators and regulators both need to focus on how to create and sustain incentives for long-term network investment. But in order to drive progress, operators need to prioritize shared industry positions and reevaluate the relative merits of in-market consolidation – including conditions attached to mergers – compared to network sharing and other synergy drivers.”

Rebuilding trust through privacy and security issues

Consumer trust in service providers has declined sharply this past year in the wake of the global political fallout over mobile data privacy and security. Operators must ensure that they cope with a changing compliance landscape while redefining their relationships with consumers and businesses alike.

Baschnonga adds: “Proactive stances are required on privacy and security issues with partners and policymakers so that new demands for data sovereignty, personal data privacy and cyber-security – which may vary according to geography – can be reconciled in the long term.”

Improving flexibility and efficiency

Like adapting to new technologies, organizational flexibility is paramount as telcos compete with smaller, more agile competitors and expand their service propositions in new directions. Meanwhile, operators also need to improve inter-deparmental communications and overcome the fragmentation of customer information assets if they are to make the most of big data opportunities.

Dharmapalan concludes: “Simplifying and streamlining internal structures, while driving new forms of interaction within organizations will be vital if telcos are to make the most of new demand scenarios. Moreover, operators will need to develop fresh competencies and skills within their organizations to maximize and capitalize on their new strategies.”

The 2014 top business risks for the telecoms sector are:

  1. Failure to realize new roles in evolving industry ecosystems
  2. Lack of regulatory certainty on new market structures
  3. Ignoring new imperatives in privacy and security
  4. Failure to improve organizational agility
  5. Lack of data integrity to drive growth and efficiency
  6. Lack of performance measurement to drive execution
  7. Failure to understand what customers value
  8. Inability to extract value from network assets
  9. Poorly defined inorganic growth agenda
  10. Failure to adopt routes to innovation

-Ends- 

Notes to Editors

How EY’s Global Telecommunications Center can help your business

Telecommunications operators are facing a rapidly transforming business model. Competition from technology companies is creating challenges around customer ownership. Service innovation, pricing pressures and network capacity are intensifying scrutiny on return on investment. Additionally, regulatory pressures and shareholder expectations require agility and cost efficiency. If you are facing these challenges, we can provide a sector-based perspective to addressing your assurance, advisory, transaction and tax needs. Our Global Telecommunications Center is a virtual hub that brings together people, cultures and leading ideas from across the world. Whatever your need, we can help you improve the performance of your business.

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