9 minute read 30 Nov 2022
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Top 10 risks for telecommunications in 2023

9 minute read 30 Nov 2022
Related topics TMT Telecommunications

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  • Top 10 risks in telecommunications 2022 report (pdf)

As the telecoms industry strives to stay resilient through challenging times, we examine the top 10 risks facing operators.

In brief

  • It’s vital that telcos respond appropriately and effectively to the pressures their customers are facing from the cost-of-living crisis.
  • Telcos must focus strongly on security and trust: 39% of telco CISOs believe security is insufficiently factored into strategic investments.
  • Actions to improve workforce culture and better manage the sustainability agenda rank among the industry’s most urgent imperatives.

Going into 2023, telecoms operators worldwide can be heartened by the collective resilience they’ve shown amid the recent geopolitical and economic turbulence. In the past two years, a combination of price increases, M&A deals and government intervention has helped share prices across the global telecoms sector broadly recover from the lows they touched during the pandemic — although the rebound remains gradual and uneven.

Fast-forward to today, and telcos are refreshing their strategies to navigate a volatile operating environment. They’re expanding the scope and ambition of their digital transformation initiatives. And they’re refocusing on sustainability, including seeking to improve workforce diversity and inclusion (D&I) and attract new talent.

But are telcos sufficiently attuned to the current and emerging risks confronting them to achieve these goals? Amid a high inflationary environment — pushing up operating costs — telcos must also deal with a range of challenges from customers’ cost-of-living pressures, to evolving expectations around security, to changing perceptions of workforce culture — the threats being faced are both urgent and diverse.

In this article we look at the top 10 risks we’ve identified across the sector and consider how to mitigate them.

1. Insufficient response to customers during the cost-of-living crisis

The cost-of-living crisis is causing households to reevaluate whether they’re getting value from their telecommunications providers. The EY Global Decoding the Digital Home Study shows that 45% of households believe they overpay for content services, and 44% think their broadband provider doesn’t do enough to direct them to the best deal. And some regulators are demanding that telcos do more to offer “social tariffs” to improve affordability. 

2. Underestimating changing imperatives in security and trust

Telcos are struggling to stay ahead of growing cyberthreats: 46% of consumers believe that it is impossible to keep their personal data secure when using the internet.1 At the same time, 39% of telecoms chief information security officers (CISOs) believe security aspects aren’t adequately factored into strategic investments.2 More positively, over half of CISOs think the pandemic has enabled cybersecurity professionals to raise their profile in the organization. But the security function often faces relatively low levels of trusted consultation with other parts of the business, such as product development teams.

3. Failure to improve workforce culture and ways of working

The views of employers and employees on workforce culture are diverging: Staff turnover is making employers more pessimistic about how the pandemic has affected company culture, but employees feel empowered through remote working and believe the culture has improved since the health crisis began.3 According to How workforce rebalancing is building pressure in the talent pipeline, 91% of Technology, Media & Entertainment, and Telecommunications (TMT) employees want to work remotely for two or more days a week, and 25% of TMT employers believe everyone should return five days a week. Telcos need to listen and respond to their people — or risk losing key talent.

4. Poor management of sustainability agenda

According to EY’s Global Climate Risk Disclosure Barometer the quality of telcos’ climate change disclosures has worsened year-over-year, while reporting of environmental, social and governance (ESG) metrics such as renewable energy consumption and e-waste management is often lacking. What’s more, 39% of telcos don’t disclose a specific net-zero strategy, transition plan or decarbonization pathway. Customer needs are also evolving rapidly: 47% of large businesses do not think that vendor 5G and IoT use cases adequately address their sustainability needs.4 Operators must raise their game if they are to adapt to a changing landscape of stakeholder expectations.

5. Inability to accelerate efficiencies through digitization

Today’s inflationary pressures make it even more vital that telcos increase efficiency and agility. Yet the EY Tech Horizon Study finds that their ability to transform through new technologies is hampered by complexity in various forms. Human factors are also limiting progress, with operators citing the negative impact of remote working on collaboration as the top cultural challenge facing their transformation agendas.

6. Failure to ensure infrastructure resilience and reach

Network reliability remains a pain point for customers, with the EY Global Decoding the Digital Home Study showing that 28% of households frequently experience an unreliable broadband connection. The challenge for operators is compounded by relentlessly rising data usage. And the pressure on infrastructure is accompanied by continuing worries over the digital divide, with the pandemic having further polarized the digital haves and have-nots. Even in areas where networks are available, households struggle to afford packages, meaning more must be done to convert infrastructure coverage into take-up of services.

7. Inability to take advantage of new business models

A combination of saturation in consumer markets and constrained average revenue per user (ARPU) development means that many operators are prioritizing B2B growth opportunities. But this focus has yet to deliver a meaningful upside, partly because the proportion of revenues coming from higher-growth offerings, such as IoT and cloud, remains relatively small. There’s also a lack of alignment between telcos’ new offerings and what enterprise customers are now looking for, particularly in emerging service domains such as network-as-a-service.

8. Failure to maximize the value of infrastructure assets

Telcos’ drive to unlock the value of infrastructure is gathering pace. They’re using divestments, carve-outs and joint ventures to reconfigure the ownership models for various types of infrastructure. Activist shareholders are a further catalyst, with 63% of telcos saying that activist pressure has prompted them to undertake a strategic review.5 But there are also internal challenges, with most telco CEOs believing a clearer distinction between core and non-core infrastructure could help their divestiture plans and many believing they have missed opportunities to reimagine their core business when divesting.

9. Ineffective engagement with external ecosystems

The network infrastructure landscape is increasingly fluid. Various countries have imposed restrictions on high-risk vendors, and technological advances have spurred the entry of software-centric network suppliers. There’s also growing demand for private 5G networks, with enterprises actively seeking suppliers with relevant ecosystem relationships.6 All of these developments require telcos to escalate external collaboration. Yet ecosystem engagement is still not central to their strategies, with only 11% viewing multiple partnerships as core to new business models.7

10. Inability to adapt to changing regulatory landscape

Regulatory priorities are shifting, as the pandemic, cost-of-living crisis, geopolitical factors, sustainability considerations and concerns over online safety combine to intensify the focus on network supply chains, the digital divide and support for vulnerable customers. Fragmented regulatory approaches pose particular challenges, with many countries enacting or amending data protection and privacy rules, while growing regulatory focus on AI may add to risks relating to fragmentation. That said, digital policies can also create opportunities, such as through government support for infrastructure upgrades.

How to mitigate these risks

As the telecoms industry’s risk universe continues to evolve in a fast-changing world, operators need to keep scanning the horizon for emerging threats and develop new mitigation strategies to address them. A key part of doing this successfully is understanding the interrelationships between risks that may initially appear quite separate.

Take the need to respond to customers’ cost-of-living pressures and meet their rising security expectations, while also accelerating efficiencies through digitization: Creating clear, simple, yet secure digital self-service experiences for customers can help achieve all three imperatives. Likewise, better management of the sustainability agenda across all aspects of ESG — from energy usage and carbon emissions, to workplace D&I — can boost efficiency while also fostering higher trust and engagement among customers, employees and ecosystem partners.

Alongside risk interconnectedness, it’s also important for operators to recognize that many of the risks we’ve pinpointed bring differing implications and impacts in different parts of their organization. For example, efforts to capitalize on the potential of new business models should be approached in a strategic context that includes the need for cost-effective customer offerings and a greater focus on ecosystem partnering, sustainability and security. Addressing all of these dimensions at once will require a multilayered perspective that draws on different skill sets from across the business.

Top 10 risks for telecommunications in 2023

Access the full report now for further detailed insights to help you to stay resilient through challenging times.

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As the telecoms industry enters 2023, operators can draw comfort from their robust performance in the recent volatile conditions. Their focus now is on steering a route through continued uncertainty, while also increasing the tempo of their digitalization efforts and doubling down on sustainability.

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Related topics TMT Telecommunications