Is risk still risky when you see it coming?

Authors

Tom Loozen

EY Global Telecommunications Sector Leader

Fascinated by the positive impact of telecoms. Passionate musician. Enjoys educating himself on psychology, wine, sports, technology, arts and much more. Husband and father of three daughters.

Axel Majert

EY Global Transactions Telecommunications Leader

Strategy and M&A leader in telecoms. Values a multicultural, diverse and ambitious work environment. Passionate about family, history and sports. Former first division hockey player. Father of two.

4 minute read 15 Feb 2019

Industry risks are evolving as telcos transform into adaptive digital enterprises. Learn the top 10 risks for telcos in 2019 and beyond.

What are the most significant threats facing telcos today? The sector is preparing for exciting change, as gigabit infrastructure unlocks new roles for telcos as providers of intelligent connectivity. However, a number of challenges present themselves, from mounting capital expenditure and compliance burdens to changing customer and stakeholder expectations.

The EY Global Telecommunications sector team has identified and assessed the top ten challenges confronting the industry. We categorize our risks using the EY risk radar, which organizes threats into four domains:

  • Compliance threats originate in politics, law regulation or corporate governance.
  • Operational threats impact the processes, systems, people and overall value chain of the business.
  • Strategic threats are related to customers, competitors and investors.
  • Financial threats steam from volatility in markets, ecosystems and business investments.

Unless the telecommunications industry puts customers front and center, telecom operators will struggle to succeed.

Among those domains, we’ve identified the top ten risks on the fast-changing landscape.

1. Ineffective digital growth and diversification strategy

Digital services are the leading priority for the telecommunications C-suite, yet many adjacent market initiatives remain small-scale in terms of contribution to the top line. As the Internet of Things and 5G start to take center stage, telcos should take more meaningful steps to overhaul business models while making the most of an array of inorganic growth levers if they are to maximize their addressable market.

2. Underestimating changing imperatives in privacy, security and trust

Digital trust is a white-hot issue for consumers and enterprises alike, and the compliance landscape is changing quickly as regulators prioritize data protection. While operators recognize these forces at work, more can be done to put security and trust at the heart of customer interactions. Whether meeting regulatory stipulations or building credibility in new service domains, trust is now a key attribute of the digital telco.

3. Inability to scale internal digitization initiatives

Transformation strategies are not new among operators, but the journey to becoming an adaptive digital enterprise requires a carefully calibrated roadmap. A more complex landscape of transformational technologies demands new decisions and choices, while the burden of legacy IT continues to loom large for many. A holistic view of emerging technologies and their mutually reinforcing relationships is now essential.

4. Failure to prioritize workforce planning and design

Operators recognize that digital skills are lacking in their organizations, but the talent agenda still lacks airtime as a top strategic priority. Reskilling is critical as technology cycles quicken while a holistic approach to workforce design is essential in order to boost productivity and prevent new organizational silos from forming. Ultimately, improved employee engagement will help telcos deliver a superior customer experience.

5. Inability to combat the growing capex burden

Telcos worldwide are contending with a new wave of network investment, from 5G and low-power wide area networks to gigabit fibre. While differentiation through network quality remains vital, maximizing return on investment will not be easy as capital intensity rises across the sector. In this light, infrastructure switch-off, spin-off and sharing will come to the fore as operators grapple with an ever more diverse portfolio of network assets.

6. Failure to navigate evolving disruption scenarios

Demand for intelligent connectivity is growing among enterprises and industry verticals while coverage needs in remote areas remain pronounced. While this provides an opportunity for operators to create a range of new experiences, it also presents an entry point for disruptors with unique competencies. As telcos move into the 5G era, mitigating these prospective threats should be top of mind.

7. Inadequate portfolio management processes

Inorganic growth remains vital to the sector at a time when the pace of convergence and disruption is quickening. However, synergy realization is still falling short for many, with revenue synergies proving particularly hard to capture. At the same time, more transformational M&A may exacerbate integration challenges relating to a range of issues, from talent retention to the assimilation of IT assets.

8. Failure to adapt to changing regulatory frameworks

Regulatory frameworks are evolving faster than ever on a number of fronts, with spectrum release roadmaps, data protection frameworks and accounting rules all in flux. At the same time, telecommunications increasingly finds itself at the heart of government industrial policies, subject to a growing range of stakeholder demands. Balancing a changing landscape of national and international regulatory and policy forces is now mission critical.

9. Insufficient engagement with industry verticals and public sector

Telcos have a valuable enabling role to play as digital societies take shape but engagement levels with industry verticals and public sector stakeholders is lacking. The ability to lead emerging ecosystems and articulate changing value propositions to different stakeholders will help carriers build their credibility in adjacent markets and make the most of their convergence ambitions.

10. Failure to integrate multiple routes to innovation

Innovation strategies are both mature and diverse. Collaboration with start-ups brings access to fresh thinking and operator venture capital initiatives are growing in importance. At the same time, strategic partnerships represent a low-risk and low-cost route to revenue diversification. Yet failure to harness these ecosystem interactions within a holistic innovation framework may diminish their impact, and ensuring the right feedback loops into the main organization is no less important.

Summary

The telecommunications industry must collaborate and grow with many other industry giants to reinvent the customer experience. Unless they put customers front and center, telecom operators will struggle to succeed.

About this article

Authors

Tom Loozen

EY Global Telecommunications Sector Leader

Fascinated by the positive impact of telecoms. Passionate musician. Enjoys educating himself on psychology, wine, sports, technology, arts and much more. Husband and father of three daughters.

Axel Majert

EY Global Transactions Telecommunications Leader

Strategy and M&A leader in telecoms. Values a multicultural, diverse and ambitious work environment. Passionate about family, history and sports. Former first division hockey player. Father of two.