The telecom industry serves as the backbone of our interconnected world. However, beneath the surface of seamless connectivity and relentless innovation, telco players are in fact navigating several challenges.
From the demands of an increasingly data-hungry society to the constant push for technological advancement, the telecom industry must strive to restore, reshape and reinvest in its core foundations in order to adapt to the ever-evolving nature of human interaction.
Traditionally, customer dissatisfaction, inflexibility and slow adoption of new technologies have plagued telecom companies worldwide. But other problems have been emerging.
Layoffs in the Telecom Industry
Big operators have reportedly eliminated over 380,000 jobs since 2015. In 2022 alone, the top 20 tier-1 telecom operators in North America and Western Europe alone cumulatively slashed 85,000 jobs without any replacements.
Further, the technological turbulence of 2023 has ushered in a wave of job cuts that have also negatively impacted the telecom sector. Prominent companies have been compelled to take these actions in response to economic instability, sluggish market demand, and the imperative to trim expenditures, as well as other investor expectations.
Experts believe that these layoff cycles come around after every new wireless "G" rollout. But the current negative phenomenon might be the most drastic to date, as all major wireless carriers have hit the brakes simultaneously. And unfortunately, it might take some time for these companies to shake off the impression that they are unstable or an unreliable place to work.
The Telecom Sector's Revenue Crisis
Private investors have been aware for quite some time of the unique investment opportunities that can be found with an integrated telecom operator. Such value can indeed be harnessed when these companies transition into more specialized and concentrated businesses.
An example would be how various companies’ hefty deals worldwide to acquire telco towers have made headlines globally. Figures show that buying up more than 60,000 towers a year on average in the past five years has often led to creating value in the process.
Yet, with the financial reports due at this time every year, it’s undeniable that the telecom industry is showing signs of a profound revenue crisis. Earlier this fall, leading telecom vendors announced job cuts as part of major cost-saving plans in response to declining net sales YoY. Even the economic performance of Chinese vendors has added to the first signs of a difficult road ahead.
According to an industry analyst, this is due to the fact that operators are failing to monetize 5G in the consumer domain. Added to this is the struggle for these companies to deploy standalone 5G as well as difficulties in positioning 5G-Advanced.
Moreover, an additional and demonstrable factor in these companies’ profitability is that of geopolitics, which has created significant barriers for all vendors. European and western markets are effectively closed to Chinese vendors, while other regions are facing their own difficulties in entering the Chinese market. In this context, delivering 5G services to emerging markets becomes difficult due to compliance issues.
Are Telecom Investments Paying Off?
Industry research previously revealed that both US and European operators have struggled in the past decade, with total returns to shareholders — the measure of both past performance and expectations for future growth — falling despite the MSCI World Index showing strong growth.
European companies have fared particularly poorly, losing ground in both OTT companies and hyperscalers compared to their US counterparts, which eventually gained more market value.
A survey by New Street Research in March 2022 — notably conducted before inflation began to soar — showed that price had already replaced quality as the number-one consideration among consumers when choosing a mobile or fixed provider. This could be another factor behind operators’ investment diversification.
When looking at ROI within the telecom industry, one example involving billions of dollars grabs attention. A Swedish company’s $6.6 billion takeover or $3 billion impairment charge is being questioned as to whether or not it constitutes progress when compared to one of its rivals. The latter has instead signed telco agreements to accelerate the use and monetization of network APIs.
Resilience in Telecom Infrastructure
Maintaining tower infrastructure in the telecom industry requires both effort and resources. Hence, it is a logical step for certain operators to sell this infrastructure to tower companies, which then lease it back as a managed service. This approach allows operators to continue generating revenue while outsourcing the work required to maintain the actual infrastructure.
A principal analyst at Technology Business Research describes MNO’s tower assets as real estate, which they must fully utilize in order to provide the best service. Telcos now need to ensure compatibility and interoperability with a diverse range of systems and devices, due to the rise of IoT and other interconnected systems.
Rolling out 5G has also become expensive, and tower sales can help fund such spectrum acquisitions.
A Call for Optimism and Resurgence in the Industry
The telecom industry's ability to confront and overcome its challenges relies on its adaptability and innovation. Despite the hurdles it faces, the telecom industry is positioned to lead us into a future where connectivity knows no bounds, ensuring its continued relevance and significance.
Without a doubt, telcos will maintain its positive stance in the digital transformation scene across the world. Mainly, as 5G progresses towards large-scale commercial viability, service providers have begun trials of new use cases, and the results are encouraging them to readily adopt the next-gen technology. As more devices and use cases become viable, the revenue potential is expected to grow along with the need for flexible IT systems to support them.
Additionally, as telcos maintain their long-standing focus on cost-cutting, optimization and automation, companies can seek out pockets of growth. They are increasingly focusing on lucrative areas such as internet of things (IoT) solutions, private 5G networks for businesses, fixed wireless home broadband, and tailored digital infrastructure, data, content and platform services. Embracing these opportunities necessitates a shift in mindset, encouraging telcos to work comfortably within the broader industry ecosystems that are reshaping the sector.
Further, proactive consolidation and diversification have become noteworthy trends in the telecommunications realm. Companies are actively instituting mergers and acquisitions to expand their services and enhance their market presence.
Indeed, the future remains bright. By embracing innovation and adapting to the swiftly evolving industry landscape, telecom companies can not only survive but thrive in the digital economy of 2024 and beyond.
By Elvi Correos, Senior Journalist, Telecom Review
