2017 outlook: Implications for telcos

Darren Tan/Delta Partners
10 Jan 2017

Margin pressures are expected to continue in 2017, despite an anticipated mid-single digit growth in global telecoms revenues. This implies that operators will be striving more for efficiencies, particularly in areas such as networks and customer acquisitions. The incremental revenues also reflect a higher focus on high-value and postpaid customers as operators seek to retain them with attractive digital propositions around entertainment and enhanced customer experience.

Network sharing to gain steam

Considering operators are further pressured to optimize cost and maintain network redundancy, we should expect more network sharing agreements in 2017. With increasing operational costs, spectrum scarcity and increased data demand, operators will need to work around the connectivity challenges with industry peers to sustain financial performance. Regulators have also pressed for more collaboration, particularly in Indonesia, India, Australia, South Africa, Kazakhstan and Russia. While some dominant players may not see it as fair, more regulators are expected to step in to ensure competition continues to thrive within the industry.

Network sharing key to 5G plan

Next-generation 5G requirements are capital and spectrum intensive, and will require considerable investments. While technical standards are being defined, operators will embark on developing an extensive 5G network equipped with more antennas to support the deployment of potential 5G services. US operators are already gearing up to bring their 5G vision into reality, with Verizon and AT&T both expressing an interest in leading 5G trials by 2017 and pursuing potential commercial deployments before 2020. Considering the capex requirements, Asian operators are expected to collaborate and explore creative options for developing the infrastructure required to support the complexities of enabling 5G services by 2020.

Digital strategy put into action

With the recent $85 billion deal between AT&T and Time Warner, operators understand the critical need to complement their connectivity value proposition with digital content. Following the lead of their peers in European markets, Asian operators are expected to establish more content and digital partnerships to enhance their digital value proposition. Operators such as Telkom Indonesia, Telekom Malaysia, PLDT and Globe have explored and signed relevant partnerships with digital start-ups such as iFlix, Viu and others. More partnerships are expected to follow in 2017.

Scale play becomes relevant

While operators have always pursued digital investments through various investment models, many initiatives have met limited impact. Scale and industry reputation become critical in the digital funding scene, as operators are expected to explore establishing joint funding propositions either through collaboration with other operators or with established investment entities. We should expect more announcements like the recent $100 billion Softbank-Saudi Arabia sovereign wealth fund commitment, as scale matters. Partnering with established venture capital and private equity players to leverage their industry know-how and reputation for better investment decisions could be the way forward.

Threats by pure-play digital telcos

With asset-light operators such as Giffgaff and FreedomPop establishing successful businesses in many countries, nothing is stopping established regional operators from pursuing a pure digital play in selective Asian markets. Singapore saw the entry of Liberty Global’s Circles.Life as a MVNO in May while Thailand and Philippines could expect MVNO-like digital plays by established telcos keen to expand their footprints through a lean/asset-light model.

Enabling cybersecurity

The IoT makes many innovative business models and applications possible, but with cybersecurity breaches increasingly in the headlines, it makes industries and consumers vulnerable to threats. With over 34 billion connected devices expected by 2020, telcos are expected to play a pivotal role in deploying cybersecurity solutions in a holistic manner through embedding cybersecurityelements into IoT product themselves, and creating a safe environment by improving network security for the consumers and enterprises at large.

Darren Tan is senior director and head of intelligence unit for Delta Partners

This article was first appeared in Telecom Asia Vision 2017 Supplement

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