Evolution in Telecom: Navigating a Transformative Landscape

The telecom industry is undergoing significant transformation, driven by two key directions: infrastructure upgrades by network companies and a greater emphasis on data services by service providers. Network operators are heavily investing in fiber optics and transitioning to 5G technology to improve speed, capacity, and reliability. This evolution addresses consumer demand for faster services and supports emerging technologies like the IoT, smart cities, smart healthcare services, media, and banking applications in the payment sector. 

Simultaneously, service companies are concentrating on data as a central component of their offerings, capitalizing on the surge of data-driven services and the potential of analytics and cloud solutions. This shift raises questions about the role of tech giants like Microsoft, Google, and Amazon — will they take over the role of telecom operators? Their investments in global capabilities could challenge traditional operators, especially in markets that were previously national-focused. 

With an eye on profitability, companies seek niche markets to differentiate themselves. The rise of private equity investments has changed the investment philosophy in the telecom market. The PE companies have short-term investment focus, which is not always aligned with the amount of investment needed and ROI-focus needs to be future-proof for the long run. Telecom operators with private investors or pension funds are more likely to invest in long-term operation. 

Those unwilling to adapt may face vulnerability to acquisitions in this competitive environment. They also have to invest in infrastructure which requires huge investments with the traditional 24 months investment period of PE companies. There are still privately and publicly owned telecom companies, also ones which have pension funds as investors, and they are satisfied with a 5-6% return on investment, which is too low for PE. If you only have PE shareholders with a short investment term then this can mean a risk to the future existence of these companies, because their structure will not be in line with the investor requirements. 

Additionally, concerns about rising cloud service costs are emerging. While current prices are attractive, substantial increases could jeopardize the sustainability of these services, making access to data a critical financial issue. This situation encourages companies to explore alternative strategic partnerships other than the ones they have with traditional incumbents. The ongoing geopolitical challenges, of course, must also be taken into consideration. 

Find out about Amrop’s telecom, technology and digital expertise, methods and tools, by contacting Benoit Lison or the Amrop Digital Practice members in your country.