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Exclusive Telco CEO & Private Equity Event PDF Print E-mail
Wednesday, 13 June 2018 07:09

On June 4, 2018, Arthur D. Little hosted its eighth annual exclusive Telecom CEO & Private Equity Event in Vienna, Austria. The topic of this year’s event was “Harnessing digital”, discussing the impact of digitalization on the telecoms industry. This year’s study represents a truly global view of the telecom industry, with over 100 C-level interviews conducted and over 190 P&Ls of telecom operators around the world analyzed. The importance of these topics was highlighted by the over 70 top executives and shareholders of leading global operators, vendors, banks, private equity and venture capital funds from 25 countries attending the invitation-only event.

Telecom Review felt the event had some great insights for our readers so we have shared a few of them in the following overview.

The event began with a welcome by Karim Taga, Global TIME Practice Leader and Managing Partner of Arthur D. Little Austria and an introduction into the various flavors of digitalization. Clemens Schwaiger (Associate Director at Arthur D. Little and lead author of this year’s study) followed with the presentation of ADL’s key results. The participants discussed the findings and major implications on telecom operators in a lively Q&A session. The discussion continued on the rooftop terrace where participants debated and networked in a relaxed atmosphere until late in the evening.

Key Insights:

Expect an acceleration of telecom revenues of 3 percent CAGR globally in the next five years, driven by the North American market with a CAGR of 4.6 percent. However, also expect capex investments to increase pressure on free cash flow.

Telecom operators must leverage differentiation potential with an ecosystem approach, flexibility and scalability, delivery agility, cost efficiency, IT modernization and a single view of customer data to meet the increased demands through digitalization from both business and technological evolution.

  • The broad adoption of digitalization could dramatically improve the financial performance of the telecom industry.
  • To achieve digitalization, telcos need to make use of technology enablers, new interfaces and new ways of working – but their maturity differs.
  • The majority of telecom operators see themselves as “becoming digitally smart” and, in general, over­estimate their competitors’ positions.
  • Reinventing as a digital company requires fundamental changes in four areas: customer focus, capital allocation, steering, organization and resources.
  • Digitalization also opens up significant beyond core potential for telecom operators, in particular in connected things, virtual and augmented reality, and virtualization.

Telecom operators have to act upon decreasing cash flows and weak stock performance Total returns of telco stocks (in particular in Europe) are low, and top performance is essentially M&A driven. Strategic topics of capital markets day presentations of major telcos show high overlap, but also significant going to increase by 7% annually over the next 5 years, driven by 5G and fiber expansion in developed markets and continued LTE investments in emerging markets, which will put additional pressure on free cash flow. Despite that telecom is the heart of the digital industry (i.e., the network), a number of industries are ahead of, or at least on par with, the telecom industry in digitalization, such as financial services and retail. Telecom operators have to act now to generate additional cash flow from digitalization. We define digitalization as the application of digital technologies, digital interfaces and new ways of working to change an existing business model and to provide revenue­ and value producing opportunities.

Digitalization is key to improve financial performance Executives expect digitalization to result in significant savings in customer care, sales, Backoffice and network processes. By 2022, 20 percent of the participants in this year’s study expect full digitalization of customer care, and 19 percent anticipate full digitalization of their IT. Our analysis shows that broad adoption of digitalization could dramatically improve the financial performance of the telecom industry (+200bn FCF). An aggressive move into digitalization can improve EBIT margin by 10 percentage points within 10 years. However, significant hurdles need to be overcome: Digitalization requires a cultural shift across all layers of the organization, as well executive trust in the potential behind a truly digital company. Often the “not­invented­here” syndrome and old school thinking hamper the cultural and mind­set shift.

Telecom operators are also faced with the challenge of attracting skilled labor, as digitalization will require new skills. From a technical perspective, biased data, as well as the transformation of legacy systems, can manipulate the process of digitalization. Finally, telecom operators have to be aware that playing digital also means regulations such as the General Data Protection Regulation (GDPR) and net neutrality have to be incorporated into business operations. potential for digitalization within each.