LightCounting: Will Network Transformation resolve telecom’s paradox?
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Christel Heydemann, the CEO of Orange, used her MWC ’23 keynote to highlight the paradox of the telecom market: telecom is a critical enabler of our digital future, yet a 2022 PwC report stated that nearly half (46%) of the global telecom CEOs surveyed thought their companies won’t survive another decade (the average figure for all industries surveyed was 39%). PwC cited the reason as telecoms’ poor record making money from technology.
Telecoms is a profitable business, yet competition and regulation are hampering its growth. Telecoms spends eye-watering amounts in investment – European CSPs alone are estimated to have spent $650 billion on technology in the last decade – yet the industry is one of the worse at getting a return on the investment.
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Much of the spend has been on implementing the 5G wireless standard. 5G may be much vaunted by the CSPs but its impact is yet to be felt. That is because the wireless standard as envisaged is still to be implemented. What has been rolled out since 2019 is 5G non-standalone (NSA): a 4G networking/ 5G radio hybrid. It is 5G Standalone (5G SA) that delivers the tools other industries can benefit from: low latency wireless networking and clever network segmentation in the form of slicing.
Overall, some 40 CSPs had deployed 5G SA by the start of 2023, a small fraction of overall 5G deployments. Yet if 5G SA is what will grow revenues via the digitalization programs of different sectors, should there not be a greater urgency to deploy it?
The CSPs also must transform their businesses, their organizations, their staff development, address sustainability, and embrace a development that promises huge returns; artificial intelligence (AI).
Telecoms is built on the engineering disciplines of communications and computing and the CSPs have strong engineering teams. How can CSPs, that want to serve other industries in their digital transformation journeys, be so far behind when it comes to AI? Another paradox.
Network transformation’s impact on the future of the CSPsWhat will be the impact of network transformation and transformation in general on the future of the CSPs?
In the latest Network Transformation report, LightCounting defines two scenarios that bound the possible outcomes: Scenario 1 is where CSPs become utilities while Scenario 2 sees CSPs transform into Digital Service Providers.
In Scenario 1, dubbed Utilities, the transformation efforts fail to create the revenue growth needed nor enable the CSPs long-term aspirations to become digital service providers. The CSPs continue as businesses but are consigned to the infrastructure provider layer delivering connectivity services, limiting their ability to invest in their networks. They may still be ongoing businesses but will miss the digitalization opportunities thus bounding their business prospects.
Scenario 2, dubbed Digital Service Providers, is that network transformation achieves its goals. Successful network transformation will allow CSPs to play not only as infrastructure/ connectivity players but as platform providers and specialists addressing vertical markets.
LightCounting believes that some CSPs will be successful and become digital service providers. They will be able to acquire their less successful competitors, further improving scale of their business. Large scale will be very critical for the success of CSPs and their ability to compete with ICPs in offering new services.
Anti-monopoly regulators will have to find the right balance to limit the scale of CSPs, while letting them prosper. It is the huge success of ICPs which attracts attention of the regulators now. It is long overdue. Curbing the scale of ICP monopolies will also help CSPs to sustain their business, but they still need to transform themselves. The recent revelation that Amazon wants to bundle a phone service offering as part of Amazon Prime shows how vulnerable the CSPs are.
LightCounting defined this period as pivotal for the CSPs in last year’s network transformation report. One year on, this remains the case although what is at stake is clearer. We see more determination among CSPs to transform into digital service providers of the future. There is no viable alternative.
More information about the report is available at: Network Transformation
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MTN Consulting: Network Operator Forecast Through 2027 Mid-Year Update
Telecom is essentially a zero-growth industry. Specific countries and companies do grow from time to time, in part from market share shifts, the different timing of growth cycles, or M&A. But global telco revenues have hovered in a narrow range ($1.7-$1.9 trillion) since 2011, and this will likely remain true through 2027.
In 2022, revenues were $1.78T, and will grow an average annual rate of 1.8% to reach $1.95T by 2027.
Capex continues to vary with technology upgrade cycles (e.g. 5G) and government actions (e.g. newly issued spectrum, or rural fiber subsidies). In 2022, capex totaled $322B, or 18.1% of revenues; that’s an all-time high capital intensity, for coverage timeframe (2011-present). Capex will decline slightly through 2025, though, and then rise modestly again to reach $321B in 2027, which would be a 16.5% capital intensity. US capex surged in 2022, but will drop dramatically in 2023; we already expected this, though, so the current forecast is not significantly different. Software capex is growing more slowly than expected, and now likely to remain under 20% of total capex for the forecast period.
Headcount in telecom is declining faster than expected, and now likely to fall below 4.2 million in 2027, from just under 4.6 million in 2022. Labor costs per head will revert to a growth trajectory in 2023, as telcos develop a more IT/software-centric workforce.
https://www.mtn-c.com/product/network-operator-forecast-through-2027-mid-year-update/