Telecom risk factors changing, future profitability in doubt: BDO Global

fiber optic
The report shows a worldwide telecom industry that feels confident but is also buffeted by change. (Pixabay)

Telecommunications companies that participated in BDO's 2018 Telecommunications Risk Factor Survey are feeling more confident about the present but voice serious concerns when looking at future profitability.

"A clear trend from our 2018 survey is that telecoms are generally reporting lower risks than previously," BDO said. "The general trend applies to especially financial and regulatory risks."

Despite these good signs, respondents are not optimistic about future profitability. "As change remains the order of the day within telecoms, the future is still looking uncertain in many aspects," the report says. "Perhaps this is one of the reasons why risks associated with assumptions regarding future profitability has seen a 200% increase. Risks associated with gaining market share is up by 100% while risks from saturation/decline of the telecoms market is up by 80%."

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This year, the greatest risks identified by BDO were exchange rate/foreign currency changes; increased competition; the fast arrival of new technologies; access to finance and interest rate pressures.

Exchange rate/foreign currency changes: The general insecurity was pushed by Brexit, the Trump administration, North Korea, regulatory agendas, trade pressures and looming trade wars.

Increased competition: BDO pointed out that the competition is not limited to other telecommunications companies. New entrants, often from the technology sector, are pushing the established players as well.

Fast arrival of new technologies: New players are offering new products and services. Those that take root do so at the expense of traditional revenue-generating services. This, of course, threatens companies' existing services and revenue streams. This dynamic and the risks it represents show no sign of slowing.  

Access to finance: This is a concern in an era of megadeals and large infrastructure projects, such as densification for the rollout of 5G. There is also a need to grow business operations, improve service delivery and roll out new products. Finding the financing to do this at a time that credit ratings are not as hefty as they were and profit per customer is falling is a concern.

Interest rates: BDO points out that the telecom industry remains sensitive to large swings in interest rates due to the long-term nature of investments and the large scale of many mergers and acquisitions.

The report shows a worldwide telecom industry that feels confident but is also buffeted by change. Clearly, the message is companies that passively address the future will have more problems than those that take control of their fates.

"The mix of short-term, unexpected risks and long-term pressures felt by the industry as a whole means that winners in the telecoms sector are those companies which proactively find ways of updating and expanding their value proposition and managing the risks facing the industry," the report concludes.

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