Beating the crash: What’s coming?

Signs of tougher times

Tough times are ahead…

As we look ahead, the world faces a number of significant challenges:

  • Global / OECD consumer confidence is diving to startling new depths as people increasingly feel the impact of inflation, supply constraints and a cost of living crisis.
  • This follows the war in Ukraine, the Covid pandemic and long Covid, stresses resulting from diverging political ideologies, growing social unrest, and the ever increasing realisation of the impact of climate change.
  • These seismic tensions are all driven by nearly 8 billion (and growing) people vying for resources and a vision of the future that they can continue to thrive in.

…but it’s not our first rodeo…

We have previously written about, for example:

And before that, there was the Credit Crunch series (2008), the Eurozone Crisis (2012), and technology and market disruptions too numerous to name.

There is always a temptation to think that the latest crisis is the worst. Each one tends to temporarily obliterate one’s view of the future as our imaginations are so absorbed in dealing with the nearby threat that all other considerations become secondary.

…and we believe we can bring some hope

Our solution to these challenges is two-fold. First, there is a lot that can be learned by looking at the lessons from previous traumas. Secondly, it is extremely helpful to be able to position all the individual events within an overall context, as it enables us to more rapidly reorientate after the latest shock.

Our context is The Coordination Age – the vision that the world is entering into a new era where:

  • The primary need is to make better use of available resources (e.g. money, carbon, time, assets, etc)
  • And that connecting technologies (e.g. telecommunications, data, automation and AI) are key elements of the solution.

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Making the Coordination Age work


Source: STL Partners

This report uses these learnings to look ahead to what we see as a challenging time. While some of the forces we outline in this report may seem alarming, this is not a pessimistic picture. We believe that the vision we describe brings opportunities for telecoms – but only if leaders in telecoms and elsewhere act on the vision. We are striving to make this happen, and we hope we can help you do that too.

A scale of discovery

To help contextualise the many forces of change, we have developed a six-stage schematic to generalise how people deal with new forces and changes in their lives. It progresses from the first recognition of a new theme or issue through to normalisation, the point where something is no longer new or different. The graphic below highlights the six stages, and general heuristic descriptions of what you might hear said, risks and threats, mitigations, and the general psychological and emotional mindset of those processing the change or issue in question.

Six stages of dealing with new ideas


Source: STL Partners

The body of the report covers the drivers, their impact and consequences for telecoms:

  • Economic drivers, such as consumer confidence, inflation, and rising living costs
  • Environmental drivers, including climate change and carbon reduction
  • Political drivers, including the War in Ukraine, China / US tensions, trade wars and tensions
  • Social drivers, including Covid and Long Covid, inequalities and social polarisation.

Economic drivers: A crisis of confidence

In this section we examine drivers in consumer confidence, inflation / cost-of-living concerns and the consequences for telecoms.

Consumer confidence: An all-time low

The OECD consumer confidence index is a barometer of consumer sentiment. It reflects people’s confidence in their economic prospects. The chart below shows that it is currently reaching record new lows.

The OECD Consumer confidence index is at its lowest ever level


Source: OECD

This means that consumers feel extremely pessimistic about their economic prospects. The average score is now below where it was at the peak of anxiety about Covid in early 2020, and below where it was in the financial crash in 2008-09. Indeed, the OECD average is now at its lowest ever level since global measures were introduced in the early 1970s, with only Mexico and Indonesia bucking the downward trend.

People are now preparing for a tough period in their economies. Some are worried about making ends meet – having enough to live to the standard they normally expect. This usually means that they will look to cut back on spending, especially for non-essential things.

Inflation is worrying everyone in Summer 2023

The pressures behind this trend are a generalised concern about inflation (rising prices on essential items like food) leading to a cost-of-living crisis.

Inflation overtook other global concerns in April 2022


Source: Ipsos

The Google trends chart below shows search interest in ‘inflation’ globally, which is an even more immediate signal of concern. It clearly spikes in July 2022.

Google Trends – searches for “inflation” spiked in Summer 2022


Source: Google

The problem is not confined to one or two economies: it is widespread, as the image from the interactive chart below shows.


Source: FT

The rest of the analysis in this report reviews the macro-economic trends – i.e. the economic, environmental, political and social drivers of change. In a second report, we will cover telecoms industry trends, including technologies, policy, propositions and industry structure.


Table of Contents

  • Executive Summary
    • Not one crash, but many
    • 1. Actively realigning with stakeholders
    • 2. Accelerating operational innovation
    • 3. Enhancing resilience and customer security offerings
    • Next steps
  • Introduction: Signs of tougher times
    • A scale of discovery
  • Economic drivers: A crisis of confidence
    • Consumer confidence: An all-time low
    • Inflation is worrying everyone in summer 2022
    • Interest rates: A blunt tool?
    • Stock markets: Not quite sure…yet
    • Moving out of denial on economic problems
    • Consequences in telecoms demand
    • Recommendations
  • Environmental factors: Heating up fast
    • Climate change: Denial is hard these days
    • Decarbonisation: Digitising the industrial landscape, fast
    • Environmental concerns are now mainstream
    • Consequences for telecoms
    • Recommendations
  • Political: Drawing new lines
    • Ideo-conflict: Who’s side are you on?
    • The war in Ukraine: The first Coordination Age war?
    • China and Taiwan: Watching, waiting, wondering
    • Trade wars and barriers in general
    • Global instability: More trouble ahead
    • Consequences for telecoms
    • Recommendations
  • Social: A new order
    • Covid and Long Covid: Living with the virus
    • Rising resentment of inequalities
    • The United Nations Sustainable Development Goals
    • Consequences and recommendations for telecoms
  • Analysis
    • Getting the news in context
  • Appendix 1: Waste, pollution and air quality
    • Waste and pollution: Cleaning up
    • Refugees and migrations: Seeking solace in troubling times
  • Appendix 2: The 17 Sustainable Development Goals


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Sustainability: Why it’s good for business


In the last year, businesses all around the world underwent unprecedented changes and had to adapt to the most challenging of circumstances. Priorities shifted for all stakeholders with telcos operating in an increasingly complex world and having to rethink how they do business.

The world is connected digitally now more than ever. With office closures and working from home, Zoom calls with loved ones having been the only way to socialise and to carry out online schooling, telecoms and technology have become even more relied upon industries in the last 18 months.

The idea that a strong corporate social responsibility and sustainability strategy is good for business has been around for decades. This report outlines how telcos can evolve their purpose beyond just being profit driven by aligning core strategy with sustainability initiatives and a sustainability policy, and in doing so benefit their business and add ‘society’ or ‘the world’ to their stakeholders.

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Scope of Research

The modern concept of ‘sustainability’ is composed of three components: economic, environmental and social. This is also sometimes called the ‘triple bottom line’ of business – stating that businesses should commit to measuring social and environmental impact, as well as financial performance, rather than focusing solely on profit. The ‘triple bottom line’ theory states that businesses should focus on the “three Ps”: people, profit and planet.

The three components of sustainability


Source: STL Partners

Modern discussions of ‘sustainability’ refer to the economic, environmental and social effect an organisation has on the societies or markets in which it operates. It is an umbrella term that covers issues such as diversity and inclusion, energy usage, human rights and supply chain management.

Through this research we sought to understand if there is a business value to incorporating sustainability into a telecoms operator’s purpose and strategy. Speaking to seven operators across the world, some of whom are named in this report (Telstra, Globe and Orange), we wanted to know how telcos are thinking about sustainability, and to learn more about the following:

  • Telcos’ perception of the impact of sustainability initiatives in wider stakeholder groups e.g. employees, customers, shareholders, society
  • Which sustainability issues telcos are focusing on
  • The business benefits of sustainability initiatives
  • Case studies of companies that have incorporated sustainability into their company strategy
  • The effect the markets in which a telco operates in has on its sustainability initiatives (e.g. developed vs developing)

To gain an idea of how sustainability affects all aspects of the business, we interviewed employees in telcos’ sustainability and CSR teams, as well as in corporate strategy and product management.

All interviewees were asked largely the same questions, covering topics including: the initial motivations for engaging with sustainability; the effect of sustainability on multiple stakeholders (including customers and employees); if being sustainable puts telcos at a competitive advantage; important sustainability issues and solutions; successes and challenges of different sustainability initiatives; adapting sustainability strategies in different regions and the selection of their term for what we are calling ‘sustainability’.

Notably, some of the telcos we reached out to were not willing to participate in interviews because they were in the process of revising, changing, or updating their position on sustainability. In itself, this tells us that sustainability is an important and topical issue that many are still figuring out how to “get right” and how to incorporate it into their company strategy.

Sustainability is a cornerstone of the Coordination Age

As we outlined in The Coordination Age: A third age of telecoms, we believe that the telecoms and the wider digital economy is in its third age, ‘The Coordination Age’, which builds on ‘The Communications Age’ and ‘The Information Age’.

The three ages of telecoms



Source: STL Partners

The Coordination Age is a result of the changing needs and demands of the world’s people, businesses, and governments, evolving technological solutions and possibilities, and the need to preserve the most habitable possible future environment for the world’s population.

To create major growth and advance as a telco, operators need to help solve some of the world’s biggest problems. We believe some of those major problems are:

  • A desire for greater business efficiency and productivity
  • The distribution and availability of human resources and services such as healthcare, education, employment, and entertainment
  • Mitigating climate change and minimising its effects
  • Reducing the amount of waste and harmful by-products polluting the environment
  • Concerns over employment due to automation and global economic changes

These major problems can and are starting to be addressed through sustainability initiatives set out by companies in their agendas and policies.

In addition, telcos have important and unique assets, as well as specific resources and capabilities, such as access to data, technology and their prevalence in the everyday lives of their customers, that can enable them to contribute to tackling some of the world’s problems and ‘help make our world run better’. A specific common problem is to help companies and people coordinate their resources in or near to real-time.

For example, a major problem in delivering sustainable energy is ensuring that the variable demand of populations is coordinated with supply. Wind turbines and solar panels cannot be relied on to produce at peak capacity at exactly half-time in sporting events, when the audience goes to make a cup of tea by boiling their electric kettles. As such, supply needs to be very flexibly managed in relation to demand.

This means sharing information about those resources and demands effectively, which in turn takes modern communications in some shape or form (although connections may not always need to run through a telco network, for example Bluetooth, WiFi, etc.) Given his common need, telcos are well-equipped to help enable sustainability.

The motivating value of a compelling purpose

Protecting the future of the planet and society is a compelling purpose, and one which is progressively becoming part of our daily lives.

Our research on sustainability found that that there are a number of benefits for different stakeholders when telcos incorporate sustainability into company strategy, including increasing employee engagement. Sharing a mutual goal or purpose unites a team and creates value, which is important for business performance, and thus a business benefit of sustainability.

How a unifying purpose helps create value


Source: STL Partners

A clear unifying purpose applied successfully creates a virtuous cycle:

1. Clarity of direction: A clear purpose can provide direction for people at all levels. E.g. incorporating the UN Sustainable Development Goals, such as Goal 7 – Affordable and Clean Energy, into company strategy and developing processes around it that involve employeesat all levels.

2. Energising work: Most people work for money, to a greater or lesser extent, and a range of other drivers: status, socialcontact, etc. However, work with a clear purpose is much more energising, especially if (like sustainability) it has some broader merit or meaning. It can make work ‘worth getting up for’. All the telcos we spoke to said that their employees are motivated by the sustainability work their company does.

3. Switched on people: If a telco is full of people that care about what they are doing, and know what they are trying to do, it will be a much more enjoyable and attractive place to work for everyone. Telcos we spoke to also said that sustainabilityis beneficial for talent attraction and retention, as employees want to work for a company that they feel is making a positive impact on the world

4. and 5 – Compelling offer and support, and attracts and satisfies customers: The combination of engaged people in the company and a compelling offer will be attractive to customers. Telcos we spoke to also referenced the need to be attractive to and satisfy different types of customers through their sustainabilitywork, such as the socially conscious Generation Z, and the older generation who can be engaged through digital inclusion

6. Feeds the business: The combination of internal clarity and alignment, motivation, and external attractiveness creates a virtuous circle that benefits telcos and drive business growth.

We think that engaging with sustainability and incorporating it into company strategy is a crucial part of operating in the context of the Coordination Age, and fundamental to operating in this way successfully. To support our hypothesis that having a clear and motivating purpose (in this case sustainability) can help to enhance currant performance, engage its employees, and find and nurture new areas of growth, we interviewed telcos to better understand how they define and measure the benefits of sustainability for their business. The research conducted for this report further validates our belief that commitment to sustainability is crucial to telcos’ success and growth in the Coordination Age.

Table of Contents

  • Executive Summary
    • Context
    • Key findings from research
    • Recommendations
    • Next steps for research
  • Introduction
    • Scope of research
    • Sustainability is a cornerstone of the Coordination Age
    • The motivating value of a compelling purpose
  • Defining and contextualising sustainability
    • ‘Corporate social responsibility’ vs. ‘sustainability’
    • The United Nations Sustainable Development Goals
    • Where are telcos focusing their efforts?
  • What are the business benefits of sustainability?
    • Employee benefits
    • Customers and government
    • Shareholder benefits
    • Challenges of sustainability
  • Conclusion
    • To what degree are telcos taking a holistic approach to CSR and sustainability?

STL Partners’ telecom sustainability hub:

Related Research:

Telecoms and the Eurozone Economic Crisis: a perfect storm?

What are the possible impacts on telecoms of further economic troubles in the Eurozone? Will it be recessionary business as usual or something much nastier? And how will it impact ‘Telco 2.0’ Strategies? (December 2011, Executive Briefing Service)

EMEA Messaging Decline reasons Nov 2011

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In October 2008 we started a series of eight articles on the Credit Crunch, starting with Credit crunch – silver lining for telcos? and progressing to Credit Crunch 8: Show us your Labs in March 2009. Sadly, we’re now back looking into the cloudy economic crystal ball. What lies ahead?

A gathering storm?

Recent weeks and months have witnessed near-panic in financial markets, with the woes of the Eurozone top of the list of pain points. Escalating fears about defaults on sovereign debt in Greece, Portugal and Ireland has been followed by “contagion” elsewhere – Italy, Spain, Belgium and even France are in the frame as well.

This in turn is driving knock-on effects in the wider economy, with recession looming once more for much of Europe. Germany is seen as being in the driving seat, but has taken a hard stance on the role of the European Central Bank, and Angela Merkel is wary of overburdening her hardworking, tax-paying electorate.

Elsewhere, the US is still suffering under a huge debt burden but seems to be slowly struggling back to its economic feet. The global macro-economy, however, still looks fragile, with even China showing a couple of signs of shakiness in recent weeks. This is without the de-stabilising effects of the situations with Syria or Iran.

Given the depths of the world’s economic worries, it almost seems churlish and selfish to start thinking about the effect on a specific industrial sector like telecoms. But assuming that “the worst” doesn’t happen, and that the pain is manageable but severe, and the economic and legislative remedies are robust, what might happen? What are the most likely outcomes, and what else might be lurking hidden on the sidelines?

Normal “telcos in a recession” trends?

One possible scenario is that we’ll once more see a ‘traditional’ cyclical economic downturn response, where the telecoms industry hunkers down, goes into “recession mode”, and waits for everything to blow over. The sector has proven pretty resilient in the past – consumers won’t give up their phones and Internet access, although they might shop around a bit more, and hang onto older devices a while more before upgrading.

In that situation we’ll see some sluggishness in revenue growth, some reduced profit forecasts, and maybe some consolidation. To take the most recent example, the telecoms industry we see in 2011 doesn’t look much different to that before the 2008-10 recession. If anything, with the engines of smartphone adoption and mobile broadband growth, it’s powered through the economic gloom almost (but not quite) without flinching.

The sum of all fears

But maybe this time is different. Not only is the current crisis being precipitated by the debt situation rather than a normal “cycle”, but some of the other factors are different too. There are major government austerity projects, potential changes in the structure of the European Union, uncertainty about currencies, write-downs of assets and an inability for even governments to raise finance.

The spectre of financial “contagion” is looming worryingly again, and there’s a real possibility that private individuals might be pressured to breaking point and beyond, where telecom services once again become luxuries compared to the basic necessities of existence. Rather than a “normal” recession, where GDP slips perhaps 1-5% and economies can build/borrow their way out, if GDP slips 5-10% or even more, assorted negative-feedback loops can occur, as highlighted by the current debt problems and harsh Brussels-imposed austerity measures. Growth would seem very hard to come by, even in those countries currently perceived as “safer” such as the UK.

The Irish economic crash has been ongoing for a while during 2011, and signs from operators like Eircom have not been encouraging . Performance of Greek operators like OTE is also sharply down, and this is not encouraging either.

It’s not just the economy

And then add to that some other worries. Even without the current economic situation, telcos are increasingly on shaky ground. Our recent surveys at events have shown an expectation that normal “bread and butter” revenue streams like telephony and messaging are under huge threat from so-called OTT providers. For example, a survey conducted at our EMEA Brainstorm in November 2011 showed an expectation of 30-40% revenue falls in messaging over the next three years, for example, without any explicit reference to the economy, just ongoing market developments. These findings are summarised in the Briefing ‘Your Text is on Fire: OTT’s to burn 40% SMS revenue by 2015’.

Figure 1 – The predicted impact of ‘OTT’ players on messaging revenues

EMEA 2011 Messaging Decline Chart 40% Telco 2.0

These findings are also consistent with views expressed in an online survey of over 300 executives in October 2011, as part of our research for the strategy report ‘Dealing with the ‘Disruptors’: Google, Apple, Facebook, Microsoft/Skype and Amazon’.

Figure 2 – The impact of ‘OTT’ players on the telco business model

Impact of Google, Apple, Facebook, Microsoft/Skype, Amaxon on telco services

The juxtaposition of lower consumer spending-power, plus improving capabilities of various competing services, together with smartphones as almost universal enablers, is not a happy one. The current downturn might hit operators harder than we might hope – people are going to be more incentivised to seek out cheaper options, and may also be more prepared to make price/quality trade-offs that seem unthinkable to telco traditionalists designing networks for 5-9’s reliability.

Impact of debt market chaos / credit crunch 2.0

Many telcos have significant amounts of debt, often used to finance spectrum purchases, network deployments and acquisitions. With 4G and fibre rollouts expected, any dry-up in funding has significant ramifications. Historically underwritten by high and dependable cashflow levels, the same potential risks exist for telcos that are being observed in other parts of the economy (and at national level) – over-leverage, and difficulty in “rolling over” maturing debt.

Greek operator OTE and Irish telco Eircom are thought by Moody’s to be worst exposed, especially given the state of their domestic economies. The “big 5” of Telefonica, Vodafone, Deutsche Telekom, Telecom Italia and France Telecom are thought to be less at risk, as they have cashflow, cash reserves, and available credit lines .

Indeed, many telcos are at the top of the stock yield ratings (see Figure 3 – Telco stock yields are high in European markets), showing that investors want to see a return on their money, or want telcos to ‘give it back before they blow it on something stupid’ to paraphrase Richard Kramer, of Telco 2.0 partners Arete Financial research. In addition, many telco shares yield more that the interest paid on their debt bonds which implies that buying telcos’ shares is riskier than buying their debt, and can mean that investors expect either the dividend or the share price to drop in the short term.

Figure 3 – Telco stock yields are high in European markets

Telco stock yields are high (chart)

Debt exposures and restructuring

Problems are highlighted by some major groups’ expansion into regions now worst-affected by the crisis. For example, T-Mobile has sizeable exposure to the Greek market through its 40% stake in OTE – previously the group’s largest business outside the US and Germany. (OTE has a wider footprint in SE Europe than just Greece – it also operates in Bulgaria, Romania and Albania). Its Greek revenue and customer base has dropped precipitously over the last year. Worse, OTE will need to refinance a large slab of debt over the coming couple of years, which will likely mean it will have to divest assets, probably at prices lower than it would ideally want. Deutsche Telekom AG has already said it will act as a lender of last resort if OTE can’t raise finance on constrained capital markets.

In November 2011, UK joint-venture EverythingEverywhere raised £875m in financing, primarily to pay off other debts it owes to its shareholder parents, France Telecom and Deutsche Telekom.

We see this as a special case, and don’t expect to see much further restructuring of this type, since most telco debt is structured to be tax-efficient and the benefits of any debt restructuring are unlikely to outweigh the tax-efficiency benefits.

However, it is also worth noting that EE will probably have to raise quite a lot more capital if it is to participate fully in 2012’s 800/2600MHz UK spectrum auctions and 4G buildout. This will be the case for the majority of companies wishing to build out LTE in the short term.

Currency exposure

One of the major unknowns at the moment is the fate of the Euro. There is a possibility that there will be some form of restructuring – maybe some countries leaving the Eurozone, or perhaps a two-tier Euro1 and Euro2 system. The Bank of England has undertaken scenario-planning for potential “disorderly” events in the Eurozone. The opinions here are both shrill and conflicting – there are numerous believers in “the project” who feel that the currency should be saved at all costs, and many others who believe equally vehemently that it was a bad idea all along and now needs to be radically altered. Some suggest Greece may be forced out while others think that Germany is too powerful and is itself the cause of the problem.

The net result is that the Euro is looking weaker, and certainly at the time of writing (late November 2011) is falling against currencies like the dollar. Bond markets have shown a flight from Eurozone government paper to perceived “safer havens” like the UK, Switzerland, Sweden and beyond.

How does the currency risk impact telcos?

Most obviously, any major changes will be reflected in their results when reported in local currencies and consolidated. The exact structures (and any hedging) will be highly company-specific. On the vendor side, there are also going to be inevitable fluctuations in import/export attractiveness that are hard to predict or analyse across-the-board, as supply chains are heavily globalised. International services like roaming are also going to be exposed.

Dangerous inflationary pressures

What is more certain is that historically, declining currencies have been a large contributing factor to rising inflation.

In a scenario where revenues are under threat both from general economic conditions and competitive pressures, it is unlikely that telcos would be able to raise their prices to fully cover inflation. The outcome is shrinking margins which ultimately lead to lower telco valuations.

For instance, Orange in the UK have just announced a 4.3% price rise for contract (postpay) customers within their current plans, prompting negative customer reaction. This is despite current UK Retail Price Index (RPI) inflation of greater than 5%. None of the other UK operators have so far followed.

Impact of austerity measures

Perhaps the biggest difference between this economic downturn and the last is the widespread arrival of the “austerity programme” in most countries across Europe. Typically, this is rooted in a desire by governments to cut spending, in order to reduce deficits and convince bond-holders that they might, one day, get their money back. In some cases (e.g. Greece and Italy) the austerity measures are being imposed and monitored by Brussels as a condition of a bail-out, together with the appointment of new governments and prime ministers. Further “political convergence” is expected.

In reality, austerity tends to mean:

  • Lower public-sector spending, typically involving firing government workers, reducing pay or pensions, cancelling projects and reducing departmental operating costs.
  • Higher taxes for individuals and businesses

There are a few big risks here:

  • Lower direct spending on telecoms services by central and local government, and other state-influenced areas such as healthcare and education
  • Slow-down of government-sponsored broadband rollouts or state-paid broadband subsidies for less well-off citizens
  • Possible knock-on impact of lower consumer spending on telecoms, as taxes are increased, and public-sector workers lose jobs or face salary cuts
  • Risks of delays or cutbacks to big telecom-centric projects such as e-government
  • Changes in taxation or accounting regimes impacting operators

Early signs are not promising. Greek, Irish, Romanian and Hungarian telecoms markets have suffered already. Plus Telefonica has suffered from the Spanish government’s changed tax policy on “goodwill deductions” for previous foreign acquisitions.

One slightly perverse outcome is that some large incumbent operators are now seen as less-risky investments than their countries’ own sovereign bonds. Portugal Telecom, for example, is thought to be well-financed for the next 2-3 years, even if it suffers from pressure from its weak domestic economy .

Possible technocratic regulatory changes

One interesting area is the potential for telecoms regulatory changes that might be put in place by the new breed of “technocrats” running some of Europe’s governments. This is only likely to emerge over the next 6-12 months, but some possibilities include:

  • Less concern about competition (at least in the short term). After consolidation, many European markets may be left with three or even two mobile operators, and newcomers in areas like MVNOs may disappear. Regulators may take the view that cash-strapped consumers will put pricing pressure on telcos, even if normal competition relaxes somewhat.
  • More willing consideration of concepts such as structural separation or wholesale models for telecoms, especially if the government can attract private investment without needing to spend its own money.
  • Outsourced / off-shored functions may be “repatriated” as governments look to stimulate employment
  • More negatively, some administrations may look enviously at telcos’ cash flows and attempt to impose new taxes or charges.
  • Potentially accelerated sales of spectrum or government holdings in the telecoms industry – although this will be offset by concerns about lower attainable valuations. Deutsche Telekom has the first right of refusal to buy the remaining 10% state share in Greek operator OTE. It might make offer in exchange for regulatory concessions on fiscal guarantees and freedom to reduce headcount, for example.

Impact on Vendors

There is in any event an ongoing trend for telcos to aim to significantly reduce costs, and operators will continue to look for even better deals. However, cash and debt pressures may both slow refresh time tables and further increase cost pressure on vendors.

Possible upsides of the economic troubles

Possible upsides we can imagine include:

  • Some direct or indirect stimulus funding for major projects which are beneficial for telecoms if their benefits are perceived to outweigh governments’ needs to make cost savings. “Smart cities”, fibre rollouts, major new regeneration projects, airport expansions, train lines and other such infrastructure initiatives tend to have communications pull-through.
  • Less pleasantly, new governments may make changes to labour laws, which enable some European operators to align costs and revenues more easily.
  • Some extra R&D investment by those that have cash and long-term visions. Whether this comes from the telcos or adjacent players such as Apple and Google is yet to be seen.
  • The current crisis may be the catalyst for some much-anticipated (and, arguably much-needed) consolidation in a number of telecoms markets. Vodafone and Wind are looking to combine their Greek businesses. Hutchison’s 3 Group has launched a bid for Orange’s Austrian business unit.
  • Under utilised capacity in the labour market could ultimately be a trigger for digital entrepreneurialism, pushing innovation in areas like apps and gaming and driving medium-term growth.

To read the note in full, including the following additional analysis…

  • Impact on Telco 2.0 Strategies
  • Conclusions and recommendations

…and the following charts…

  • Figure 1 – The predicted impact of ‘OTT’ players on messaging revenues
  • Figure 2 – The impact of ‘OTT’ players on the telco business model
  • Figure 3 – Telco stock yields are high in European markets
  • Figure 4 – Telco 2.0 Strategies demand different operational and financial models
  • Figure 5 – Vodafone’s current view of growth opportunity value

Members of the Telco 2.0 Executive Briefing Subscription Service can download the full 17 page report in PDF format here. Non-Members, please subscribe here or please email / call +44 (0) 207 247 5003.