Orange, Verizon, Telefonica … Telecom operators must go digital faster

by bold-lichterman

With annual growth rates nearly 10 times lower than Internet services, and twice lower than network equipment between 2013 and 2015, telecoms are no longer the main growth engines of digital today, if we are to believe a report Citigroup released October 3.

First observation, while the revenues of telecom operators are on the whole less important than at their beginnings, notes Citi Group, those who invest in these groups have new expectations. In 2014, they considered that investing in a telecom operator was attractive for the income potential (at more than 50%) and for the efficiency (at 30%). Today, the telco investor expects him to return to growth. And in this quest, digital becomes a major relay.

Produced by a team made up of ten American banking group analysts, the report provides an overview of the current challenges in the telecoms sector, and seeks to demonstrate that the time has come for them to accelerate their transformation. digital. For this study, Citi Group cites the digital practices of the American Comcast, Swisscom, Telefonica and Verizon as an example. Orange is also cited for its investment in Rocket Internet.

Uneven growth since 2005

Another lesson learned from the study is that telecom revenues experienced uneven growth between 2005 and 2015. After a first low in 2009, where growth rates fell from 6% to 2%, operators experienced a second in 2013, where their income was almost stable. Over the same period, investments (CAPEX) made by telecom operators have multiplied by 2.8.

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For two years, telecom operators have seen their revenues start to rise again, while remaining much lower than those of other digital players. In the United States and in Europe, telecom operators, on the other hand, have experienced negative growth rates for several years.

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As a direct consequence of this, the valuations of the main American operators have changed very little since 2009, while those of internet services have practically increased by a factor of 5.5 over the same period.

Google as a new competitor

The growth imperative facing telecom operators today is partly explained by the need to reassure their investors, and meet their expectations in terms of ROI, detail the authors of the study.

Beyond this strong constraint to return to attractive growth rates, operators must face the threat of new entrants in their market. With Project Fi, its program dedicated to the development of wireless, Google is thus positioning itself as a potential competitor in the long term. Likewise, the marketing of packaged offers, which is developing more and more, places content producers, energy suppliers, and also electronics manufacturers in indirect competition with operators.

Finally, the question of controlling the customer relationship opposes them to Internet service providers. Heavily subject to regulation, the telecoms market is also upset by decisions taken by public authorities to open or reorganize infrastructures considered to be of public utility.

Proximity to their users, the strong point of telecoms

Subject to strong constraints, telecom operators must find new ways to stand out from their competitors. Digital is an avenue that should not be overlooked, if we are to believe the authors of the study.

Telecoms players indeed have the possibility of collecting large amounts of data concerning their users (traffic generated, location, timing of certain activities, credit history, etc.), and of analyzing them in a much more in-depth manner than other Internet service providers.

Another advantage of telecom operators over other players: the proximity they maintain with their users, which allows them to maintain much more personalized and therefore stronger relationships with them. Due to the resources at their disposal, they are also more likely to opt for external growth strategies to diversify, or for targeted partnership strategies.

The authors of the study recall that in other industries, such as travel, music or the media, traditional players have seen their respective market shares decrease by 44% on average with the arrival of new digital first players. , and their revenues decrease by 30% on their core business. A weighty argument to convince professionals who still doubt the importance of quickly starting your digital transformation.

SEE the full study

** Methodology: study carried out internally by 10 Citigroup analysts, with the support of 4 sector experts.
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