The people at Citi group have produced a report that runs to almost 150 pages and says they are a bit depressed about telecoms stocks. Long thought of as “dividend rich, defensive stocks”, they see these times coming to an end.
The authors of this report are sceptical that telecoms companies can achieve a complete ‘digital makeover’ to fend off the threat from digital service providers. Telecoms companies must choose between streamlining their business or becoming (wait for it) “dumb pipes” for digital players.
You have to wonder whether the authors of this seminal work simply dusted off a report from the early 2000s, itself transcribed wholesale from a conference of the day, and updated the cover.
It is true that regulators are not helping to create an environment that encourages investment, as John Strand points out here (and, boy does he have a view on how deeply flawed and self serving EU telecoms policy making is), but is the outlook this bleak?
Surely this view is years out of date?
The real world is, in our view, years ahead of this report. It points to partnerships as a possible way out of the doldrums (and, to be fair, points to ‘early examples’). But partnerships are now flourishing, with examples from all corners of the world beginning to bear fruit. From Smart in the Philippines – and their partnership with Google – to Bangladesh, Europe and North America, examples of partnerships with music companies, media companies, social media companies, video companies and e-commerce companies are proving that it is not a ‘them and us’ situation. It is now a win-win(-win) situation. As Chaesub Lee, Director of Standardisation at the ITU says, “telcos and OTT players are increasing their collaboration. We see evidence of this in ITU’s evolving membership – in recent years we have welcomed digital service providers such as Alibaba, Netflix, Facebook and Google as new ITU members”.
Hardly an invasion from the digital enemy, then, if they are coming to the table to collaborate. In fact, the initiative for collaboration mainly came from the digital service providers. Facebook, for example, has been courting telcos for years now.
Of course DisruptiveAsia likes to put on a cynical hat and say that telecoms operators have managed to make data a commodity. But the truth is that customers understand data, in as much as they know that they need it to get to the things they want to get to.
And surely to say that telecoms companies need a ‘complete digital makeover’ is overstating the case. Yes, they need to be agile and proactive and more ‘transactional.’ But they also need that on-going, subscription based relationship with their customers, on which innovation will grow. A complete digital makeover means, we assume, a big bang approach to replacing the entire IT environment, which we have, with a sigh of relief, decided is too risky by far. And unnecessary.
In fact, the on-going relationship with their customers are what sets telecoms companies apart from the digital ‘intruders’. It is built on trust and longevity (in the main) and from there, great things can happen. And – if they can get customer service, omni-channel or otherwise, right – it gives them a huge advantage.
Certainly the days of big margins and large dividends are gone, but for Citi to pick the moment when things are looking up to paint such a gloomy picture, and to say that telecoms companies are basically unable to adapt, is not correct. It seems they have looked narrowly at the investment scene, been scared by the level of investment needed in 5G, and other new technologies, and forgotten the value of the customer and the innovations that are appearing daily.