Telcos’ failure to respond to changing priorities in consumer spending is now the biggest threat facing the industry, according to the annual EY report, Top 10 risks in telecommunications 2023. With consumer spending under increasing pressure, EY research1 shows that 60% of households are worried about rising broadband subscription prices, and nearly half (45%) believe they overpay for content services.
While network reliability remains a consumer pain point, infrastructure resilience and reach has fallen from No. 1 in the ranking for the first time since the onset of the COVID-19 pandemic – it is now at 5th position as other challenges become even more pressing.
Tom Loozen, EY Global Telecommunications Leader, said: “While connectivity represented a lifeline for many during the height of the COVID-19 pandemic, the landscape has changed. In today’s economic climate, consumers are hyper-focused on the value they’re getting from telecoms providers, and telcos ignore this shift at their peril. The threat is compounded by increasing pressure from regulators, with some demanding that telcos do more to offer consumers ‘social tariffs’. In response, telcos must create clear, simple and secure propositions that reassure and appeal to customers.”
For Southeast Asia, Joongshik Wang, EY-Parthenon Asean Leader and EY Asean Technology, Media & Entertainment and Telecommunications Leader, shared that a similar development is taking place in the region. He noted: “With soaring inflation today, customers in the region are likely to be even more sensitive to pricing. We expect (a) continuous pricing war among the telcos as they attempt to defend and gain market share, and the profitability of telcos becomes even more important for players as well as stakeholders.”
Underestimating changing imperatives in security and trust has risen from 3rd to 2nd place on the 2023 telecommunications risk radar, with 76% of telcos reporting growth in cyber attacks year-on-year according to EY research2.
A disconnect has emerged between heightened levels of vulnerability and board-level scrutiny, and 39% of telecoms CISOs believe security is not adequately considered as part of strategic investments. Further, the security function is being undermined by inadequate relationships with the wider business, despite its growing prominence during the COVID-19 pandemic (noted by 58% of telecoms CISOs).
Under a third (31%) of CISOs believe their relationships with product development teams are grounded in moderate or high levels of trust3. This is compounded by increasing anxiety among consumers, for whom the COVID-19 pandemic has exacerbated pre-existing fears around data disclosure. Indeed, 46% of consumers believe that it is impossible to keep their personal data secure when using the internet4.
Wang said: “Telco networks form the backbone of any nation’s critical infrastructure in enabling digital services. With the adoption of 5G technology, we can expect an exponential increase in the threat landscape due to diverse use cases and the integration of emerging technology. We are already seeing an escalation of cybersecurity attacks across Southeast Asia and telcos are ramping up cybersecurity investments to ensure a truly robust business.”
The report also finds that poor management of the sustainability agenda is becoming an increasingly urgent threat to the industry, rising from 5th position last year to 4th place on the 2023 ranking. The quality of telecoms operators’ climate change disclosures has declined year-on-year, and 39% of respondents do not disclose a specific net-zero strategy, transition plan or decarbonisation strategy – despite growing calls for tangible action from all stakeholders5. Net zero refers to the amount of greenhouse gases produced being equal to the amount of greenhouse gases eliminated.
According to EY, customer expectations in the sustainability domain are intensifying, putting pressure on operators to keep pace. Thirty-nine percent of consumers say connectivity providers need to do more to address sustainability concerns, and 68% of large enterprises are more interested than before in 5G use cases that can help meet sustainability goals6.
Observed Wang: “Sustainability is more than an add-on to premium products; it should be a vital part of the telco’s customer promise. Consumers want to see clearer evidence of action, while businesses will prioritise suppliers that can support their sustainability initiatives. However, while telcos are the biggest energy users, we don’t see much progress from them in driving the sustainability agenda. Looking ahead, they must recognise that they have a central role to play as catalysts of a more sustainable society and act on it.”
At 3rd position for the 2nd consecutive year on the 2023 telecommunications risk radar, is the failure to improve workforce culture and ways of working. EY said this is an evolving risk as the views of employers and employees continue to diverge. While 91% of technology, media & entertainment, and telecoms (TMT) employees want to work remotely for two or more days per week, 25% of TMT management teams believe their people should return to the office five days a week. Workforce churn is a significant threat in TMT: 53% of TMT employee respondents say they plan to leave their current role in the next 12 months, compared with an average of 43% across all sectors7.
Wang believes that telcos in Southeast Asia need to enhance their talent attraction strategies. He said: “The average age of Southeast Asia’s telco workforce is much older today, and (this) means a likelihood of a lower turnover rate with this group. That said, the key talent imperative for telcos players is to attract and retain young talent with digital capabilities to build the future of telco together.”
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| Source: EY's Top 10 risks in telecommunications 2023 report. The top 10 risks for telcos mapped against financial, strategic, operational and compliance considerations. |
The top 10 risks listed in the 2023 report are:
- Insufficient response to customers during the cost-of-living crisis
- Underestimating changing imperatives in security and trust
- Failure to improve workforce culture and ways of working
- Poor management of sustainability agenda
- Inability to accelerate efficiencies through digitisation
- Failure to establish infrastructure resilience and reach
- Failure to take advantage of new business models
- Failure to maximise value of infrastructure assets
- Ineffective engagement with external ecosystems
- Inability to adapt to changing regulatory landscape
The report also discusses the outlook for telcos in different regions. For Asia-Pacific, EY said that China offers strong prospects for growth, supported by telco listings, while India is seeing revenues recover but expects growth rates to remain below pre-crisis levels as corporate restructurings continue.
Meanwhile ASEAN operators are experiencing rising capital intensity and lower returns on invested capital (ROIC) as the mobile revenue mix shifts heavily toward data.
In Oceania, restructurings and tower sales are helping to unlock value, but fixed wireless access (FWA) could compete with fibre networks.
1, 4, 6 EY Decoding the digital home study, 2022
2 EY Global Information Security Survey, 2021
3 All citations in this paragraph from EY Global Information Security Survey, 2021
5 EY Global Climate Risk Disclosure Barometer, September 2022
7 All citations in this paragraph from EY Work Reimagined Survey, 2022
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