For immediate release
Caroline DUPUY
EY Luxembourg
Tel.: + 352 42124 7552
Global telecommunications industry sees rise in capital spending as companies try to keep pace with disruptive competitors
Luxembourg, 11 November 2015 –Capital spending is rising at the same rate as revenue in the global telecommunications industry as Over-The-Top (OTT) competitors expand their presence and threaten traditional operators’ return on investment, according to EY.
In the new EY survey of the industry, 36% of C-Suite respondents cited disruptive competition as the leading challenge facing them today. This comes at a time when OTTs — companies that provide apps or services over the internet in a way that bypasses traditional distribution models — continue to grow their share of value chain revenues, and the net neutrality debate remains a white-hot industry issue.
This new study which paves the road to 2020 for ICT businesses has been discussed yesterday at a conference jointly organized by EY and First Tuesday. The panel,composed of Gérard Hoffmann (Telindus), Werner de Laet (Orange), Emma Park (Sigfox) and Jérôme Dave (Rakuten) was moderated by Olivier Lemaire, Telecommunications Media & Technology Leader at EY Luxembourg.
Olivier Lemairesays:
“Telecommunications companies are making bold investments to satisfy customer demands and gain a foothold in new arenas, from TV and cloud services to machine to machine offerings. But many digital services have a lower margin than traditional services and, as a result, we’re seeing return on capital fall in many regions. And, while profits remain under constant pressure, OTTs show no signs of slowing down. They’re continuing to innovate across countless digital domains.”
He adds:" Growth in the telecom and media industry in Luxembourg has been outstanding over the past decade (over 7% a year since 2007) when major OTTs, e-commerce giants and network capacity providers have set up their European hub in the country. At the same time, Luxembourg succeeded in creating a dynamic environment for ICT niches startup implementation (Fintech, Green ICT, Cloud Computing, IT Security, etc.) and got ranked 6th in the Innovation Union Scoreboard of the European Union in 2015. Luxembourg is therefore naturally at the heart of the disruption that the industry is facing worldwide. In such a rapidly widening digital ecosystem, Luxembourg companies will continue to evolve and re-think their business models to take part of the digital revolution over the next decade.”
Ovum research highlights just how the industry is evolving. Over one third of global connections are expected to move to 4G by 2020. That’s a threefold increase over the current 10% of data users. Machine-to-machine and Internet of Things is also set to grow from 2-3% of overall revenues to over 7% of revenues by 2020.
OTTs are also diversifying their own service propositions, heightening competition around both legacy and new services, and already own 10% of industry value chain revenues. These advances are adding to operator fears of losing out on more customer ownership.
Customer experience management is the top priority for 68% of operators and 82% view it as a top-three consideration over their organizations over the next three years.
Adrian Baschnonga, EY’s Global Telecommunications Lead Analyst, says:
“Customer experience is at the heart of all strategic decision-making. Companies won’t see return on investment, however, until they understand their customer and value proposition. That clarity is essential in a world where customers have a widening set of relationships with both telecommunications companies and digital newcomers. Operators must develop selective business models that define their digital growth ambitions and capital spending.”
Meeting digital growth ambitions begins with operators reconsidering how they’re innovating for the customer. Traditional telecommunications companies must consider opportunities to collaborate with disruptive players. New ecosystem roles such as technology incubators and digital champions can also help operators unlock cost-effective paths to innovation. And, at the same time, attracting and retaining talent to foster innovative ideas from within is crucial.
Brice Lecoustey, Advisory Leader for the Commercial and public sector at EY Luxembourg, says: “More than one-third of operators see digital accounting for more than 20% of their revenues by 2020, as new services redefine demand scenarios, blur the lines between product categories even further and have all players seeking a greater share of wallet. And while operator strategies will vary, improvements — from customer experience to in-house collaboration — will be vital for all.
He concludes: “Luxembourg has positioned itself as one of the leading EU countries to adoptdigital technologies. Our country's infrastructure,its unique international outlook and a “Digital Luxembourg” vision actively supported by our local government make it an attractive platform for businesses and individuals to embark on a digital journey in a safe environment. The digital trend has not only become a success, but has also served as a model for other countries.”
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