A local perspective
Risk 1: Underestimating changing imperatives in privacy, security and trust
For telecom operators, the challenges around cybersecurity are mounting. According to the EY 2023 Global Cybersecurity Leadership Insights Study, 53% of telcos believe the cost of cybersecurity breaches to their organization will exceed US$3m in 2023, up from 40% in 2022. The rise of GenAI is also putting data governance under strain. The latest EY CEO Outlook Pulse finds that four in five telcos agree AI is a force for good, but more than seven in 10 believe they must do more to mitigate against AI “bad actors” and pay greater attention to the ethical implications of AI.
Risk 2: Insufficient response to customers during the cost-of-living crisis
The latest EY Decoding the Digital Home study finds that just one-third of households think telcos have been supportive during the cost-of-living crisis. Three-quarters of respondents believe broadband providers should offer more fixed-price guarantees, and almost half (49%) find explanations of price changes difficult to understand. These gripes are encouraging users to shop around, resulting in telcos losing control of the path to purchase. The proportion of households going to price comparison sites or friends and family for recommendations has leapt from 19% in 2022 to 30% in 2023.
Risk 3: Inadequate talent and skills management
Financial pressures are causing telcos to dial down their recruitment. In the EY 2023 Work Reimagined Survey, 55% of telecom employers say they’re freezing hiring, almost double the proportion across all sectors (28%). Efforts to control costs are also leading to salary and benefits reductions, cited by 61% of telcos compared to 44% of all employers. Tellingly, talent management dominates the people-related risks cited by telecom employers – with retaining talent, attracting new talent, and developing next-generation talent all ranked in their top five.
Risk 4: Poor management of the sustainability agenda
The EY Global Climate Risk Disclosure Barometer shows that the quality of telcos’ climate-related financial disclosures has not risen significantly over the past two years, despite substantial expansion in their disclosures’ coverage. And 43% of telecom and technology companies don’t yet disclose a specific net-zero, transition or decarbonization strategy. Why the slow progress? Limited prioritization is one key challenge. According to the EY CEO Outlook Pulse, 46% of telcos consider sustainability when allocating capital but give it insufficient weighting. Internal complexity also acts as a drag: the EY Sustainable Value Study reveals that over half of telecom executives say their climate strategy consists of multiple competing initiatives as opposed to a unified approach.
Risk 5: Inability to take advantage of new business models
While many telcos target growth opportunities in the enterprise market, B2B services such as internet of things (IoT) and security still account for only a fraction of revenues. Key performance indicators (KPIs) for the B2B segment tend to be under-reported compared to B2C, making it hard to evaluate telcos’ progress against strategy. A further barrier to B2B success revealed by the EY Reimagining Industry Futures study is that telcos have a credibility gap as digital advisors. While 53% of large enterprises view telcos as IoT experts, just 22% regard them as digital transformation experts. These preconceptions are limiting telcos’ ability to sell additional consulting or software-related services to businesses.
Risk 6: Inadequate network quality and value proposition
According to the latest global EY Decoding the Digital Home research, 26% of households experience an unreliable home broadband connection “often” or “very often,” and 29% say the same about their mobile data signal inside the home. While operators are taking steps to improve service speed and quality, customers remain skeptical, with 43% believing that Wi-Fi performance guarantees are misleading or inaccurate. Value propositions need attention: one in three find it difficult to correlate speed to performance, while half don’t feel faster speeds merit a premium price.
Risk 7: Failure to improve workforce culture and ways of working
In this year’s EY Work Reimagined Study, 30% of telco employees say they prefer working fully remotely and commuting only when required, compared with 23% across all sectors. This higher propensity to work remotely affects skills development, with access to learning and skills (47%) emerging as the top factor cited by telco employees for thriving as remote or hybrid workers. And while 43% of telecom employees say their company has enhanced its technology for remote working, 34% believe further, more extensive change is still needed.
Risk 8: Ineffective engagement with external ecosystems
Enterprises are more receptive to buying from telcos with ecosystem awareness and capabilities. The latest EY Reimagining Industry Futures Study finds that 71% of corporations prioritize 5G suppliers with ecosystem relationships. Yet, while most operators now use partnerships and business ecosystems to provide services, the EY Tech Horizon Study shows various factors are hindering their effectiveness. Causes for skepticism about ecosystems are topped by uncertainty over return on investment, followed by attachment to more traditional ways of driving growth and concerns over cybersecurity.
Risk 9: Inability to adapt to the changing regulatory landscape
Deep concern over compliance burdens comes across clearly in the latest EY CEO Outlook Pulse, with 61% of telco leaders believing regulatory risks will significantly impact their business’s performance over the coming year. Recent merger reviews have been contentious in some markets, and regulatory sentiment toward consolidation remains unpredictable. Tax frameworks are also in flux, with base erosion and profit shifting (BEPS) 2.0 rules coming into force in 2024. Another potential pain point is the embryonic regulation of AI, where some divergence is already emerging at the country level in terms of the balance between guidelines and planned legislation.
Risk 10: Failure to maximize the value of infrastructure assets
Telco efforts to release value from their infrastructure are gathering pace and scale. The EY CEO Outlook Pulse survey underlines the continued focus on infrastructure carve-outs, with 41% of telco CEOs saying they’ll pursue divestments, spin-offs and IPOs in the coming year and 61% seeking to form joint ventures or strategic alliances. However, it remains difficult to predict how asset-light approaches will evolve, with another EY study1 finding that industry leaders are split on whether separation into netcos and servcos will become a dominant industry structure.
Strategies for telecommunications operators to mitigate risk
1. Improve governance across the organization
Better governance is a vital enabler for mitigating a range of threats, particularly as new technologies such as GenAI become part of telco technology portfolios. Revisiting existing data governance frameworks is essential, accompanied by new approaches to decision-making on fast-evolving topics like data ethics, sustainability, partner relationships and new ways of working. Regular dialogue with external stakeholders from suppliers to regulators is also key.
2. Engage in new ways of working with employees
With 30% of telecom employees preferring to work remotely, factors like resistance to new technologies and new data security needs could undermine resilience and innovation. Telcos should develop a clearer definition of their purpose allied to a deeper focus on learning and reskilling that accommodates remote working. Having more engaged employees will reduce risk while also improving internal collaboration and external stakeholder relationships.
3. Rearticulate the value proposition to customers
In recent years, the combined effects of the cost-of-living crisis, supply chain disruption, the COVID-19 pandemic and more have fundamentally changed customers’ needs and expectations. Alongside new demand scenarios among both consumers and enterprises, these shifts also increase the risk of customer confusion and frustration. Rearticulating the customer promise and simplifying value propositions will help to sustain telco relevance and long-term value.
Summary
As telcos advance into 2024, they continue to face a diverse set of risks that are shifting and evolving year-on-year. While threats related to data are becoming more pressing – including those related to generative AI – telcos must also remain focused on actions such as helping customers navigate cost-of-living pressures, improving sustainability performance and reporting, and managing skills and culture more effectively. Going forward, they can better position themselves to tackle an array of risks by improving their enterprise-wide governance, taking steps to boost employee engagement, and reinventing their value promise to customers.
