On March 31, 2017, Arthur D. Little held in London the first of a series of launch events of the latest edition of its annual Telecoms & Media flagship report with an unprecedented attendance of global senior industry executives and key investors, including more than ten leading UK operators, multiple web-majors and OTTs, infrastructure companies, banks, several private equity firms and representatives of the vendor community and UK government advisory bodies.
The report focuses on the industry’s most pressing topic, “How digitalization will impact telecommunication operators’ configuration”, and addresses some critical questions: Is there volume-driven growth in the core segments of the European telecom market? How to successfully execute a B2B2x strategy? What are new production models that begin to emerge? The importance of this topic for operators, broadcasters, as well as hardware and content providers was highlighted by the large number of top UK based executives attending the event.

Held at the Royal Institution, the event commenced with a welcome speech by Ignacio Garcia-Alves, Global CEO of Arthur D. Little, and Richard Swinford, Head of the Telecoms & Media team of Arthur D. Little UK. Subsequently, Bela Virag, Partner in ADL’s Vienna office and lead author of this year’s edition of the report, presented the main findings. This was followed by a lively Q&A session where questions from the audience and attending journalists were addressed.

Key conclusions from the report

1. We expect that Telcos will master the “ARPU x volume” battle moving forward, which will amount to ~1% CAGR (in Europe) over the next five years, stabilizing top line growth

2. ‘B2B2x’ is gaining importance – it represents a new segment and an untapped opportunity for Telcos, that can be captured by leveraging core assets and capabilities, and understanding what is needed to help companies digitize

3. New production models begin to emerge – a tailored transformational journey will be key to drive an improved customer journey, lower production costs and more innovative/faster time to market

4. Operators will need to review how they manage their diverse portfolio of assets with potentially significant impact on balance sheets due to a shift from depreciation to opex

5. We expect the markets to recognize that, given a change from the traditional approach of asset management, vastly different types of operators will offer different risk profiles and different abilities to scale

Volume-driven growth in core European Telcos on the horizon

The “ARPU x volume” equation remains a key characteristic of the telecom services market. Declines in ARPU are anticipated across nearly all market segments, coupled with volume increases. We forecast that Telcos will win the “price x volume” battle. Mobile and fixed broadband services will act as key growth drivers and should offset declining segments such as fixed telephony. This is part of a transition of the voice segments being the main revenue driver for telecom companies to becoming a complementary service in converged bundles.
Voice markets will become less relevant as the revenue share of converged services grows stand-alone segments and revenue become too complex to be attributed to the voice market. The volume-driven growth is however limited with an estimated 1% CAGR over the next five years (in the geographic perimeter considered in the report modelling). Seeking further growth, some operators are expected to focus on new market opportunities outside their core segments and to reconfigure their businesses in order to address the increased pressure on
various financial margins.