Top 10 risks for telecommunication companies 2024 | EY

May 14, 2024

42 14 minutes read

Welcome to the EY Tech Connect podcast. Where we have candid conversation about the most pressing priorities facing technology, media and entertainment and telecommunications companies and provides strategic insights on the key issues that matter to them. As industry eco-systems evolve a new directions, we use these discussions to reflect on how companies cannot only take advantage of new opportunities but also tackle emerging challenges.

Krista Walpole

Hello everyone, and welcome to another edition of the EY Tech Connect podcast. I am Krista Walpole, brand and marketing lead for our telecom sector at EY, and I will be hosting today’s episode. Today I am delighted to be joined by my colleague Tom Loozen, Global Telecommunications Leader at EY. Hi, Tom. Nice to have you here.

Tom Loozen

Hello, Krista. Nice to be here.

Walpole

And we’re also here with Adrian Baschnonga, our TMT Lead Analyst. Hi, Adrian.

Adrian Baschnonga

Hi there. Krista. Great to be here today.

Walpole

And so, before we kick off the episode, I just wanted to start by asking if you could both give a very brief introduction to yourselves and your roles, and so perhaps I’ll hand to you first Tom.

Loozen

Yeah, sure. Thank you. Global telecommunications leader for EY. Been active in the telecommunication media technology business for over 30 years now, and in my current role, basically responsible for the services that we provide to our telecommunications clients across the globe, whether that’s consulting, to doing tech consulting, strategy, tax law assurance, all of them. It’s up to us to do the right things for our clients and do them right. And I’m doing this, podcast from the Netherlands, where I live.

Walpole

Great. Thank you, and Adrian.

Baschnonga

Yeah. Thanks, Krista. Well, I work very closely with Tom. I’m a lead analyst covering tech, media, telecoms, and I develop a lot of our thought leadership covering the sector. And I’ve been tracking the sector for over 20 years myself. And, great to be here today and looking forward to the conversation.

Walpole

Wonderful. Thank you. So, today’s episode is focused around the top risks for the telecom sector in 2024, we are taking a look at an annual report that EY pulled together. Before we jump into those risks, Adrian, could you just give us a little bit of insight into the report and how the risk ranking is pulled together?

Baschnonga

Yeah, absolutely. It’s an annual undertaking on our side. And as we come up with these leading risks in the sector, we’ve got a bunch of inputs. We look at what telcos are saying via their annual reports in terms of key risk domains that they’re tracking, that they think will influence their business. We also take stock of a number of the conversations that we have throughout the year with our telco clients. And very importantly, we also leverage a lot of the findings from our research, both of, telcos themselves, but also of telco customers, whether consumers or B2B customers and all of the above feeds into our top ten ranking.

Walpole

Brilliant. Thank you. So clearly lots of different inputs going into pulling together this report. So, let’s take a look at it and so the top 10 risks in telecoms report is an annual study, as we just said. And last year when it was published, we saw the cost-of-living crisis firmly at the top of the agenda. We were seeing lots of financial pressures on businesses and consumers, and how businesses responded to those consumers was in the number one spot. Now, clearly those financial pressures haven’t gone away, but what I’ve noticed in this year’s report is that it’s no longer in the top spot. Tom, what is in the top spot for 2024?

Loozen

Yeah, we’ll disclose that right now. So, number one, we felt really needed to be what we call underestimating changing imperatives and privacy, security and trust. And to give you a bit of color to why we made that choice, a couple of observations: The world hasn’t exactly become a quieter place over the last 12 months. Telecommunication networks are increasingly considered, you know, critical infrastructure, so to keep them secure, to keep them, unbreeched has only become more important. Other big trend is that people, you know, increasingly, live their lives, their working lives, their private lives in a digital way online, working with their mobile. And also there we see that, their need for doing that in a secured way has gone up. And then there is, I would say to put that to the power of two, of course, generative AI has really made its entree into, into the business world. And GenAI is actually, for telcos is used in places, that are really critical to them. It’s used in the customer operations space. It’s used in the network space to detect anomalies. It’s used in the finance space to help putting numbers together on contracts. So really critical areas where, that should work well, where it should function well. And if it doesn’t, because of potentially the wrong data or people getting the access to wrong data, things will have a very, potential negative impact. So, the combination of those considerations, we really felt that that is the number one area that companies, executives should look at and should address to make sure that that is all working well still, Adrian, any additions, additional thoughts or considerations on that topic?

Baschnonga

Yeah. I thought that was a great, great summary Tom. Only to add to that that yes, GenAI is sort of exacerbating what is already a pronounced risk. Which is why we’ve put it at number one this year. But that’s obviously not to say that there aren’t opportunities that GenAI unlocks. So, if we think about the broader AI journey for telcos, we think about the potential for Gen AI to accelerate digital transformation, whether that’s customer service support, network planning, there’s a huge amount of positives that Gen-AI could bring. I guess it’s just the fact it’s appeared on the radar so quickly that you do have to plan effectively when it comes to things like data governance.

Walpole

Thank you, Adrian. Yeah.

I mean, obviously technology is developing so quickly, that it’s interesting that you say, it’s causing lots of challenges, but also opening up a lot of opportunities as well. And we’re definitely, hearing about generative AI all over the agenda at the moment. It’s really developing at pace over the last year or so. And I think for many companies, that means obviously they’re trying to prepare for futures scenarios that are largely unknown. No one really knows where generative AI, what it’s going to look like in a few years’ time. So, what does that mean for telco businesses and their workforce, what new sort of skills are they needing to bring in? What do they need to be thinking about?

Baschnonga

Yeah, really interesting question. I think this is where, one risk creates or knocks on to another risk in our top 10, because actually talent management this year is a new entry at number three in our top trend and really driven again by this fact that telcos are looking for better access to new talent pools and specifically new talent pools that have competencies capabilities in software, particularly new areas like AI and GenAI, for example. So, this is something that’s really top of the agenda right now, coming across very strongly in some of our own conversations with CXOs. Do they have adequate access to some of these new talent pools that can really help them, regenerate their workforce over time? One of the problems here as well is that actually, when it comes back down to the core business of the telco, which is, laying down new network infrastructure, there’s also a shortage of critical skills in that part of the business to contend with as well. So, it’s almost a double whammy if you like. And you put both of these factors against a backdrop where ongoing macro pressures mean that we’re seeing hiring freezes, for example, we can see that just in terms of just managing the workforce right now, ensuring that you’ve got the right types of skills going forwards, that’s a big headache for the sector.

Walpole

Yeah, certainly a challenging time at the moment. So given these pressures, Tom, do you have any advice, like what, what can we be doing to, you know, ease some of these detrimental impacts.

Loozen

I think they should definitely, look at it as a very, you know, deliberate approach to work with this change. What I mean with that is, if you think about how AI is used, for example, in the finance space and the controlling space, it basically allows you to reduce the time to, to get from data to insights. It reduces the time to get from insights to ways of publishing it that is, easily understandable by the audience. And, and so the good thing of it all is that if you learn people to work with it in the right way, they’ll actually be able to, lose some of the repetitive, not so exciting tasks that they would be executing and actually becoming, becoming in a position where they’re driving more value from their role. But that does require education on how you work with certain tools and how you actually, you know, go from eliminating certain tasks that you are used to do, similarly, in the network or IT space where if you’re software engineer developing certain things or operating also there is a, you know, great opportunity to get rid of the more, well, I would say, boring tasks and focus more on, on the value-add. But it requires a very deliberate learning journey to be organized by the company. And that’s besides an overall education, around using AI as a co-pilot, in the way that you deal with email and the way that you deal with action, list creation, in the way that you deal with how you create presentations. So also, there the more mundane tasks could be, if not eliminated, reduced, and not only make people more productive, but also make the work more, more attractive, being deliberate with the learning journey overall for the company and specific in some areas where you think you will get the most benefit, is something that would be very advisable.

Walpole

Yeah. So, a real focus on upskilling, reskilling, and taking out some of the more mundane, repetitive tasks and getting the new technology to take over those responsibilities.

Loozen

Yeah. And doing that very much hand in hand with what we discussed earlier, which is on the one hand, when you go and start deploying AI, look at the way that you’ve organized your data, your security; look at your upskilling, reskilling; look at the places where those kinds of tools will really drive a lot of additional value. So, you know, be deliberate and work through the change where you work on all those elements in an aligned fashion, I’d say.

Walpole

Great, let’s just take a little bit of a look outside the telco business and think more about the consumer. We said that last year in the report responding to consumers in the right way when they’re experiencing financial difficulties. They’ve got cost-of-living pressures and that was really important. It’s not in the top spot anymore. So, is it still in the ranking Adrian, where does it fit this year?

Baschnonga

Yeah, it’s still absolutely riding high in the list. Last year it was number one, perhaps no surprise, as the cost-of-living crisis emerged. This year, it’s at number two. So still very prominent, why? Ultimately, customers are really scrutinizing their spend more than ever. Now, I think there’s some good news for telcos. I think if you went back about 12, 18 months ago, telcos were worried, is my churn rate going to go up. Am I going to start to lose customers? What we’re finding is that customers still think they’re getting good value for money, but they are shopping around more. And crucially, they want more predictable pricing. And by that, I mean, if they sign up for a two-year contract, they don’t want to see the price that the monthly price of that contract, start rising in ways that are perhaps surprising to them. What that means for Telco is managing the message around pricing communication is becoming a lot more important. That’s one big takeaway, and that should be sort of informing the risk perspective when it comes to customer experience from the telco perspective. Secondly, as a result of shopping around more, customers are looking at more channels to gain information about new products and services, that discovery piece of the customer journey, that path to purchase is becoming a lot more diverse. And so again, telcos need to recognize that, start responding to that and really work on their multi-channel, sales strategies, for example, to kind of accommodate that slightly more restless customer. So those are just a few of the takeaways we’ve had from some of our research. Tom, do you have any more thoughts to add to that?

Loozen

Yeah, maybe two things. One is from our research also. It shows that clients really find it super important to have a reliable broadband connection and reliable to them. It’s not just that the broadband connection itself functions well, but also that the Wi-Fi that’s connected to it in the house has the right coverage and the right speed. What we find is that that message is still not so strongly communicated that there is an opportunity to get to really strong, reliable broadband. It often is about, you know, the speed of the broadband, but that appears to be not so dominant in decision-making. So, so putting more emphasis on that reliability, potentially also gets clients to accept a certain price to pay for that. And, you know, makes them, makes them a little bit less jumpy for the lack of a better term. I think the other point is it’s very important for a telco, for clients, not so much — to shop around. The sales and acquisition cost of getting to new customers, really, if they go up strongly impacting the financial performance of telco. So it’s really eminent that they act on this looming risk and work on loyalty and easy decision-making, fast decision-making by clients.

Walpole

Well, I can certainly relate to all of the things that you’ve just mentioned there, like having clear, transparent pricing, having a network that’s reliable. I can totally understand why those are the points that are being pulled out. I’m sure our listeners relate to that as well. So just to recap quickly in the top three spots. So, we’ve talked about, sort of underestimating data and security requirements. We’ve looked at the knock-on impact of that around sort of talent management and skills and having the right skills in place to sort of keep up with, fast-paced progression in technology. And also, the need to respond to consumers effectively. So, is there anything else further down the rankings that you’d like to highlight, or that you think is of particular interest that you’d like to call out?

Loozen

Adrian, do you want to go first?

Baschnonga

Yeah, absolutely. I think, another one that’s very topical with COP28 underway is poor management of the sustainability agenda. And what we’re seeing is that telcos are really in quite a pivotal role if we think about their position across industry sectors because they’re enablers of virtual services, new technologies for other industries. Their impact is a net positive one while others industry sectors decarbonize if you like, by moving to new technologies of their own. But what we’re seeing in terms of the challenge specific to telcos is really, – it’s a reporting challenge right now. We’re seeing more movement in terms of broadening the scope of their climate change related disclosures, and that’s moving pretty successfully. But the quality of those disclosures is lagging and really why we run a global climate risk disclosure barometer. And some of our findings specific to telcos there is that there’s a quality challenge when it comes to reporting, climate change. So that’s one issue that they’ve got to deal with. Secondly is a bit more of a sort of an operational issue inside telcos, is trying to build the right level of consensus to move quickly on ESG. That’s something, again, that they find challenging in terms of getting the buy-in required from different parts of the organization. Again, it’s something that’s surfacing in our research. So that’s number four this year in our top 10 and certainly something to keep an eye on.

Walpole

And it feels like Adrian, this is another one of those areas where it’s a risk and it’s a challenge, but it also could create huge opportunities as well.

Baschnonga

Yeah, absolutely, absolutely. And I think it’s important to realize that the risk is one side of the coin, right? But the opportunity is certainly, present across all the challenges that we highlight, even going back to network quality. If you can move beyond that speed message, if you can come up with a compelling reliability message, that’s something that will resonate not only well with your customers, but likely with policymakers and governments as well, all of whom want to bridge the digital divide. So, there’s upside, partnering potential downside for sure.

Walpole

Great. Thanks, Adrian. And I guess, any last thoughts from you, Tom? Any other risks that we should be thinking about?

Loozen

Yeah, actually it happens to be the number five, which we call inability to take advantage of new business models. So, I think we’re in an interesting cross point in the industry where actually some telcos are branching out into adjacent services. So much more than providing connectivity. Others are doing less, so, of course, ultimately, if you like to grow the top line as much as possible, then branching out and also putting additional services to the mix are important. And so, whether that’s going into IoT, whether that’s going more into a private networks, there is the initiative from the GSMA to open up much more services from the networks, like device status and device location and quality of services. Do that through open APIs. There are companies we see who are actually very active in going into the metaverse and licensing that out even to other telcos. So, there is new business models appearing, there is telcos who have built an open-run network, which are now sort of licensing out the way that they architected that. But in order for these telcos to play in that space and be a credible provider of those kind of services that, requires a certain reputation. And many, enterprise clients actually don’t necessarily and also consumers don’t necessarily accept them as providers of the services, I was just mentioning, and so they need to close that chasm in order to be accepted as a provider of these service to get those services not only to be growing, but especially them as a selling entity of these services, benefiting from enterprises and consumers buying these services. So, I would put that one on the list as well.

Walpole

Thank you, Tom. Really, really important things to be thinking about. So, I think I’m going to wrap things up here. But thank you so much for your reflections today and your insights, Tom and Adrian, We’re coming to the end of the year. It’s always a good point to look back on the year past and also think about the challenges ahead and what you need to be looking out for. So, if you’re interested in taking a look at the full top 10 risks in telecommunications report, you can find it on our website at ey.com/telecommunications, and you can also follow us on X@ey_TMT. So please don’t forget to review and subscribe to the series. And thank you so much for listening today.