Study: Telco industry struggles to find new profits in 5G technology

Aurel Constantin 16/01/2020 | 13:58

The future growth of telecommunication companies around the world will be affected by their ability to create and own seamless customer experiences, according to Mazars’ recent Future of Telcos study. The study looks at the forces at play in the battle to win the customer experience and how important is 5G to the future of telcos’ growth. 

When discussing mobile technology and its great leaps forward, it can be easy to forget how far we’ve already come and, more specifically, what is making it possible. Seemingly overnight we have moved into the 5G era without recognizing what such transition promises.

A line to the future: how 5G is opening up opportunities for telcos

Contrary to what its name suggests, 5G is much more than an incremental change from previous network technologies. While 3G introduced us to mobile technology and 4G made us comfortable with its applications, 5G stands to reshape our lives in and out of the office entirely.

Why? 5G enables data transfers at record speed while shrinking latency – the time it takes for information to arrive and get back from the terminal equipment – to almost zero. As a result, the devices already in our hands will be supercharged to fulfill our every demand – think autonomous vehicles and smart homes.

Considering the Romanian market, technological challenges will have a significant influence on how the local operators will continue their business development. The introduction of the 5G network will increase the downloading speed from an average of 89 seconds/GB for 4G technology and 25 seconds/GB for 4G+ technology to only 8 seconds/GB for the new 5G technology.

“The ability to cope with the introduction of the 5G network on the Romanian mobile data market will have a significant impact on the retention of old clients and attracting new ones. Starting mid-2019, the most important operators on the Romanian market have already introduced the necessary 5G infrastructure. For the moment, Orange has the most extensive network covering Bucharest, Cluj-Napoca and Iasi with its 5G infrastructure. One of the main advantages of the adoption of 5G technology is the significant reduction in costs which in turn might lead to rising net income margins,” said Ella Chilea, Partner, Audit & Assurance Services, Mazars Romania.

Telcos and the future of finance

Different industries are reacting to 5G-generated opportunities in various ways. In the world of finance, companies are vying to operate on the innovation frontline, hoping to win customer loyalty through new and improved services.

In the UK regulators have proven open-minded and banks are co-operating with fintechs to foster and introduce innovation to the market. Interestingly, telcos may even have an advantage over fintechs when it comes to offering financial services that carry risk.

In Romania, the main telecom operators face mounting regulatory costs in the form of increased parafiscal charges. For example, some legislative changes increased the monitoring fee payable towards the telecom market regulator at a maximum level of 3 percent from the turnover realized by telcos (subsequently decreased during 2019 at 2 percent).

“This would have had a huge impact on the profitability of these companies as most of them have to cope with decreasing small net margins (e.g.: 4 percent net income margin in 2018 compared to 6 percent in 2017 and 8 percent in 2016 for some of them). Some of the explanations for this fall include the significant competition on the market which has led to the decrease of the fees overtime and the rise of the cost of labor in Romania,” said Ella Chilea.

The telcos’ competition on the Romanian market is still very strong and there is still enough room to increase the activity of a telecom operator. For example, according to ANCOM (National Authority for Administration and Regulation in Communications), the Internet penetration rate in Romania was only 60 percent at the country level in 2018 with significant discrepancies between the urban and rural environments (72 percent vs. 44 percent).

“The main challenge here is on how to increase the market share through organic growth without having to further negatively impact the net income margin given that the economic agents with no access to Internet are mostly located in rural or poorer areas with bad infrastructure which might require significant investment with a lower recoverability chance,” said Ella Chilea.

Amidst the rapid pace of technological development and the crowded playing field when it comes to finance and the customer experience, it’s important to reflect on the advantages already in telcos’ corner. In The Future of Telcos report, Mazars outlined the following four:

  1. Straightforward customer identification – The phone number is a great asset to that end, unique, short and can be committed to memory, but we have to also consider the GDPR legal requirements.
  2. Smart recommendations – As 5G meets IoT, big data and AI, there are more opportunities to deliver timely and relevant advice to customers. A smartphone could remind the customer they have a coupon for their next purchase, or an algorithm could suggest a customer saves money when their financial situation allows it.
  3. Invisible transactions – A shopping experience where retail technology recognizes the person and can access the necessary data meaning she/he doesn’t need the wallet. Some retailers are already trialing such technology.
  4. Reward and loyalty – No one wants to manage dozens of loyalty cards in their physical wallet but customers with a long-standing bond want to be treated differently to first-timers. The digitization of loyalty programs will lead to hassle-free rewards and build greater brand allegiance.
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