2020 led to challenges, disruptions, and changes for the telecommunications industry. Increased data security regulations and the vanishing line between telecom companies and technology providers contributed to an increased focus on innovative solutions, new partnerships, and transforming business models. The goal: to stay ahead of the curve and meet major challenges - including the impact of COVID-19.
BDO's 2021 Telecommunications Risk Factor Survey explores the risk landscape that telecom companies are facing. The report is based on risks identified in financial reports by almost sixty companies that operate in the telecommunications industry across the Americas, EMEA, and Asia-Pacific.
In the previous edition of the BDO Telecommunications Risk Factors report, the main risks affecting telecom companies were exchange rate/foreign currency changes, increased competition, the fast arrival of new technologies, access to finance, and interest rate pressures. In 2020, these risks were accompanied by economic uncertainties due to the pandemic and lockdowns, which lead to new issues, especially related to financial risks.
TOP-5 risks of 2020:
1. Interest rate pressures
Fluctuating interested rates present a major challenge to telecommunications companies. They are capital intensive and often undertake large-scale M&A deals and infrastructure projects. Cash flows tend to be stable without big revenue spikes. The financial fallout of COVID-19 leads to increased capital requirements to cover interest rate risks.
Interest rate pressures were identified as a top risk by 67% of telecommunication companies in 2018 to 94% in 2020.
2. Unfavourable changes to regulation
Our analysis shows that data protection is the most critical regulation change topic for analysed companies. In the digital era, consumers have become increasingly concerned about personal information protection. As telecom companies work with massive amounts of consumer data, they need to consider special procedures to stay compliant with privacy legislation. Failure to do so can damage a company's reputation, customer trust, and lead to fines.
3. Exchange rate / foreign currency changes
Most telecommunications companies face exchange rate change risks due to investments made in foreign currencies, internationalisation of business activity and customers, and market volatility. In 2020, volatility was increased by COVID-19's impact.
Multinational mobile network operators immediately feel exchange rate fluctuations as their revenues are generated in local currencies. Additionally, telecom companies can expect significant currency exchange effects on the price of network equipment.
4. Increased competition
Considering technological transformation and connected ease-of-access to new markets, more parts of the telecommunications space become attractive targets for industry incumbents and new market entrants. Active market players are facing increased competition, especially from technology players entering the telecommunications industry.
Telecommunications companies may need to adapt their product portfolio by offering cross-functional packages of services and lower prices than competitors to keep pace with new competitors.
5. Credit risk
Technological development within the telecommunications industry increases competition. Telecommunications companies are trying to secure customer growth by offering attractive deals and products. The financial pressure of COVID-19 on individuals and businesses may lead to increased default rates, thereby increasing credit risks.
Identifying, preventing, and managing risks at the point of sale and throughout the customer's lifecycle became even more important in 2020.
Read more about the top risks for Telecoms companies in 2021.