How Has the Macroeconomic and Geopolitical Climate Influenced the Telco Market?

Market Overview

To the detriment of Communication Service Providers (CSPs), the COVID-19 pandemic, as well as the subsequent supply chain issues, led to decreased margins in the consumer segment as average spending went down. Not only that, but 5G projects, such as standalone trials, were interrupted due to travel and logistical restrictions. All the while, the commercial market penetration has been maxed out for some time now. So, with all these macroeconomic challenges, how can CSPs and vendors within the telecoms industry generate a healthy flow of revenue while maintaining profitability? In this volatile market, telco players are, among other things, opting for adaptable pricing models, establishing alliances, and sharing the burden of risk with those newfound partners. Failing to make the necessary pivots today could very well lead to the degradation of many firms operating in the telco space.

“A brief slump in market activities gives CSPs an opportunity to pursue small-scale projects and to seek efficiency gains through alliances, rebuild their sales model, and optimize their cost structure without necessarily committing to new investments.”  – Don Alusha, Senior Analyst at ABI Research

Key Decision Items

Offer More Flexible Solutions

Geopolitical tensions, a poor global economy, and the resurgence of COVID-19 bring uncertainty to the telco market. To accommodate consumer and enterprise concerns, CSPs should pivot to providing more responsive products and services that are resilient to external factors. Flexibility and resilience aren’t a desire exclusive to the consumer; CSPs also want agile products and business models from technology suppliers (Network Equipment Providers (NEPs)) as a way to better control costs. Although, this strips away CSP autonomy over the technical apparatus.

CSPs Want to Share Risk with Network Equipment Providers

Between economic uncertainty and the growing prevalence of the cloud and software, network equipment is set to become more virtualized. As a way to reduce costs, CSPs are looking for suppliers that offer low-risk, lower-cost network equipment solutions. Resultingly, as-a-Service (aaS) business models will be a popular selection because they allow CSPs to distance themselves from the costly association of owning network equipment assets. This also lets CSPs increase or decrease network capacity in real time as demand dynamically shifts.

Reconsider How Business Is Done

In addition to shifting business models, CSPs and NEPs need to begin thinking about new ways to bring value to a highly competitive industry. One such proposal is to focus more on core areas that relate to the outside world the most, such as hardware development, software development, integrated supply chains, and services. Striking alliances, even with competitors, is another move that’s in order.

This trend has been playing out most commonly in Europe, where CSPs like Orange, United Group, and Deutsche Telekom are increasingly acquiring or merging with other companies. By doing so, these companies widen their breadth of competencies and increase the Time to Market (TTM) for services like 5G. Establishing partnerships in the telco industry also reduces the risks associated with uncertain times.

Increase Efficiency by Offloading Tower Units

To optimize their cost structures and create new revenue streams, a number of CSPs are offloading their tower units. As a result, these moves help CSPs accumulate enough financial capital to launch 5G rollouts and related projects. This is precisely what Vodafone New Zealand did when the company divested almost 1,500 towers to new owners InfraRed Capital Partners and Northleaf Capital Partners. Alternatively, some telcos can choose to build new tower units, but with shared third-party assets, which frees up financial resources, while still achieving operational goals. The downplay of physical asset ownership ties in directly to the trend toward virtualization in the telecoms industry and less emphasis on CSP-controlled physical assets.

Vendors Can Bolster 5G Capabilities through Acquisition

Currently, a lot of investment from vendors in the telco space is being put into acquisitions, as companies aim to meet the new demands of CSPs (flexibility, risk sharing, and operational efficiency). Vendors like Google, Microsoft, Ericsson, and others are acquiring smaller tech companies to bolster 5G cloud edge use cases, build Communication Platform-as-a-Service (CPaaS), deploy automation, and enable other telco use cases. As a general expectation, vendors that make acquisitions to fill in technological gaps will be best suited to monetize 5G software and services.

Key Market Players to Watch

• 4iG
• Deutsche Telekom
• Ericsson
• Google Cloud Platform
• Linkem
• Orange
• Rakuten
• Telefónica Spain
• Tiscali

Dig Deeper for the Full Picture

To learn more about the trends shaping the world of telcos, download ABI Research’s Macroeconomic Effects on the Telco Market and Competitive Landscape presentation. In this research, you’ll get an analysis of all the prominent challenges facing CSPs/telco infrastructure vendors, as well as strategic advice on how to continue pushing for innovation and resiliency.

Not ready for the report yet? Check out or following Research Highlights:

• 5G Private Networks in Asia-Pacific: A US$13.5 Billion Opportunity Spurred by Digitalization
• How to Capitalize on the Blossoming LEO Satellite Communication Services
• Evaluating the Business Case for 5G FWA
• Indoor 5G Energy Efficiency: Creating Greener, More Sustainable Buildings

This content is part of the company’s 5G Core & Edge Networks Research Service.