Telecom Industry Navigated Weakening Macro Backdrop Well in 1H23, but 2H23 and 2024 Will Likely be a More Challenging Situation
In late 2022 TBR published Top 3 Predictions for Telecom in 2023, which detailed our expectations for CSP investment, cablecos and cellular networks and the global telecom industry. Click here to download your free copy of this report.
Though growth is slowing, the global economy has proved resilient and has largely avoided a widely predicted recession as of June 2023. This relatively stable market environment has helped sustain communication service providers (CSPs) and lessened or delayed the impact of some headwinds.
These headwinds include inflation, rising interest rates, supply chain and labor disruptions, new competitors, lack of 5G ROI, and the weakening economic backdrop, all of which make for a challenging business operating environment.
TBR’s updated market assessment and forecast concludes that a recession for most of the global economy will occur in 2024 as the bulk of stimulative measures created by numerous governments around the world during the pandemic roll off and the impact of quantitative tightening is felt.
Despite Holding Up Relatively Well Thus Far in 2023, CSPs Face Significant Challenges in Managing Their Debt; the Pressure Is on to Grow Revenue and Monetize Their 5G Investments
TBR expects the telecom operator landscape in key markets, especially in the U.S., to change significantly through the rest of this decade, catalyzed in part by macroeconomic and competitive headwinds. Capital structure and capital allocation will be reassessed (e.g., capex, dividend policy, share repurchases, debt), and M&A is likely to increase as financially weak companies are rationalized, creating opportunities and challenges for the broader telecom industry.
Vendors also face a challenging environment as CSPs reduce capex and implement other cost-cutting initiatives. This is already evident in the 1Q23 and 2Q23 earnings results of the major RAN vendors as 5G spend goes post-peak in 2023. CSP M&A also tends to lead to lower aggregate capex spend, a trend that threatens to further impact vendor revenues.
Cableco Competition
Cablecos are becoming more assertive in the mobile domain, with Comcast and Charter confirming plans to build facilities-based networks leveraging CBRS and other spectrum bands to augment their MVNO arrangement with Verizon.
Cablecos are increasingly viewing mobility as a key driver of incremental revenue and as a churn reducer as their high-speed internet and pay-TV businesses come under pressure from fixed wireless access (FWA) and FTTP providers as well as over-the-top (OTT) streaming services.
Hyperscalers are also growing their presence in the telecom industry, evident in the unified communications & collaboration (UC&C) and private networks domains, two areas that help these companies leverage their cloud platforms and drive growth in new areas.
