articles | 28 May 2019 | EY Cyprus

EY: Many challenges for telecommunications in the 5G era

With digital services now the leading priority for the telecommunications C-suite, it is little surprise that ineffective digital growth tops a new EY ranking, Top 10 risks for telecommunications operators. This ranking highlights the security requirements due to increased data protection regulation and the widening talent-skills gap as growing risks that demand a shift in approach.

With data protection scandals continuing to unfold across the globe, national regulators are responding with a range of compliance requirements. And as the Internet of Things multiplies the interconnected devices and the promise of 5G increases data flows, the risk landscape is intensifying. The latest EY Global Capital Confidence Barometer reflects this, with 47% of telecoms executives citing regulatory and government issues as the biggest threat to future deal-making. In this context, EY believes that “trust” is a comparative advantage for telco operators and that they need to highlight security and compliance with regulations, as “key” in their relationship with customers.

Telcos face digital skills gap and mounting capital expenditure burden

While telco operators recognize that digital skills are lacking in their organizations, only 3% see growing and retaining talent as a top strategic priority . Another recent EY study further highlights this disconnect, with just 57% of European businesses aligning their people strategy with their digital transformation agenda. As technology cycles continue to gather pace, a holistic approach to workforce design, which will include reskilling in new technologies and skills, is critical to boosting telco productivity and delivering a superior customer experience.

The inability to combat the growing capital expenditure burden follows, as telcos contend with a new wave of network investment (such as 5G, low-power wide area networks and gigabit fiber). While network quality remains a fundamental differentiator, the report finds that rising capital intensity and a more diverse portfolio of network assets are making it increasingly challenging for telcos to achieve strong returns on investment.

Innovation requires the disruption of business models

As demand for intelligent connectivity continues to escalate, failure to navigate evolving disruption scenarios (6th in the ranking) and to collaborate with strategic partners as a route to innovation (10th), are also highlighted as mission critical risks. Other risks shortlisted in the ranking include inadequate portfolio management (seventh position), and insufficient engagement with industry verticals and the public sector (ninth).

Charalambos Constantinou Partner, Head of Advisory Services of EY Cyprus, says: “The rapid growth of 5G and the Internet of Things is significantly increasing the capex burden of telcos, while also presenting opportunities for disruptors and new entrants. At the same time, increasing concerns about privacy are leading to mounting regulatory pressure, forcing telcos to place security and trust at the center of their agenda. To deal with these challenges, companies need to examine strategic partnerships and targeted acquisitions of startups and address the increasing shortage in digital skills”.

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