Low

Telecoms

Companies within the telecoms sector have exhibited little signs of distress in recent years. Demand for flexible working may drive changes in strategy.

Sector trends & challenges

  • New revenue upside

    Demand for remote working tools may provide a new revenue opportunity, such as high-speed home or mobile broadband. Enterprises are having to embrace partial working from home policies and education is increasingly moving online.

  • Competition on price

    Commoditisation of traditional connectivity offerings has led to competition on price. This offers opportunities and threats making it an interesting time for the sector, and we may see an increase in margin pressure.

  • Cash and investment

    Requirements to invest in 5G and full-fibre networks impose a need to focus on cash and liquidity. In addition, changes to telecoms infrastructure are required to comply with new regulations, which will drive refinancing activity.

Sector rating profile

Formal restructuring activity in the Telecoms sector has been limited over the long term given it is dominated by a very small number of large operators.

 

Our work in the sector has traditionally been focused on operational restructuring, business improvement and business planning, and we continue to see little signs of stress/distress indicators that would alter that, although there are some signs of some divestment in the sector. However the growth opportunity provided by the increase in home working and an even greater reliance on high speed telecoms could drive restructuring activity.

Telecoms

Larger-scale companies dominate the sector and have stable positions, albeit with increasing debt levels, and have exhibited little signs of distress in recent years, with no expectation that this will change in the near future despite a number of challenges facing the industry.

Commoditisation of traditional connectivity offerings has led to competition on price, however a demand for new remote working tools may provide a new revenue opportunity, such as high-speed home or mobile broadband. Enterprises are having to embrace at least partial working from home policies and education is having to adopt more online learning. 5G, Internet of Things (IoT) and Mobility as a Service (MaaS) will begin to drive substantial revenue. Inversely, revenue from traditional services such as voice calls and texts will decline further as consumers use an increasing proportion of data and Wi-Fi. Disruption and change in the sector is likely to drive some non-core divestment and strategic mergers. Telecoms businesses are prime candidates for potential acquisitions from investors and PE houses with healthy cash balances looking for growth sectors and sustainable returns.

Streaming and alternative media are shifting customers away from traditional channels, forcing companies to seek new revenue streams from tangential offerings, such as their own content production. The blurring of lines between Technology, Media and Telecommunications offers opportunities and threats making it an interesting time for the sector.

However, with the upside comes significant pressure on maintaining network reliability. Demand for new services and products such as 5G upgrades will be impacted. Requirements to invest in 5G and full-fibre networks impose a need to focus on cash and liquidity. In addition, changes to telecoms infrastructure will be required to comply with new UK regulation, further adding to 5G roll-out costs. Privacy, security and reliability concerns means companies are being held to increasingly high operating standards which may begin to squeeze margins. Consequently, refinancing and working capital optimisation are likely to become more common within the sector.

Find Your Expert

Mark Raddan is Interpath Lead for the Technology, Media and Telecommunications sector. Anthony Mayes leads our approach to Telecoms nationally for Interpath. For a full list of our senior people with experience in the sector use the button below.

Our senior team