CTS discusses road map to growth in telecom market despite challenges

TORONTO – It is a tough picture for companies looking to grow in the Canadian telecom market but there are hopeful signs, a trio of experts told the Canadian Telecom Summit on Tuesday. A group of executives with PricewaterhouseCoopers (PwC) hosted a session on merger and acquisition (M&A) trends. John Simcoe, national media & telecom leader for the firm, gave the bad news first. There simply isn’t enough research and development occurring in this country. “Canada has 0.8 per cent of GDP per annum invested in business-related R&D,” he stated. “That’s the lowest of the G7 and much lower than the US at 2.3 per cent.” Embracing the digital economy enhances the productivity of labour, he reported. Canada ranks seventh when it comes to the marketplace for internet of things (IoT) technology. Data consumption doubled between 2018 and 2022 and is projected to double again by 2027. PwC forecasts growth of two per cent in capital expenditures by telecoms. Among the challenges facing the industry are high spectrum costs, rising labour costs and climate change damaging network infrastructure. The rules around the sector are also a factor, Simcoe believes. “The regulatory regime doesn’t help us,” he asserted. There are also self-inflicted damages. He said two of the major operators have a dividend payout to profit ratio that is higher than what is supported by free cash flow. He did not name the carriers he was referencing. Simcoe’s fellow panelists are both partners in the deals value creation section of PwC. Meaghan Kappel said the telecom industry is one of the most active in the M&A sector. The two large trends are diversification and investment. Telecoms are expanding into other roles in health, agriculture and cybersecurity, she noted. At the same time, companies are divesting themselves of properties that no longer fit their profile. She used the examples of data centres and field services. The three strategies for telecoms are buy, build, and partner. This approach allows companies to increase their business on several fronts. The biggest challenge in buying a smaller competitor is integrating the new property into the larger organization. “You’ve got to integrate that company, in many cases it might be a private company, it’s a small company that you’re bringing into what we often call the mothership of a larger telco and of a public company that has very different views of and governance, success, all of that,” she remarked. The advantage to building is firms get to tailor their products and services to their clientele. The downside is that a build could take a long time to finish, by which point competitors may have purchased similar solutions. Partnerships give immediate connections and lay the groundwork for possible future acquisitions. She cited the examples of Telus Corp. and Amazon.com, Inc. working together on a smart home hub solution and, in the U.S., Verizon Communications Inc. joining with an AI partner to personalize customer shopping options. Kappel believes that we will see more partnerships in the coming years. In his presentation, Sachin Jayapalan accented the trend to divestiture in the industry. He said telecoms need to figure out what areas they wish to focus on. To that end, American firms have shed their media properties, Europeans are exiting public partnerships and in the Middle East and Africa, financial services are being sold off. Kappel opined that divesting allows telecoms to focus on their core mission. – Reporting by Paul Park at ppark@thewirereport.ca

CTS discusses road map to growth in telecom market despite challenges

News | June 18, 2024

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CTS discusses road map to growth in telecom market despite challenges

News | June 18, 2024

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