Given that digital services are a top priority for telecoms companies, the inability to streamline the digital development process is ranked first among the top risks identified in industry, according to the EY study - The Top 10 Risks for Telecom Operators. And as telecommunications companies are gearing up for 5G technology, more and more stringent security and data protection regulations and the growing shortage of specialists generate a series of risks that require a change of approach.
Underestimation of security and privacy changes is ranked second in the ranking of risks. Against the backdrop of data protection scandals, which continue to appear throughout the world, regulatory authorities are reacting to a series of compliance requirements. And as the Internet of Things (IoT) and announced 5G technology increase data flow, the range of risks is expanding.
Thus, according to the latest EY Global Capital Confidence Barometer, 47% of telecom executives mention regulatory issues and authorities as the biggest threat to merger and acquisition transactions over the next 12 months.
Telecom companies face a shortage of specialists and higher financing costs.
The fourth place is the failure in planning the labor force requirement. Although the telecom operators admit they do not have the necessary digital competences, only 3% of them consider developing and keeping specialists a strategic priority, according to a study by EY among the leaders of the telecommunications industry.
Another EY study recently underscores this gap, with only 57% of European companies harmonizing their staffing strategy with digital transformation plans. As technological cycles are succeeding an increasing pace, a holistic approach to planning and retraining the workforce is critical to increasing productivity in the telecommunications sector.
Incapacity to tackle rising funding costs ranks fifth, with telecoms facing a new wave of network investment, including 5G technology, low power wide area network (LPWAN), and in Gigabit Infrastructure based fiber optic infrastructure. Although the network remains a fundamental differentiator, the report notes that increased investment and a highly diversified network portfolio make it increasingly difficult to achieve robust returns by telecommunications companies.
Telecom leaders will navigate through change exploiting innovation
As the demand for smart connectivity continues to grow, failure to meet technological change (ranked sixth in the ranking) and the conclusion of collaborations with strategic partners as a means of capitalizing on innovation (in the tenth place) also among the main risks.
"As 5G technology gets booming and operators will develop new services, inevitably startups and niche players will also compete on the same new services or other innovative ones. Strategic partnerships with this ecosystem can ensure not only the growth but, in some cases, the survival of telecom operators. The history of the last 20-30 years has shown that ignoring new players on the market can lead to significant loss of market share and then extinction, "said Cristian Carstoiu, Partner, Business Assistance Services, EY Romania.
Amendments made by Government Emergency Ordinance 114/2018 with major impact in the telecom industry (Government Emergency Ordinance No. 114/2018 on the establishment of measures in the field of public investments and fiscal-budgetary measures, the modification and completion of some normative acts and the extension of certain deadlines )
"Starting with 2019, Romanian telecoms companies face a new challenge - GEO 114/2018. GEO 114 brings changes to the legislation on electronic communications (EGO 111/2011) in order to increase the levels of fees imposed on operators in this sector. Thus, with a view to granting or extending licenses for the use of radio frequencies, tax levels are set at 2% and 4% respectively. Also, the monitoring tariff imposed by ANCOM increases significantly from 0.4% to 3% of the operators' turnover. At these costs for granting / prolonging the usage license, there may be added sanctions of up to 10% of the turnover.
Operators in Romania admit that these levels are prohibitive and may endanger not only investment in the development of electronic communications networks (ie 5G technology), but also the provision of mobile communications services. They also consider increasing tariffs for end consumers, "says Alex Milcev, Head of Fiscal and Legal Assistance, EY Romania.
Given the strategic importance of this sector, the immediate follow-up of operators remains a major point of interest for the economy.