The telco agenda for 2022: How telcos can return to value growth

By Riccardo Ottolenghi

As we venture into 2022, it’s probably the right time to start looking at what the new year will bring for telecommunications markets, and better understand how key priorities and challenges for the industry will change.

2021 was yet another bad year for telco valuations, with share prices dropping significantly across the board. Last year, many telcos had to reassess and adjust their plans in light of the pandemic and the impact on their businesses and customers: 2022 is definitively the year when we will see telcos taking action.

I see three key themes shaping the telco agenda in 2022: returning to value growth, accelerating digital transformation, and focusing more the environment and society.

1. Returning to value growth

After years of stagnation, telcos will focus more than ever on creating, capturing and returning more value to shareholders. One important way is through inorganic growth. In the past 12-18 months, we’ve seen an acceleration of deals in the telco space, and the pace is not expected to slow down this year.

In some cases, telcos are merging to grow their market share or acquire new assets. For many players, M&A is critical to diversify into adjacent areas and expand their portfolios; this opens up opportunities as they seek to offer a wider range of services and tap alternative revenue streams. The recently announced deal between Virgin Media and O2 in the UK is a case in point.

This M&A boom will likely shift the landscape in many telco markets, driving consolidation and some scale. After years of underperformance, many telcos are seen as bargains, especially as concerns about interest rate hikes shift the focus away from frothy growth assets to cheaper value choices. However as we have seen so far, when executing deals there is a lot that telcos need to get right (as, for example, in the case of AT&T’s spin off of WarnerMedia).

The integration of new businesses and technologies—as well as the harmonisation of processes and cultures—can be daunting tasks, putting a disproportionate drain on resources and distraction on management. We definitively expect interesting developments from a technology perspective as well, as players will be looking at tech estates to try to shed as much dead wood as possible.

Additionally, telcos will continue their effort to grow organically. 5G is expected to be a major driver of new value, with telcos investing in 5G networks and services at an unprecedented rate. 5G will not only enable new experiences for consumers but also create opportunities for businesses of all sizes, helping them drive innovation and efficiency. Continuous rollout and commercial experimentation of 5G are therefore key priorities for telcos in 2022.

We expect many telcos’ business divisions will see revenue growth return, with most of the attention on IT services. However, telcos must continue to build up capabilities in this area, if they want to fully capitalise on the growing demand of their clients for  digital transformation and new technologies.

This is why in 2022, telcos will look to mature their vertical strategy and offering, focusing on opportunities (for example) around smart cities, healthcare, industrial manufacturing and more. Aside from a few telcos, like Verizon or perhaps Vodafone, many telcos still have some ground to cover when it comes to verticalised, specialised propositions.

To achieve this, telcos will increasingly collaborate with suppliers (even more than they already did in 2021) and partners, especially in areas such as security, SD-WAN, cloud and edge. Indeed, we at Oracle have seen quite a promising number of such partnerships:

• With Orange, we plan to jointly offer cloud services for enterprise and public sector organisations in West Africa adding to Orange’s B2B services supported by Oracle Fusion Cloud Enterprise Resource Planning (ERP) and other Oracle products.
• With TIM, we will develop and manage multicloud-architecture services for Italian enterprises. TIM Group also selected Oracle Cloud ERP to optimise its finance and supply chain processes and help grow new revenue streams.
• We helped Telefonica build a dedicated cloud platform to support provisioning and delivery of new services.
• We signed a global partnership agreement to give Telenor worldwide, non-exclusive rights to use our technology platform as the basis for ASP (application service provider) and outsourcing services.
• With Bharti, we’ll leverage its Airtel data centre to expand its cloud presence in India and bring Oracle Cloud Infrastructure to Bharti’s million+ enterprise customers.
• We helped Vodafone IoT develop technologies to support its Internet of Things global data service platform, and also provided the monetisation system.

2. Accelerating digital transformation

A big transformational push will drive fitter, higher performing-businesses models in 2022. Digital transformation has been a telco focus for some time now, but this is the year when we truly expect t to reach critical mass.

At the time of writing this blog, there are over 200 commercially available 5G services worldwide. According to Analysys Mason, telcos are supposed to spend a cumulative $990 Billion in capex for 5G between 2020 and 2027; many are keen to see what sort of payoff they can expect from this new technology.

The fact is that 5G, when considered on its own, isn’t a proposition, nor it is a business model; it’s just a network technology, an enabler. To be commercially viable, a big transformational push is required for telcos, particularly in areas such as cloud- and edge-native technology, coupled with far higher levels of automation and better customer offerings—all of which must be supported by solid data foundations.

This is where digital transformation comes in. To support shifting customer demands and tap into new business opportunities, telcos need to fundamentally change how they operate and shed substantial amounts of technical debt. As this is a massive undertaking for most telcos, it probably means that, in many cases, it can’t be done in isolation. Telcos will need to work with a broad range of ecosystem partners—including technology providers, system integrators and others—if they want to fast track their digital transformation plans.

To deliver this type of change, telcos will also have to rethink their internal structures—an area where we’ve seen some solid progress in recent years. Many telecommunications companies have already adopted agile strategies for at least some parts of their operations.

3. Focusing more on the environment and society 

Telcos have always been a critical part of the infrastructure that underpins societies, but in 2022 we believe they will need to become even more engaged with societal and environmental causes—not just because it’s the right thing to do, but also because it makes good business sense.

Technology has always played an important role in our lives, but never more so than now. Access to digital infrastructure—both physical and virtual—will allow countries, communities, and people to turn the potential economic, environmental, and societal benefits of technology into reality. Telcos are the conduit, providing access to these digital infrastructures.

In a world where massive amounts of data are being generated and processed every second, it’s essential that this data be harnessed in the most responsible way possible. Telcos are perfectly placed to help make sense of all this data and turn it into something valuable—for example, by helping to improve urban planning or creating new models for health care.

When it comes to the environment, telecommunications companies’ energy use has come under scrutiny as all business are considering how to lower their carbon footprints.
Many telcos already have goals to reduce their carbon emissions, and an important step now is to eliminate vagueness and greenwashing in their reporting. As of today, only a few telcos measure Scope 3 emissions. This lack of clarity could lead to inconsistencies in the way telcos report their emissions and hurts the industry’s overall credibility. Telefónica, for example, recently announced a 5.5 Billion euro refinancing program that links the company’s interest rates to environmental goals—part of an overall plan to increase transparency in reporting results.

Looking beyond just reducing their own carbon footprint, we believe that telcos also have opportunities to look at ways to help society become more sustainable as a whole. This might include working with local communities on renewable energy projects or investing in innovative technologies that can help reduce the environmental impact of telecoms operations.

There are many advantages of implementing ESG initiatives, which are increasingly being acknowledged by investors: improved customer loyalty, better favour with customers, regulatory coherence, and reduced social stigma. In the end, those telcos that have a stronger and more defined ESG strategy will be valued higher than those who regard ESG as an afterthought, effectively closing the loop by boosting return on value growth.

Looking forward

For telcos, 2022 is set to be an interesting year. They will need to focus on returning to value growth, accelerating digital transformation, and caring for society and the environment.

We think that telcos can turn these three areas into a virtuous cycle. New opportunities for organic as well as inorganic growth will be more easily realized—thanks to ambitious digital transformation efforts—and further enhanced by a heightened ESG agenda. While there are undoubtedly challenges ahead, we believe that telcos are more than up to the task.