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Telecom Industry Report

5G, data, fiber to support growth while New Space might become a challenger

LOW RISK FOR ENTERPRISES

Last Update: July 2024

Strengths & Weaknesses

Strenghts
  • Strong barriers to entry
  • High value added and strong margins
  • Data consumption and digitalization of the economy are a long-term support
  • Limited exposure to economic cycle in advanced economies
  • Emerging technologies and new consumer trends provide growth opportunities
Weaknesses
  • Mature and highly competitive markets in advanced economies 
  • Capital intensive sector 
  • High leverage among a few large US and European firms in the sector
  • Higher exposure to economic cycles in developing markets

Sector Overview

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What to watch ? 

  • Fiber deployment in markets with lower intake
  • Development in NewSpace, i.e. firms providing telecom services thanks to low Earth orbit satellites
  • 5G uptake in advanced markets
  • Interest rates and financing conditions that can challenge leveraged players

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The deployment of fiber networks is accelerating, with significant investments aimed at enhancing broadband connectivity in many countries. The global rollout of 5G is also continuing, with 5G connections reaching half of the global population as of end 2023. 5G cover 95% of the population in China and 90% of the population in the US, while Europe is trailing behind at 70%. There are also significant growth opportunities in emerging markets (10% coverage in LatAm and MENA, 20% in APAC ex-China). 5G is expected to become the dominant subscription type by 2028 and it represents a huge opportunity for the sector. Furthermore, global data consumption is expected to grow from 136 exabyte (EB)/month to 174 EB/month in 2024, which should benefit the sector. Over the last couple of years, we also witnessed the growth of low Earth orbit (LEO) satellite players, which have been growing steadily as internet providers, especially in emerging markets. Over the longer run, they could compete with traditional telecom players.

Companies in the sector have been facing higher interest rates and some have been compelled to reduce capital expenditures which could to be detrimental to longer-term prospects. Amid a major purchasing-power crisis, many firms in the sector did not increase prices while their own costs were increasing with energy prices and wage increases. Nevertheless, telecom companies posted an EBIDTA margin of 31% in 2023.

Subsectors

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- Landline and mobile telecommunications. The biggest players operate in both segments, but this is not the case in emerging economies.
- Consumer and business telecommunications. Some niche players focus on the specific needs of corporates.
- Cable companies
- Satellite telecommunications including New Space.
- Mobile Virtual Network Operators (MVNO) are companies focusing on marketing mobile services while renting network capacity to traditional operators.

Contacts

 
Allianz Research
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