Sweeping regulatory and technology
changes shake up telecoms
Daniel Bailey, Global Head of TMT, HSBC Global Banking, HSBC Holdings plc
Consolidation gathers pace as rapidly converging
technologies force firms to rethink their business models.
Technology, media and telecommunication companies
must reinvent themselves if they are to exploit the growth
opened up by breakneck progress in communications and
computing. The delivery of everything from health services
to education is set to be transformed by the fusion of
software, data and telecoms.
For companies, this process of convergence offers rich
pickings for the bold and nimble. The sweeping changes
required to established business models will be disruptive.
But doing nothing is not an option, telecoms operators in
particular need to refresh their strategies to capitalise on the
rapid growth in mobile broadband and the related demand
for data, which is surging in advanced and developing
economies alike.
There is no reason to think the pace of progress in
communications and computing will slow. Global internet
traffic is forecast to double by 2016. The World Wide Web
is only 25 years old. Twenty years ago, only 1% of the global
population had access to the internet. Today the figure is 40%,
or almost 3 billion people.i Global IP traffic has increased
more than five-fold in the past 5 years and will treble
again over the next 5 years.ii Yet what was science fiction
yesterday is already taken for granted today, when I am able to
download a 750-page book onto my smartphone in seconds.iii
As mobile broadband connections speed up, downloading
high-definition video is likely to become equally commonplace
before long. Globally, mobile data traffic will increase
11-fold between 2013 and 2018, Cisco forecasts. Video
is expected to grow around 13 times by 2019, when it
will account for more than half of all global mobile data
traffic, according to Ericsson’s projections.iv
Telecoms operators prepare for change
Telecoms operators are jostling to position themselves to ride
this wave of change. Most are strengthening their networks
to secure their traditional position as an infrastructure provider.
However, some are expanding their distribution channels,
for instance by buying satellite companies. Others are
emphasising the acquisition of exclusive content, such as
the rights to sporting events, to reach bigger audiences.
Corporate strategy is being shaped primarily by the outlook
for video. Usage is poised to explode. As consumers realise
that movies, for example, can at last be downloaded quite
quickly, their viewing habits will change accordingly. With
voice calls now essentially free, video will account for a large
proportion of the value of a telecom’s business in future.
The growth opportunities are global. According to an
estimate by Ericssonv, total mobile subscriptions rose
by 80 million, or 7% year-on-year, in the second quarter
of 2014 to around 6.8 billion. Big emerging markets
led the way, with China adding 12 million subscriptions
followed by Russia, India and Indonesia. Mobile broadband
subscriptions increased even faster, by about 140 million
to 2.4 billion – a year-on-year increase of 35% – and by the
end of 2019 Ericsson projects that around 80% of all mobile
subscriptions will include broadband.
 European market opportunity operators the flexibility to set their own fibre-optic prices
(albeit within certain constraints). Competition authorities are
It is here that Europe’s catch-up potential stands out.
now giving their approval to industry consolidation in some
The US has the largest number of subscribers to fast 4G
countries. The number of big operators in Germany, Austria
networks, while South Korea, Singapore and Japan are the
and Ireland has fallen from four to three in each market.
leaders by market penetration. Laggard Europe is paying
The regulators’ new motto is that they want customers to
the price of limited investment in infrastructure by its
be able to pay ‘more for more’ – in other words, telecoms
telecoms operators over the past decade or so, this is
operators will once again be able to justify increasing capital
the product of tough regulation that focused on lowering
expenditure because they will be able to offer shareholders
consumer bills rather than creating the conditions that would
the prospect of higher returns on their investments.
encourage spending on network upgrades. Therefore,
This opens up enticing growth horizons. Some telecoms
while Europeans often do face lower bills, they also have
have already responded by launching heavy investment
less network capacity, with the result that the region’s
programmes. Others have focused first on rationalising
unit prices can often actually be higher. But the regulatory
markets through in-country consolidation. Pan-European
environment has started to change as policymakers realise
consolidation may not be far off. The industry’s prospects
that Europe has fallen badly behind, dampening growth.
should also become rosier as the Internet of Things, big-
Microsoft’s purchase of Nokia’s handset business, coupled
data analytics and the proliferation of affordable smart
with speculation that one of the continent’s biggest
devices drives demand for data, which jumped 60%
telephone companies could be a takeover target for a US
year-on-year in the second quarter, according to Ericsson.
rival, compounded concern in Brussels about the state of
the telecoms sector in Europe. The European Commission Europe’s TMT sector has been enjoying the first signs
fears that the EU market will not even take a fifth of global of spring after a long, hard winter. Regulatory attitudes
mobile traffic in 2017, with Asia Pacific and North America permitting, TMT companies look ready to take advantage
accounting for almost two-thirds.vi of the thaw and plant the seeds of growth.
The upshot is that telecoms are now increasingly being
allowed to charge more, in exchange for offering more,
whether in quantum of speed or service. Last year, the
European Commission introduced measures to lift certain
broadband-related wholesale tariffs, as well as to grant

i
http://www.internetlivestats.com/internet-users/
ii
http://www.cisco.com/c/en/us/solutions/collateral/service-provider/ip-ngn-ip-next-generation-network/white_paper_c11-481360.html
iii
Source: Dan Bailey’s personal experience
iv
http://www.ericsson.com/res/docs/2014/ericsson-mobility-report-june-2014.pd, p13
v
http://www.ericsson.com/res/docs/2014/ericsson-mobility-report-june-2014.pdf, p6
vi
http://ec.europa.eu/digital-agenda/sites/digital-agenda/files/DAE%20SCOREBOARD%202013%20-%201-THE%20eCOMM%20SECTOR.pdf