Telcos face ARPU pressure in 2023

Telecoms operators, and the industry as a whole, face tricky times next year as a result of economic difficulties and existing market pressures, Analysys Mason warned this week.

That headline conclusion is hardly rocket science. The vast majority of people and businesses are having to face up to economic uncertainty, and the telecoms industry was never going to be exempt form that. But the analyst firm looks at some of the the specific pressures that will hit telecoms next year, and that makes for interesting reading.

One of its key takeaways is the fact that operators will raise prices – despite various nudges to the contrary from regulatory bodies – but could nonetheless struggle to maintain average revenue per user.

“We believe that operators will be able to raise retail prices, but it is possible that ARPU will not keep pace with inflation, meaning a cut in real terms,” Analysys Mason notes it in a piece outlining key focus areas for the industry in 2023.

With telecoms sucking up a much smaller portion of a household budget than food, energy and so forth, the impact will be mitigated to an extent, but ARPU reduction is never good news for telecoms operators, most of whom are working hard to maintain these types of metric in the face of growing investment requirements.

“After a decade of low inflation and low interest rates, the telecoms sector faces the uncertainty of how it will be affected by these cost increases and the degree to which it can increase its own prices in response,” said Larry Goldman, Chief Analyst at Analysys Mason.

“Combined with high investment costs and questions about potential returns, the market outlook is challenging as the telecoms industry tries to steer its path through price rises, rolling out network availability and launching new services,” Goldman said.

Nonetheless, the analyst firm believes that 5G investment will not be impacted by the downturn, despite the fact that the prospects for a short-term term return are not good. Essentially, they need to tap into revenue-growth opportunities, and this means having the ability to support higher-volume and low-latency services like cloud gaming, AR/VR and the metaverse, and digital businesses. As such they need to carry on investing in 5G and fibre.

“Operators will continue to depend on joint ventures to support their investments,” Analysys Mason said, presumably referring mainly to the fibre space, where JV announcements have been coming thick and fast in recent months. Rumours that T-Mobile US is working on a $4 billion fibre joint venture emerged earlier this month, for example, while AT&T is apparently on the same track. Meanwhile, European operators have already inked a raft of deals with investment partners.

But its not just network investments that will cause operators to feel the pinch.

Analysys Mason describes telcos as having been “relatively unscathed” by the Covid-19 pandemic, but points out that they will now need to reduce costs. Investments in automation in recent years will help with that, but there is also the thorny issue of cutting energy bills to address.

Efforts to deal with rising inflation and increasing energy costs featured in Vodafone’s first half FY2023 results last week, chief among which was price rises, reinforcing Analysys Mason’s view that consumers will have to deal with bigger bills. Meanwhile, BT added £500 million to its cost-cutting plan, in no small part due to growing energy costs.

Analysys Mason identifies decommissioning older networks more quickly than previously planned as an area of focus for cost-conscious telcos.

Other predictions from the analyst firm include a continued push on digital services from telecoms operators, as well as ongoing metaverse initiatives, although it expects the metaverse will not truly materialise until 2024.

On the networks and software side, it is looking at take-up of private networks in tier-two organisations, many of which will need greater simplification and as-a-service pricing; big growth in aaS deployment models in general, especially in traditional OSS/BSS areas; accelerated enterprise demand for multi-cloud connectivity; and open RAN expansion.

There are some big industry buzzwords in there. It’s a positive sign that analysts expect these growth areas to keep growing, despite the obvious economic headwinds looming.

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