The TMT sector touches all our lives in the 21st century, and its importance is certain to grow over the coming years. TMT is directly impacted by changing demographics as a growing population, combined with the pervasiveness of connected platforms as well as changing patterns of consumption, will result in sharply higher demand for connectivity. Connectivity is also a critical enabler of new technologies, including the Internet of Things (IOT) and wearable devices.
“There is a significant shift in our use of connectivity which is prevalent across various age groups, affluence levels and geographies,” notes Katarzyna Sek, director in the Structured Finance Telecom, Media and Technology team at ING Wholesale Banking. “For example, we are departing from a traditional linear media model and embracing on-demand consumption and connectivity at all times. We are moving away from ownership to access, with connectivity as a critical facilitator. These changes are propelling telecom operators to redesign their business models and redefine sources of their competitive advantage.”
Changes span the generations
While millennials tend to embrace new trends faster than other demographic groups, all age groups are becoming increasingly aware of the benefits that the connected world can offer. “Penetration of smartphones, which is an important facilitator for connectivity, is growing across all age groups,” says Sek. “Almost all mobile users in developed countries now own smartphones. Despite the high penetration, sales of smartphones continue to be strong, driven by the continuing demand for innovation and declining prices.”
In order to ensure that telecoms infrastructure can meet customers’ growing demand for data connectivity, network operators are increasing capital expenditure to upgrade networks. This facilitates the exponential growth in the demand for connectivity. “The rate of fibre deployments is accelerating while there is also increasing investment in mobile in order to make more efficient use of the scarce spectrum.” In the coming years, many telecom operators will migrate from 4G to 5G; as a result, power antennas and other infrastructure will need to be replaced or upgraded.
The ubiquitous use of video is one of the key drivers of the need for increased network capacity. Multi-screen and mobile consumption of content is becoming more prevalent, while at the same time picture quality is continuously improving, with HD now the norm and 4K expected to become more common. All of these lead to new consumer habits, requiring high speed connectivity anytime, anywhere.
Meanwhile, technology is also developing new ecosystems, such as wearable devices, which lie outside of the mainstream products, like video. “For instance, innovative healthcare solutions targeted towards seniors are emerging, allowing increased peace of mind for families. All of this is enabled by innovation”, says Sek. “Trials are currently underway to assess the potential of such services.” Though there are often legal and regulatory challenges to turn these innovations into viable business models, the potential is there. The key question for telecom operators is to define how much of a role they can play in the value chain. Will the tech giants (such as Google and Amazon) dominate this market or will telecom operators be able to take a piece of it?”
Evolving business models
Although millennials’ high consumption of data should favour telecom operators, the generational shift is also challenging their traditional business models. “Millennials have no appetite for long-term locked-in contracts,” says Sek. “They want flexible, tailor-made solutions. They also don’t think about connectivity as a location-defined service (i.e. a cable operator providing home-connectivity and a separate mobile contract for out-of-home use) but as part of a package. That includes access to relevant content, without any caps on data consumption and through a range of devices.”
These market developments are prompting network operators to enter into strategic partnerships with content providers, as demonstrated by Liberty Global entering into a global partnership with Netflix in 2016. Alternatively, some telecom operators are directly acquiring media assets to increase their competitive advantage. For example, BT recently secured the TV rights for the Champions League and Europa Leagues in the UK until 2021 for £1.2 billion.
While the developed world is embracing the internet and mobile connectivity, there remain large numbers of people who are not part of the digital world. “There are concerns about people being left behind,” says Sek. “More than 4 billion people still don’t have internet access, largely because they live in countries with poor existing infrastructure and the return on network investment remains limited by the lower disposable incomes. But we know that access to the internet is a driver of economic growth so it is important to broaden access in order to create opportunities and empower locals to participate in the global economy.”
There are currently several innovative projects underway that seek to decrease the cost of connectivity and bring internet access to the world’s poor. “Many of these projects – such as Google’s connected balloons, OneWeb’s and Space X’s low level satellites or the use of drones to deliver internet to remote parts of the world – are deploying largely untested technology,” says Sek.
Nevertheless, there are already success stories, such as O3b, which launched in 2010 as a start-up satellite venture aiming to bring affordable internet to the unconnected parts of the world. “Today it is an established satellite communication services provider (acquired by Luxembourgian satellite operator SES) operating a fleet of 12 satellites with four under construction,” notes Sek. ING’s TMT team supported the company since its inception. “The challenge remains, but the level of ambition reflects the optimism of the technology sector and the potential role it has in addressing the global demographic and social challenges.”