Michiel Sträter, head of telecom and media finance, EMEA at ING Wholesale Banking

Sector volatility: Telecom, media and technology

The post-crisis period has been characterised by an uncertain economic environment and sporadically volatile financial markets. As a consequence, economic and trade growth has been slow and many countries continue to suffer from high levels of debt and unemployment despite the use of unconventional monetary policy. The impact these headwinds have created for companies varies widely depending on the sector: some firms are at the mercy of macro-economic trends while others have prospered but face industry-specific challenges.

In this article, part of a series in which we cover commodities, energy, shipping and telecom, media and technology, we look at the telecom, media and technology (TMT) sector and asses the sources of volatility and uncertainty it faces.

TMT: relative strength but upheaval ahead

TMT companies have become ever more important to the global economy and to individuals’ lives. In the past decade, smartphones and tablets have become almost ubiquitous and in many countries access to internet connectivity is seen as a basic utility – if not a human right. As a result, compared to other sectors the TMT sector has only been affected by the global economic uncertainty and financial instability of the post-crisis era to a limited extent.

“TMT is not a cyclical industry in the sense that its performance is strictly aligned with GDP growth,” explains Michiel Sträter, head of telecom and media finance, EMEA at ING Wholesale Banking. “So while the economic environment has certainly been turbulent in the post-crisis period and there continues to be great uncertainty over the pace and strength of the recovery in many countries, the impact of economic developments on the TMT sector itself remains relatively limited.”

In certain countries, consumers’ appetite for the latest smartphone or tablet, as well as for the more expensive subscription models, might have been tempered by a challenging economy and low, or non-existent, wage growth. “However, we have seen consumers, rather than foregoing the latest gadgets, simply becoming more cost conscious and selecting a lower subscription cost option,” says Sträter.



Disruptive technology

Instead of worrying about the backdrop of low growth and market instability, TMT companies are largely focusing on disruptive technological developments impacting their business models and competitive positions as well as the continued impact of regulation. “The broad trend in recent years is towards consolidation across different segments, with internet, television, fixed line and mobile converging and companies offering ‘quad play’ services” notes Sträter. “However, regulators continue to closely monitor potential consolidation and are inclined to reject M&A when they believe it will reduce competition.”

While each market in Europe has different dynamics as a result of historical patterns of investment, local regulation and the strength of former incumbents, most markets are now subject to the convergence trend of fixed-mobile. “Even the largest mobile-only companies have recognised that they must broaden their offering if they are to retain customers and market share,” says Sträter. In some markets, content – especially sports rights – is also becoming an important differentiator.

The wave of consolidation and expansion that has swept over TMT in recent years has necessitated significant capital raising, especially in the debt capital markets. “Fortunately, TMT companies still generate healthy margins and cashflows” says Sträter. “So while some cyclical sectors have been shut out of debt markets during volatile periods, in the current low interest environment most TMT market leaders have been able to secure access to funds at attractive terms in recent years.”

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