...What was mainstream five years ago, may now be totally obsolete.
“The telecommunications industry is very disruptive,” says Puijpe. “From a banking perspective it has morphed from mobile, fixed line and satellite network infrastructure and media financing. Every time the market is reinvented when there is a new sweet spot. The technology cycles used to be around five years, but they are getting shorter and shorter. That is a challenge we face as a bank. What was mainstream five years ago, may now be totally obsolete.”
He explains as an example that in the past, the bank’s financings in these sectors were divided between mobile and fixed line clients. Today, it is about mobility, cloud and content delivery. It’s not about SIM cards or mobile phones anymore. “It’s not just about the equipment. We don’t finance equipment. We finance business models.”
With such rapid change in telecommunications technology, there are challenges as well as opportunities ripe in the market, especially for the networks and other physical infrastructure. Puijpe notes that businesses must discover a way to link their huge revenue potential with major investors.
“Technology and content are in my view not a matter of size, but a matter of agility and finding the right partners to deliver. Time to market is becoming ever shorter, product life cycles as well. You need networked businesses to drive innovation. Size does matter in terms of infrastructure. So you’ll see an increasing consolidation and scale in physical networks and data storage – that will increasingly become a big company game.”
“‘Over the top’ is creating a situation where some businesses are reaping rewards on large investments made by others. The key is to create reliable networks where people, or companies, are willing to pay for a service,” says Puijpe. He cites Netflix. It charges a EUR 7.99 monthly fee to watch unlimited movies. But it doesn’t necessarily pay for the network or infrastructure it is using to provide users with these services.
“The telecom companies pay for huge infrastructures,” says Puijpe. “But the businesses that feed on these infrastructures, need to pay their fair share of the investment costs. It’s like the fast lane on a highway. Ultimately you would pay more to have faster access.”
This relates to controlling of speed of Internet connections by these telecom companies for consumers. With our increased dependence on using telecom services across multiple devices there has been talk in the industry about Net Neutrality.
The winners of today can become the dogs of tomorrow, it is disruptive and innovative.
In 2012 the Netherlands became the first country in Europe and the second in the world, to enact a network neutrality law. Basically, providers of public electronic communication networks that provide Internet access services as well as Internet access services are not allowed to hinder or slow services or applications for Internet users.
No matter the technology advances, Puijpe notes that service is technology. And the key challenge is to create an environment where the basic infrastructure is available for all – on a transparent and level playing field. Whether a company is small or big, its founders old or young, the telecom market is hugely disruptive.
“The winners of today can become the dogs of tomorrow,” says Puijpe. “It is disruptive and innovative. From being sleepy state monopolies in the early 90s, the telecom industry has transformed into one of the most dynamic and client focused sectors. It has distinct ‘winner takes all’ features, which as a bank requires us to be careful in our client and sub-sector selection.”
“It’s not a linear scale. Technology is totally different. We have to be ahead of the curve and take an omnichannel approach to consumers.” ING Commercial Banking does this by focusing on two angles of financing. One is by financing the infrastructure such as mobile towers to facilitate the increasing data traffic. And the other is by financing against the revenue streams generated by content delivery, cloud services, etc.
Looking ahead, does Puijpe think the telecom industry fits into a sustainable growth model? He says, “The combination of telecom infrastructure and smart technologies, in my opinion is one of the great catalysts and facilitators of sustainable growth. By making things smarter, by increasing efficiency and clearing clutter, by bringing companies so much closer to their clients – it is almost without boundaries.”
‘The internet of things’ is the way of the future but Puijpe notes the Internet won’t disappear. It will be ingrained in everything that we do, in the objects we use like the fridge monitoring and ordering food from the store to insurance telematics where driving behavior directly determines your insurance premium. This way, our lives will be more efficient and linked to the services we use.
Puijpe’s global team needs to stay on top of trends around the globe and respond to the different needs of the different regions. From New York, Amsterdam and Frankfurt to Singapore, teams in ING Commercial Banking have large networks consolidated around the globe.
Puijpe notes that the market for financing data centres in the U.S. is about two years ahead of the market in Europe, while in Asia there is a mix of developed and non-developed countries where their focus is on building basic communication infrastructure, like mobile towers. Myanmar and Indonesia do not have developed road infrastructure so ING’s financing case must ensure that there is effective diesel available to run run its telecom infrastructure. Meanwhile in Africa, solar panels are in use that reduce energy consumption of mobile towers by 30 percent.
From a lending perspective this is however, still a hugely attractive business.
From an equity investment perspective, the telecommunication industry can be a tough market with as many successes as there are failures that showed great promise. “From a lending perspective this is however, still a hugely attractive business. Data infrastructure becomes almost like running water from a tap – no one can go without it. Content monetisation has historically been a problem, with piracy etc., but technology is increasingly there to monetise content,” says Puijpe. “Think about live sports, and even streaming TV and music. People are prepared to pay for a good, reliable services and the operational leverage of these services is huge. This is the reason why you see multi-billion sports rights deals – like the recent one for the English Premier League football.”
“As a bank we need to have a clear view on trend perspectives. I believe in data growth. A keen business can provide the infrastructure to facilitate this additional need for data transmission. We provide financial support to communications infrastructure. It can be a big business or it can be a smaller business with a great idea. This is a sector where you need to find the next winners, and the lifecycle for winners is getting shorter and shorter. You cannot bet on one horse, but I would say that the ‘Internet of Things’ – where everything and everyone is smartly linked – is the next big thing.
Pieter Puijpe is active on Twitter, and posts about innovations in telecom media and technology, ING CB updates, pictures of his business travels and musings about the market. Follow Pieter on Twitter: @Pieter_Puijpe
60 seconds with Pieter Puijpe
Your first smartphone was a:
Samsung Note, a so-called ‘phablet’, hybrid between a phone and a tablet. In the bank, we only used Blackberry, which was a handy device but Stone Aged in terms of smartphone use. So I bought a personal smart phone to get the real experience.
What do you prefer: Android or iPhone?
Android is better to customise and personalise your phone, but ultimately I prefer the stability and the more minimalist design and user interface of the iPhone.
How many devices do you have?
In terms of mobile devices I have one iPhone, an iPad and a Glocalme device to roam the world.
What is your favourite app and what does it do?
FT.com. I’m a news junkie – so all the newspaper apps are most important to me.
Which social media network do you use the most and why?
Google+, to post photos and short notes to my closest family members, so that I can share my impressions with them while I am traveling for business.