Telecom struggles as big tech dominates digital economy growth
Valuation gap widens despite telecom's infrastructure investment.
Despite the capital expenditures increasing as telecom operators keep pace with the latest technologies, revenues are still in a downward trend over the past decade, overshadowed by the rise of big tech companies.
Ridhwan Azizan, Partner Expert at the Kuala Lumpur Office of Roland Berger Southeast Asia, said that telecom investment has not translated into proportional returns, especially when compared to the exponential growth witnessed by big tech companies such as Google, Amazon, Facebook, Apple, and Microsoft.
“The share that has been taken by the telecom operators has actually been outpaced by the big tech companies, the big tech companies have outpaced them in terms of revenue growth and in terms of market capitalization growth, by orders of magnitude,” he said.
Azizan pointed out that in 2010, the market capitalization difference between the top 10 telecom companies and these big tech giants was substantial, with telecom holding a majority share.
Fast forward to 2021, the scales have dramatically tipped, with big tech companies now commanding 90% of the total market capitalization.
“It really puts pressure on the monetization of the assets, and the investments that telcos are putting in, they are funding the backbone of the digital economy, and they are not getting the commensurate return on that,” he explained.
Azizan added that the struggle for fair valuation is evident as telecom companies push for policies like net neutrality and explore diversification into digital ecosystems to claim their share of value.
The challenge is compounded by the forecasted data explosion, expected to quadruple by 2027, driven by increased connectivity and immersive use cases. However, the yield from this data growth is not anticipated to rise, which means that operators must rethink their investment and network deployment strategies.
Azizan advocates for a total revamp in approach, emphasising the need for digitalization, virtualization, and more efficient network management to sustain growth without corresponding yield increases.
“So what this means is that the business-as-usual approach that telcos have taken to investments and to the network deployment needs to be totally revamped. They need to reconfigure the asset base, they need to know where exactly they should invest,” he said.
Looking ahead, Azizan predicts continued disruption in the telecom sector, with new players entering the fray and further commoditizing connectivity. Telecom operators must navigate this landscape by reevaluating their role in the digital ecosystem, possibly as pure-play connectivity providers, digital service innovators, or platform creators.
“It's good that there will be a push towards convergence, that word or connectivity will be anywhere anytime, and they will be integrated between mobile fixed satellites and whatnot. And knowing how to play in that space is going to be key,” he said.
