Telecoms is recognised as a tough sector to be in, with high capex requirements, minimal returns and limited attraction for investors
The possibility of big tech entering the connectivity space and the role of regulators in ensuring a level playing field
On 2 October 2024, the UK Telecoms Innovation Network (UKTIN) held an event focused on telecoms commercialisation and network economics. While introductory remarks acknowledged the fundamental nature of connectivity for growth and for society generally, Ian Corden (CEO, Peira Consulting) recognised that telecoms is a tough industry to be in. He said it is capital-intensive and beset by consumer-centric regulation, while value has been stripped away by content and application providers. This sentiment carried through the conference, with Emily Clark (CFO, Networks, BT) highlighting the obligations and uncertainties faced by operators, who must continue to invest to meet demand for new services and rising data consumption. Clark stated that in an already challenging telecoms market (where returns can be at or below the cost of capital), the pace of change has quickened, intensifying competition across the value chain and driving asset sales and consolidation. She suggested that big tech is looking to expand into connectivity to shore up users within their ecosystems, pointing to reports that Amazon will offer a free or low-cost mobile service as an example of what could soon transpire. Clark’s message to regulators and governments was to be mindful of how their decisions impact the commercial world – and to act if things are currently tilted too much in favour of tech firms.
While capital markets have tightened up, there are funding opportunities available if firms present a viable business case
Amid a challenging commercial environment, speakers on the opening panel also pointed to a more difficult financial climate, with investors hardly clamouring to supply the telecoms sector with capital given its suppressed growth prospects. According to Simon Rowell (Senior Advisor, Innovate UK – UKRI), investment in AI is currently 10 times that of investment in telecoms. Sean Royce (CEO, Quickline) stated that two years ago £8bn was raised by altnets in the UK compared to just £900m so far this year – with £250m, nearly 30%, raised by Quickline alone. However, there was a sense that funding opportunities are out there, with Royce highlighting altnets such as Fibrus, Gigaclear and Wildanet that he considered have demonstrated both “a need and a want” for their services, and in turn secured the backing of investors. Prompted by a question from the audience, discussions strayed on to the topic of the proposed Three/Vodafone merger, which Rowell considered “finely balanced”. Both he and Charles Murray (Partner, Analysys Mason) claimed that the parties are nervous about the forthcoming final decision from the Competition and Markets Authority (CMA), with Murray adding that they have made some missteps in their engagement with the CMA during the review process. Murray also stated that Three and Vodafone have no Plan B, and whether the merger ultimately happens will depend on how “ugly” the remedies are that they would be required to accept.
Identifying opportunities and value will mean startups discovering customers’ problems and asking how they can help
A subsequent panel picked up the conversation on investment – as well as innovation. Simon Gibson (CEO, Wesley Clover Corporation) argued that startups should not push ideas at closed doors, but instead ask potential customers “what is killing them” and what do they need – something he considered happens far too infrequently. Similarly, Michelle Taycher Nistry (Senior Investment Manager, Qualcomm Ventures) stated that her company is more interested in the problems startups are solving – which people may be willing to pay for – than the solutions they’re developing. On Qualcomm Ventures’s approach to investment, Taycher Nistry stated that while the infrastructure layer is necessary, the value is not there but in the connected environment. In Gibson’s view, this illustrates how “people have made fortunes over the top of the telecoms networks” by taking advantage of an uneven regulatory playing field. Reflecting Clark’s message to policymakers regarding big tech, Gibson stated that “OTTs can be rampant in what they do, but if a telco coughs, the regulator is breathing down their neck”.
Ofcom indicates continued regulatory support for spectrum sharing and for the use of alternative technologies to bridge digital divides
This teed up nicely the final session of the day, which placed a spotlight firmly on policy and regulation – albeit using a largely mobile-tinted lens. Earlier, Corden had stated that a lot of good policy work had been done and Jaynesh Patel (Interim Head of Telecoms and Spectrum Policy, techUK) broadly agreed, highlighting the spectrum bands made available by Ofcom and the general success of the Shared Rural Network (SRN) to widen 4G coverage. However, he urged greater regulatory support, in particular stating that it would be lovely to see annual licence fees (ALFs) returned to boost network investment. Patel was also sceptical of spectrum sharing, although Cristina Data (Director, Spectrum Policy & Analysis, Ofcom) indicated this is something industry should expect to see increase in the future as new frequencies become available. Data said that while spectrum sharing in the UK got off to a difficult start (partly because Ofcom didn’t expect so much demand for it), she was proud the regulator was a pioneer here. According to William Webb (Independent Advisor), a declining mobile data growth rate meant operators should not be awarded more spectrum, but it was now a policy question regarding how to in-fill in a way to deliver both coverage and capacity where it is needed. In his view, the SRN provides an example of what the Government can do – which could be replicated for capacity. For Howard Benn (Standards Working Group Co-Chair, UKTIN), answering the question posed by Webb requires improved collaboration between the mobile and Wi-Fi communities. He also suggested more joined-up thinking across the industry, stating there were cases where “expensive” fibre has been deployed when fixed wireless access (FWA) would have worked better. Data also expressed support for FWA, stating that multiple technologies – including satellite – will play a role in ensuring high-quality connectivity is available nationwide, with Ofcom always looking to support the best solution available for any given location.
