TELECOM

The telecommunications services industry is a USD2,000bn business made of strongly regulated national markets dominated by a handful of companies, with only a few truly international players. The industry proved broadly resilient in 2020, with a low single-digit decline or growth in sales for a majority of companies, and global sales growth estimated at +1%.

In advanced economies, the telecommunications market is largely saturated, with fixed-broad penetration standing at about 30-40 subscriptions per 100 inhabitants, and mobile penetration generally far above 100 subscriptions per 100 inhabitants. The roll-out of fiber networks is the main driver of growth for fixed telecommunications, while large-scale commercial 5G services is also already starting to rekindle growth in mobile telecommunications in many large Asia-Pacific countries. Market maturity has generally made competition a negative-sum game, with telecommunications companies cutting rates to lure customers from competitors. 2020 saw local telecommunications companies suffer from a slump in mobile phone sales resulting from the mandatory closures of their stores. Companies present both in telecommunications and the media, especially in North America, have also suffered from the closure of theaters and cuts in advertising spending. The progressive easing of the sanitary situation bodes well for 2021, which will see the vast majority of companies returning to growth.

In emerging economies, mobile telecommunications dominate the market and penetration is already high across most regions (80 subscription per 100 inhabitants in Sub-Saharan Africa, 87 in South Asia, 100 in Latin America). The roll-out of mobile broadband as well as additional services (banking, etc.) are the main growth drivers. 2020 saw lower growth due to the global economic slowdown and the greater reliance of local companies on prepaid plans, which customers are generally more prone to cut; 2021 will see growth accelerating on the back of an improving macroeconomic environment.

While the industry as a whole has historically been resilient through times of economic hardship, the past few months have been a reminder that the industry is not entirely risk-free. Satellite telecommunications or emerging economy companies with debt labelled in dollars, in particular, deserve close scrutiny.