Telcos, Transformation, and De-Layering | Altman Solon

Altman Solon is the largest global TMT strategy consulting firm with expertise in telecommunications consulting. Following a presentation at our annual London Breakfast, Director Kabilan Sukumar provides his recommendations for value creation within the telecommunications sector.

Over the past ten years, certain legacy telcos have struggled to create shareholder value. These telcos have consistently had their return on invested capital (ROIC) below the weighted average cost of capital (WACC). This is mostly due to stagnating revenues linked to slowing customer growth and heavy CapEx investments, like 5G, which are in response to an increase in data consumption. While the situation may look bleak for telecommunications companies, major industry transformation is possible.

Altman Solon has helped legacy telecommunications providers navigate business transformation. One way for telcos to increase efficiency and spur growth is through "de-layering" their businesses. We've identified three strategic businesses that could be carved out of a telco. Each one of these businesses has its own risk-reward profile:

• InfraCos, including network assets and operations: These assets can be made more efficient through decommissioning legacy technology (like copper, 2G, and 3G) and leveraging AI and other next-generation technologies. InfraCos carry the lowest risk profile of the three businesses, with steady cashflows with a wholesale model.
• RetailCos, or B2B and B2C retail businesses: On the B2C side, the focus should be on creating a best-in-class customer experience using AI and analytics. On the B2B side, telcos should look to develop strategic business partnerships. RetailCos have a higher risk profile (compared to InfraCos).
• Digital PlatformCos: Telcos should use their strategic assets (e.g. customer base and channel relationships) to foster win-win partnerships with key digital companies who can benefit from these assets. Because PlatformCos focus on strategic bets for the future, they also have a highest risk profile among the three businesses.

In addition to carving out distinct businesses, telcos need to put in place key enablers such as data scientists, AI experts, and revamped IT systems to support these businesses.

Complete the form below for in-depth insights on telco trends and investment opportunities. 

This topic was originally presented at our TMT Private Equity Breakfast in London, an annual event where our experts present trends and investment opportunities shaping the TMT industry.