What the UK Economic Rollercoaster Might Mean for Enterprise Telecoms

R. Pritchard

Summary Bullets:

• Reaction times to extraordinary events have improved, but the economic crisis is different as interest rates are rising with the potential of exposing under-performers.

• ‘Zombie’ service providers and ‘zombie’ customers will be exposed, leading to supply-side consolidation and increased competition for a smaller base of corporate and SME business.

Since the ‘mini budget’ of September 23, 2022, things have become extra-extraordinary in the UK with billions of pounds being thrown around to counteract the resultant economic impacts and to protect citizens from the knock-on effects of Russia’s war in Ukraine. While the general public worries about paying mortgages, the rising daily cost of living, and global instability, telecoms service providers must plan for a range of potential future scenarios and outcomes and develop ‘what if?’ thinking in response to evolving market circumstances.

Apart from impacts such as the cost of acquiring telecoms equipment and services from overseas, there are other ‘big picture’ issues: a downturn in business and consumer confidence, which was just beginning to recover from the initial onslaught pandemic; the ongoing ‘green’ agenda; the battle for talent; the disruption to supply chains that is leading to on-shoring and friendly-shoring when sourcing goods and services; and the unpredictability of Russia’s war in Ukraine.

Within the UK enterprise telecoms market, there are several things to bear in mind while contemplating the future: Plans by the government to enable ‘importing’ of foreign broadband engineers is looking like a challenge as their pay will now be worth considerably less than before this currency crisis, exacerbating the impact of ongoing strike action amongst Openreach engineers. This will slow down overall fiber rollout.

With interest rates heading upward and more revisions possibly in the pipeline, any ‘zombie’ (i.e., barely surviving and indebted) service provider with tight margins or high debt levels will get exposed as the easy-money tide goes out. This will lead to consolidation among smaller operators and resellers, and players with high debt and little revenue/profit are likely to fail and have their physical and customer assets snapped up.

Consolidation may not be limited to smaller players. A recent Bloomberg survey of fund managers and analysts had BT at the top of likely UK telecoms/tech takeover targets, as well as also identifying Vodafone on its list. This may be more a reflection of city exuberance than reality – but given recent events, who knows? Would a free market government with an industrial policy (surely an oxymoron) let BT be acquired?

On the positive side, the public has been through other ‘black swan’ events, including the dot-com boom and bust, the 2008 financial crisis, and the current global pandemic. Service providers on sound footing that have a robust business case, solid finances, reliable revenue streams, and who offer communications and related tech solutions that can help their enterprise customers work more efficiently and effectively in their own markets, will stand to gain in the longer run.

Focus is key. Being all things to all people may appear to mitigate risk. But trying to sell a plethora of products to a wide range of customers is likely to result in a lack of competitiveness. Darwinism will decide who is fit for survival in this rollercoaster market.

What do you think?

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