The telecom industry remains one of the bottom performers across all 33 industries tracked in BCG’s latest value creators study, coming in 24th for the 2014–2018 period. Average annual TSR dropped by one-third, from 9.9% during the 2013–2017 period to 6.6%. The industry is struggling with familiar challenges ranging from regulation and rising capital spending to declining margins and ARPU. In North America and Europe, for example, ARPU has experienced five-year average annual declines of −5% and −3%, respectively.
Despite the industry’s relatively weak performance, 15 of the 63 operators in the sample managed to generate double-digit annual returns. Besides cutting costs to improve margins, all of these operators demonstrated aggression, breadth of scope, investment in digital capabilities, and quality of execution. (See Exhibit 1.)
Creating value in telecom is essential because the industry enables and supports an ever-expanding range of economic activities. Our research with the World Economic Forum in Europe shows that investments in telecom infrastructure generally pay for themselves, as measured by GDP growth, in 7 to 18 months. But the payback for operators themselves can take as long as ten years.
National policymakers need to address this disconnect so that nations can take advantage of broadband—what Brad Smith, Microsoft’s president, has called “the electricity of the 21st century.” Without a strong telecom infrastructure, many of the capabilities that drive value creation in media, tech, and the broader economy, such as the cloud, will be hampered.
In the meantime, operators cannot sit on the sidelines waiting for regulators to act on their behalf or for industry economics to magically improve. They must grab a piece of the future by reshaping their organizations and making a few fundamental changes.
The telecom industry is too critical to national prosperity to be a bottom performer. As recently as three years ago, it was in the middle of the pack. As a highly regulated industry with universal service obligations, telecom may never be a highflier. But the decisions of management over the next five years will likely shape the future of these companies—and of their home countries as well.