Telecoms World Asia 2023: Reinventing the future Asia-Pacific telco

Four years after the launch of the first commercial 5G networks, telco leaders and stakeholders gathered at Telecoms World Asia 2023 on Nov. 15-16 in Bangkok, Thailand to assess where we are now in terms of developing and monetizing the new technology.

Far from the optimistic mood in previous years, this year's summit had a more tempered tone, given the difficult economic situation the telecom industry is facing. Telco leaders were finally willing to admit that 5G expectations were overhyped. While 5G use cases remain viable, their realization and monetization will still take years, so telcos need to reinvent themselves to become future telcos: delayered, specialized through partnerships with non-telco businesses, and sustainable through business-to-business and enterprise revenue streams.

Since we started covering this event in 2019, telco representatives have provided nothing but adulation for 5G, with some even considering it a panacea for the industry's financial problems. This year's summit was markedly different as speakers and panelists had to consider the reality that expectations for 5G in most markets worldwide have fallen short.

Far from being the game-changing technology everyone believed it to be, for many consumers 5G is still just faster 4G. 5G demand among consumers remains tepid, which consequently also curtails further investment from telcos that are still hoping to reap returns from their initial, hefty outlays.

5G expectations were overhyped

This year's summit was a moment of introspection for the industry. "5G expectations have been enormously overhyped," said Axiata Group Strategy Chief and Technology Officer Thomas Hundt.

Hundt referenced a white paper published by SK Telecom Co. Ltd. in August to explain reasons for 5G's failure to live up to its promises. Titled "5G Lessons Learned, 6G Key Requirements, 6G Network Evolution, and 6G Spectrum," the white paper maintains that 5G use cases such as autonomous vehicles, extended reality (XR) and remote surgery are still possible, but their realization will come in the long term — something the industry has failed to properly communicate to consumers as they overhyped the new technology. The technology itself or the performance of networks are not the issues, according to the paper. Rather, a confluence of several factors such as constraints on device hardware, immature ecosystem, and policy and regulation issues have led to the lack of 5G's success.

Again, this is not to say that 5G is a failure. Speakers and panelists were still hopeful for the realization of groundbreaking 5G use cases, but this will come over time. Orange Vice President for Global Business Support and Partnerships Cedric Gonin said it takes a long time to reap the benefits of a new technology. Voice over LTE (VoLTE), for instance, took almost five years after the commercialization of 4G — even 10 years in some international markets — to become profitable, according to Gonin, so we should expect a similar timeline for 5G. Hundt concurred, saying 5G monetization still has a long way to go.

In the meantime, speakers and panelists agreed that telcos have to change the way they think about 5G. Instead of seeing it as an easy money grab to earn returns after years of investments, telcos have to adopt a longer perspective and acknowledge that while profitability may take years to materialize, investments should not stop.

Weathering tough macroeconomic conditions

The unfavorable macroeconomic environment is complicating the situation for telcos worldwide. While it is true that only by continuing to pour investment into research can 5G really reach its potential, doing so entails setting aside money that will not immediately earn returns. But now is a tough time to raise money. About half of telcos in Asia-Pacific generated negative EBITDA in 2022, according to Dian Siswarini, president, director and CEO at XL Axiata.

IFC Principal Investment Officer Waleed Saraf noted that many telcos have been caught off guard by rising interest rates. For decades, telcos have become used to low interest rates so that many have developed the habit of using short-term debt financing for projects. This strategy, according to Saraf, is no longer feasible as doing so increases companies' refinancing risk or the risk of incurring higher interest rates when new loans are written to replace those that are maturing.

The volatile interest rate environment has also affected the exchange rates of Asia-Pacific currencies versus the US dollar. Siswarini shared that telcos in the region have become susceptible to local currency depreciation as some of their debts are denominated in US dollars.

To hedge against refinancing risk and foreign exchange risk, Saraf recommended that telcos restructure their existing short-term obligations to debts with longer maturities and fixed instead of floating interest rates. As much as possible, telcos should raise debt in local currency, or if not possible, telcos should make sure their foreign currency exposure is fully hedged, said Saraf.

But other telcos have gone alternative routes to raise capital given its hefty costs. Many telcos in the Asia-Pacific have engaged in what Saraf called "delayering," or spinning-off or divesting non-core businesses to raise cash and service existing debt. We saw this in our coverage of telco mergers and acquisitions last year as telcos in the region sold significant portions of their tower assets and other network infrastructure to tower companies to raise cash.

The Philippines, in particular, was a hotspot for this activity in 2022 as local telcos found an easy way to dispose of their capital-intensive assets to fledgling tower companies seeking to put their stamp on the market. Indonesian telcos have also been engaging in this activity as the market has several tower companies willing to absorb tower assets. Tower deal announcements this year from Globe Telecom Inc. and PLDT Inc. in the Philippines and PT Indosat Ooredoo Hutchison Tbk in Indonesia suggest that this cash-raising strategy remains a popular route for telcos in the region.

From integrated telcos to delayered, specialized telcos

While this development is primarily motivated for financial reasons, the delayering of telcos also signals a shift in industry strategy from integrated telcos to niche-specific telcos. This idea is, in fact, not new. As early as 2019, industry leaders were talking about telcos taking up more specialized roles, either through focusing on niche services or distilling operations to just focus on plain connectivity. This idea was initially relegated to mobile virtual network operators (MVNOs), as their small size made the strategy of specializing in niche services reasonable.

For years, this was merely an idea floated at industry conferences until the COVID-19 pandemic prompted a financial reason for telcos to engage in delayering. The value of mergers and acquisitions in the Asia-Pacific telco industry peaked in 2020 while the number of transactions continued to increase in 2021. As it turned out, it was mobile network operators (MNOs) instead of MVNOs who started to realize the idea of specialized telcos.

Telenor Asia Senior VP for Business Competency Eugene Teh discussed that the strategy of focusing on key services has become more important in the 5G era. While competition during the times of 1G to 3G only entailed delivering products and services straight to the consumer, spectrum constraints and the explosion of consumer demand when 4G came shifted the focus to providing an excellent customer experience in the most efficient way possible. This trend will continue in the 5G era as spectrum becomes more scarce and new use cases demand more network requirements, so Teh suggested that telcos should pick a niche, be really good at it, and deliver it to customers with utmost efficiency.

Partnerships and pivot to enterprise 5G

When pursuing this strategy, Teh cautioned that telcos should abandon the mindset of doing everything on their own. In fact, the idea of partnership was a common theme throughout the conference. According to Teh and other speakers at the gathering, telcos should move away from the present model of managing vendors and instead engage with industry verticals as equal partners.

Siswani provided an example of this partnership in Indonesia. In September this year, telco PT XL Axiata Tbk partnered with PT Bank CIMB Niaga Tbk to deliver telecommunications and banking services to consumers. Instead of treating CIMB Niaga as a vendor who could provide add-on services to XL Axiata's core connectivity service, Siswani said that XL Axiata acknowledged CIMB Niaga's expertise in the banking sector and entrusted it with the development of the banking side of the service. Acknowledging that companies have expertise in their respective fields is an important step in forging telco partnerships, said Teh.

Acquiring a foothold in other industries is an essential element to success for telcos because 5G heralds the age of the industrial internet. Gonin even argued that the sustainability of 5G will come from the enterprise or business-to-business (B2B) segment and not from business-to-consumer (B2C). While consumer use cases are still far from reality, enterprise use cases such as 5G-assisted manufacturing are already a reality and ready for monetization.

Indeed, the pivot from consumer to enterprise 5G has been a popular theme this year. In our coverage of MVNOs World Congress 2023 in Amsterdam, the Netherlands earlier in June, MVNO leaders were also enthusiastic about exploring enterprise 5G monetization opportunities specifically through Internet of Things (IoT) and embedded SIM (eSIM) applications.

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