ABGSC on the Telecom Operators sector: “Incumbent operators will be the main beneficiaries of new technology shifts”

Peter Kurt Nielsen is an Equity Research Analyst at ABGSC, covering companies in the Telecom Operators and Telecom Equipment sectors.
In an interview, he describes the current outlook for the Telecom Operators sector.
 
What trends are driving the Telecom Operators sector right now?
“The telecom operators sector is benefitting from strong customer demand for high-speed broadband services on both fixed and mobile. The pandemic has accentuated the need for high-speed broadband access at home, while customer demand for advanced mobile services is increasing with the launch of 5G”, Nielsen explains.
“Delivering advanced and secure network services to customers requires high investment in networks but has also enabled operators to charge more for their services. These fundamental trends have enabled the telecom operators sector to return to growth after years of stagnation”.
 
Tell us about the current challenges facing the sector?
“The telecom operators sector has for many years struggled to show revenue growth with competitive-driven price reductions outweighing explosive growth in underlying volume. Although the sector is regaining pricing power, with tariff increases becoming a common feature in the sector, accelerating cost inflation, including higher energy costs, will challenge the sector’s profit margins going forward”.
 
What macro events are you keeping an eye on at the moment?
“While the telecom operators sector is more resilient to economic cycles than most industries, it is not immune to economic downturns and fluctuations in customers’ purchasing power. Weaker GDP trends and changes in inflationary pressures are important to keep track of, along with component supply constraints that might delay the expansion and build-out of new 5G and fibre networks”.
 
Which are the most interesting companies to follow in the coming months?
“We believe the incumbent operators will be the main beneficiaries of new technology shifts from old copper-based to fibre-based networks and 5G. They should also benefit from the investor shift towards the more value-oriented parts of the market. While the sector in general should do well in the current environment, we consider Telia Company and Telenor the most interesting companies at this point”.
 
What are your thoughts on the current ESG landscape for the sector?
“The telecom operators sector has been at the forefront of industry when it comes to setting and delivering on ambitious energy and climate-related targets. Next generation fibre and 5G networks will enable further reductions in power consumption and emissions, which should also appeal to investors”.
 
ABGSC clients can access Peter Kurt Nielsen’s research, along with all of our latest research here.