Citi Perspectives 2024 E-commerce Edition

1 https://www.precedenceresearch.com/telecom-services-market 2 https://www.ericsson.com/en/reports-and-papers/mobility-report/dataforecasts/mobile-traffic-forecast 22 | Services Citi Perspectives Navigating the Evolving Telco Industry: Why treasury is key to unlocking new opportunities for telcos To meet the operational demands driving digital transformation in the telco industry, treasury must focus on improving visibility, enhancing cash flows, and forging deeper links with the business. Telecommunications is at the heart of today’s world. Technologies such as 5G and fiber broadband have transformed how we communicate, shop, entertain ourselves, work and do business. The telecom sector underpins e-commerce and is a key part of the global economy: the industry was valued at around $1.81 trillion in 2021 and is projected to surpass $2.65 trillion by 2030. 1 The value that the telecommunications companies, or telcos, deliver to the global economy comes at a cost, requiring huge infrastructure investment. Capital expenditure (capex) for many telcos around the world remains historically high and is forecast to be $331 billion in 2024, mainly due to rollout costs associated with 5G and fiber infrastructure. Moreover, while there are potentially significant B2B and enterprise applications for 5G, many telcos globally are struggling to monetize their investments, while companies that leverage telco infrastructure and drive increased data traffic, such as over-the-top (OTT) players (including social media and streamers), continue to grow (indeed, monthly data traffic is forecast to grow from around 118 exabytes (EB) per month in 2022 to 472 EB per month by the end of 2028 2 — a 400% increase). Despite these headwinds, the near term outlook is broadly positive. Capex is likely to decline as spectrum costs fall. In some markets, there may be opportunities to lower costs through consolidation as regulators soften their stance on mergers; increased sharing of infrastructure with competitors (including through tower companies) should also deliver efficiencies. Meanwhile, many telcos, especially in Europe, have been able to pass on higher costs to consumers, which will drive earnings before interest, taxes, and amortization (EBIDTA) growth. In the longer term, any respite for telcos is likely to be brief. The nature of technological development means that capex investment will inevitably ramp up again. Given the backdrop of historically high interest rates and borrowing costs, it has therefore never been more important for telcos to find efficiencies.