Citi Perspectives 2024 E-commerce Edition

| 25 Navigating the Evolving Telco Industry: Why treasury is key to unlocking new opportunities for telcos Supporting the sustainability agenda Telcos are steadily integrating environmental, social and governance (ESG) considerations into their business strategies. Treasury can play an important role in embedding ESG objectives into broader treasury goals. For instance, one of the world’s largest telcos has recently collaborated with Citi to incorporate environmental criteria into its supply chain finance program. Eligible suppliers can access preferential financing rates based on multiple factors, including an independent supplier categorization and roadmap framework, which was jointly developed by the telco and CDP, a not-for-profit organization that runs a global environmental disclosure system. It is hoped that the programwill encourage suppliers to reduce their carbon footprint and ultimately contribute toward the telco meeting its Scope 3 emissions targets (which include indirect greenhouse gas emissions that occur in the value chain of an organization). There are also opportunities for telcos to take advantage of sustainable finance, with instruments such as green and social bonds and sustainability-linked loans becoming an increasingly mainstream financing tool in many markets. What’s the solution? The pressure on treasury at telco companies to free up cash to meet the operational demands of tomorrow is certain to intensify. The substantial capital investments necessitated by the 5G (and 5G SA) rollout and other infrastructure projects will continue to exert pressure on cash flows. While 6G remains at a nascent stage of development, it will also require massive investment over the medium term. At the same time, consumers demand consistent high- speed connectivity, unlimited data allowances, and increased flexibility. Virtual service providers are exploiting these demands, without the costs associated with infrastructure investments. As a result, telecom providers face increasing competition and pressure to reassess their pricing models, offer more personalized plans and embrace agile IT systems. To meet these operational challenges, treasury needs to redouble its efforts to improve efficiency to support the business. Streamlined and centralized payments can reduce administrative overheads and free up time for higher-value activities, enabling business scaling, for instance. According to Citi’s Treasury Diagnostics, telcos do outperform other sectors when it comes to centralization of payments processing, with 78% using regional or global payment centers compared to 70% for all survey participants — however there is more treasury can do. Similarly, while cash flow forecasting has improved at many firms, according to Citi’s Treasury Diagnostics 79% of telcos surveyed still rely on manual inputs for forecasting, which is time consuming and can introduce errors. Other industries are lagging with 87% of their inputs being manual. Telcos also need to embrace single-instance global ERP systems and cloud-based treasury solutions more extensively. While the trend is toward more active working capital management — accelerating receivables, renegotiating payment terms, utilizing B2B card payments and automating transactions —more can be done. According to Citi’s Treasury Diagnostics, treasury has full responsible for working capital at just 31% of the telcos surveyed; while it is involved at 50% in an ad hoc capacity. These figures are significantly higher than in other sectors (reflecting the heavy capex within the communications ecosystem), but greater treasury involvement would deliver further benefits, especially in the current high interest environment.