TELECOM INDUSTRY PESTEL/PESTLE ANALYSIS

A PESTEL/PESTLE ANALYSIS OF THE TELECOM INDUSTRY

2016 was great in many terms for the telecom sector and except for a few pessimistic reports, 2017 is expected to remain an year of great opportunities. Adding to the excitement are 5G and autonomous vehicles. Overall, signs are that the industry is going to find better and bigger opportunities in the coming years. The period from 2017 to 2020 will remain important for several reasons. The use of mobile devices has risen rapidly and in US, the consumers are gazing at theirs at least 9 billion times a day as per the Global Mobile consumer survey. Smartphone usage across the middle aged people too has increased.

Smart watches and fitness bands have also seen their sales catching up. All these things prove that connectivity will remain central to many things in the coming years, not to forget IoT.  Growing smartphone usage brings profitable opportunities for all the subsectors in telecom. Verizon is already conducting field trials to grab the first mover advantage in 5G. As per a report from Insight Research Corp global telecom industry’s revenue is set to rise to $2.4 trillion by 2019. This PESTEL analysis provides a short glimpse of how various forces in the global environment might affect the telecom industry in these years.

Political:

The political environment is full of risks for the telecom sector.  The traditional political risks for telecom are the ones related to regulations, network licensing, national radio spectrums and in case of certain nations trade barriers. Generally, these issues have affected the network operators and the effect has been felt less by equipment and service providers. However, one factor that worked in the favor of the telecom industry was privatization and deregulation. For some time, the telecom industry enjoyed relative freedom based upon its importance in the process of globalization. However, a number of threats have emerged in last some years that could mean that political risks are on the rise again. Increased focus is on the growing markets like China and India. However, the level of government control in these markets is high.

Political risks rooted in national security and human rights issues are another major source of political pressure for the telecom sector. Governments across the world have launched measures to monitor and control communications motivated by political and security reasons. These measures have grown tougher in the aftermath of the terrorist attacks on US and hacking attempts on the US government’s databases. All these factors show that political risks are going to sustain. Moreover, a large number of countries have maintained trade barriers against the US telecom companies. As per a USCIB 2016 report, there is an extensive list of countries that maintain trade barrier against the US telecom companies. The list is here:

“Argentina, Australia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Dominican Republic, Ecuador, Egypt, El Salvador, European Union, Fiji, Germany, Ghana, Gulf Cooperation Council, India, Indonesia, Korea, Latin America Malaysia, Mexico, Middle East and North Africa, New Zealand, Nigeria, Pakistan, Peru, Philippines, Russia, South Africa, Thailand, Tonga, Turkey, Uganda, Uruguay and Vietnam” .

 Economic:

The role of economic factors is just as important in the context of the telecom industry. The recession had hurt this sector deeply. People were cutting back on their telecom spending during the recession. Cutbacks on landlines had grown during the recession while the growth of cellular services had slowed. Now since the economic recession has passed, consumer spending on telecom is back on track. By 2009, people had stopped cutting on their telecom expenses. 2016 has been good and with economic revival, things are changing around the world. Globally, it all depends on the pocket of the consumer. The happier is the economy, the higher will be consumer spending on any product or service.  These economic trends are also supported by technological changes. Fewer trade barriers could mean better growth rate for the US based network providers.

Social:

Social factors also have a deep influence on the industry and its profitability. Connectivity is central to so many things including work and entertainment. Globally, the use of internet based services has grown. A higher number of people are using the social media for fun and business. From YouTube videos to Netflix, video streaming services all require a very good connectivity. This is a reason that the use of 4G has grown globally. Moreover, more and more people like to remain connected on the go. This is a part of their lifestyle. For some it is because they are too busy with work and in case of others they cannot remain disconnected with family and friends.

Moreover, as per a report, the US people are gazing at least 9 billion times on their smartphones and mobile devices. The use of mobile computing has grown quite fast and so many features in these smartphones and tablets cannot be used without a very good connection. A larger number of people around the world are growing health conscious and are using wrist bands to track their physical activity. In this way, for the modern generation connectivity defines its world. Overall, these trends have proved highly favorable for the telecom industry.

Technological:

The entire telecom industry is based on technology and therefore technological changes influence it deeply. The use of mobile computing is on the rise. Around the world IT is changing things like never before. It is central to several things including business and productivity. Computers and cloud computing have become the core of productivity. It is the telecom sector that stands to gain the most from these technological trends. Smartphone and tablet sales have kept growing and none of the two can be used fully without a fast connection. 5G is about to arrive and it has already given rise to a lot of excitement.

Autonomous driving too could become a reality in some years. This is just a part of the picture because there are several other small and big technologies that will utilize a connection like biometrics whose use on smartphones is expected to grow. IoT is another area that is giving rise to major opportunities for the telecom providers. From connected cars to smart homes and businesses, wearables, smart cities, several things will have connectivity at their core. 5G is expected to take things ahead by reducing costs for the providers and speeding up our connections many times. Thus, technological forces are one of the most important ones affecting the telecom industry.

Environmental:

Smartphones are a large part of the e-waste generated every year. In the light of the level of e-waste generated by both service and equipment providers, the industry is focussing on waste management and minimizing its environmental footprint. More and more providers are investing in reducing their carbon intensity. Verizon is in the process of implementing its additional 24 MW of Green energy by 2025. Since they make a direct contribution to the production of e-waste, providers like Verizon are also devoted to device recycling. Through its program, it rewards the consumers who recycle their devices rather than throwing them into waste. Sprint’s recycled or reused smartphones equalled 44% of its sales in 2012.  AT&T has also invested in recycling though it is behind Sprint.

Legal:

Globally legal compliance gives rise to big risks for the telecom providers. Apart from the common labor and employment laws, there are several other laws and licenses that are essential to be complied with. In US, the broadcasting regulations are overseen by the FCC which was established by the Congress in 1934. There are several laws including those related to telemarketing and privacy that the providers must comply with. Several changes took place in the aftermath of the 9/11 attacks that gave rise to additional pressures for the telecom providers.

Sources:

http://www.verizon.com/about/responsibility/sustainability

https://www.theguardian.com/sustainable-business/sprint-wins-waste-phone-companies

http://biztechreports.com/blog/2015/06/02/worldwide-telecommunications-industry-revenue-to-reach-2-4-trillion-in-2020-says-insight-research-corp/

https://www2.deloitte.com/us/en/pages/technology-media-and-telecommunications/articles/telecommunications-industry-outlook.html

http://lkyspp.nus.edu.sg/event/political-risk-in-the-telecommunications-industry-is-political-risk-back/

http://www.uscib.org/uscib-identifies-foreign-telecom-and-other-trade-barriers/

https://www.forbes.com/sites/billconerly/2012/11/19/telecom-economic-forecast-2013-2014/#322da9ac5363

Abhijeet Pratap

I am Abhijeet Pratap, editor of notesmatic. I am an MBA with marketing (major). Apart from writing on various topics in business management, marketing and English literature, I like to read and write about technology.