Is breaking up all that’s left for telecoms to do?
How 20 years covering a declining and hapless sector left me feeling beleaguered
Two decades ago BT executives laid out a recovery plan involving a once-in-a-generation move to split up the hapless former monopoly and restore its position as a national champion.
They were greeted with a wall of scepticism. A meeting to explain the plan closed not on a high note but with a plaintive and fruitless request to stop using the phrase “beleaguered” when describing the company.
Those discussions, which took place in the wake of the company’s postmillennial near-death experience, were my introduction to a sector that had seemingly lost its way. It has struggled ever since to get investors, customers and staff — the stakeholders then chair Sir Christopher Bland had promised to appease — to see the light at the end of the duct.
The shadow of beleaguered BT has now returned after a harrowing share price collapse, strategy reversal and management shake-up. The new top team has delivered impressive cost cuts along with the promise of cultural change and digital jam tomorrow, as was the case in 2001. Yet its share price remains in the doldrums and the vultures are circling.
With Telecom Italia once again in crisis, Orange on the hunt for a new chief executive after a long-festering scandal and issues including roaming and net neutrality back on the agenda, forgive me for feeling like I’ve seen this movie before.
There is added tension this time as the barbarians have appeared at the gateway. BT has its hands full with billionaire Patrick Drahi. Telecom Italia has opened its books to KKR. KPN in the Netherlands has repelled private equity bidders. Telefónica is weighing up a sale of a stake in its fibre network. Even Vodafone, the once all-powerful telecoms empire built by Sir Chris Gent, has started to be name-dropped in deal-circle chatter.
This industry should be in rude health. Consumers and businesses have never been more reliant on what it sells, with the working-from-home and streaming eras highlighting how essential and valuable its services are.
Yet the industry entered 2021 with shares trading at the lowest levels in a decade as investors have been put off by high capital expenditure, poor returns, huge debts and unconvincing growth promises.
In response, telecoms leaders have renewed calls for consolidation and deregulation in a European market that has suffered a downward spiral in growth in the past decade.
It has also led to another bout of introspection from telecoms companies as potential buyers detail how attractive they would look if they were carved apart.
Denmark’s TDC is the litmus test as it enters its final phase of divorcing its network and consumer operations. Macquarie and local pension funds have spent three years quietly bifurcating the company. TDC and Nuuday, the consumer business, now operate free from the constraints of being part of a rigid, heavily regulated incumbent and have started to thrive. Similar separations seem inevitable elsewhere for those with the money and patience to make it happen.
Telecoms companies have broken themselves up in other ways. International empires have been dismantled while mobile towers have been carved out and sold.
A step further to deliver full TDC-like “structural separation” nonetheless raises an existential question for the industry. A company shorn of its fibre, masts and data centres may find itself reduced to the status of a call centre operator and a billing function selling other companies wares.
But if the status quo delivers another two decades of beleaguerment, there may be little choice. Didn’t someone once say that the future was bright?