I look forward to Mondays. I always have. But I must say that reading the headline “UK to plunge into deepest slump on record with worst GDP drop of G7” made me hesitate this week. There’s now no escaping it, we have officially moved into recession. The recovery from 2008 has been obliterated by a virus. It caused me to take stock and anticipate the conversations I’d be having with clients.
Six main themes came from my thinking and, in short, if you are in mobile then there are some positives to grasp. Innovation, investment and income are very possible despite the backdrop.
1.Is mobile recession proof? Not entirely but telcos by their nature of being subscription businesses are insulated to an extent. The last few months have shown that resilience comes from continuous regular revenue. Without understating things, the majority of revenues have not dramatically changed by new acquisitions – at least not for the established players.
In terms of parallel industries, Disney+ hit the market just at the right time. It’s now got 57.5 million subscribers ‘far exceeding what was predicted’. That’s undoubtedly been helpful for Disney when other parts of its business have slowed or paused entirely this year. It made for a much better earnings call than anticipated.
But what’s interesting is that this stability in subscriptions from long established players has sparked other businesses to think subscriptions too, and without the need to become a full blown MVNO. Look at Argos. It now sells SIMs to online customers with the credit checking built in. It adopted clever plug-in APIs from CTech and Experian to do this and I think it’s a trend we’ll see continue. You no longer have to be an MVNO to get regular income – you can get a slice of the operator revenue and improve margin on the handset sale.
2. Are margins a worry then? Not really. We may see that margins decline slightly or flatten. This will largely be related to reductions in spend as companies furlough and/or cut back on marketing. Plus, operators don’t have the high acquisition costs right now as the shiny new smartphones are in shorter supply with many anticipated launches delayed. Overall, I wouldn’t expect a massive hit to mobile network margins unless they were over-reliant on enterprise revenues from industries hit by lockdown such as retail or hospitality.
3. What about the smaller outfits? My answer is get ready for acquisitions. Some smaller companies that don’t have large retained bases or were struggling pre-pandemic will have suffered and they may make good acquisition targets. The recent ruling in Europe on CKH and the O2 merger (and subsequent appeal) hints that the European regulators are worried about consolidation. But at a local level, governments are likely to support anything that saves jobs and supports the economy so I would expect to see acquisitions waved through.
4. Is there going to be any spending for growth? Yes, and my money is on a global upturn in innovation. If at the start of the year you had told a COO that they would have to move all of their call centre teams to work from home it would have been tabled as an 18 month transformation project. Yet everyone did it within a few weeks when the pandemic hit and service levels, after an initial blip, were largely maintained. It’s one example of the numerous projects companies undertook to stay operational. A huge amount of innovation and digital transformation happened so it’s now legitimate to ask the question ‘why wait?’ or ‘why can’t this be done in a fraction of the time?’.
New technology adoption is far more likely now too. There will be an appetite for making things easier, faster, more reliable and solve problems that we have to face up to for the short- to mid-term. IoT solutions a case in point. They will be adopted on much larger than anticipated scales for routine process, not just the future world stuff. We’re talking things like security gates that check your temperature. A prime example of where necessity is the mother of invention.
5. Is investment for a scale-up too optimistic? No. With this context VC funding is still going to happen and the prime candidates are those start-ups in the wider ecosystem that are leading the effort to solve world problems. With the right management teams in place they will be seen as a safer bet. VCs may even go so far as to step in and support businesses that have developed great IP but are struggling to grow, if they think the underlying economics can be fixed.
6. Should we look beyond the borders for opportunity? Yes. In less developed countries, where people had less opportunity to access the digital tools that smoothed the impact of the pandemic, I would expect to see targeted investment. The sort that focuses on extending digital networks to make the economy more resilient.
For instance, this is likely to be done using tower companies rather than through individual operator infrastructure investments. We have seen some interesting collaborations to increase coverage both at an operator and government level eg relaxing some regulations. Expect to see more of this ‘flexibility’ to help keep economies connected and on the world map. The same also goes for IoT innovations – smarter agriculture could really take off now that the precarious nature of supply chains has been exposed. If you’re in that market, or indeed smart cities, then there are definitely options.
If you need help to develop your business network and your pitch so you can speak to the right people about your innovations and ideas then get in touch.
This blog was inspired by comments provided to Capacity Magazine this week – you can read that piece here
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