Telecom CEOs Expect a Lot More Industry M&A

Boss, CEO

A new survey shows telecommunications CEOs expect strong revenue growth and a lot more M&A during the next three years.

The 2018 KPMG Telecom CEO Outlook polled 82 U.S. telecom CEOs on financial expectations, potential for M&A, and challenges they are facing going forward. Two-thirds reported $1 billion or more in annual sales.

Nearly 75 percent indicated a high-to-moderate appetite for M&A activity.

KPMG's Sean Sullivan

KPMG’s Sean Sullivan

“Although the number of mega-mergers have dominated telecom and media headlines recently, the majority of deals in the short term are likely to fall within a more moderate range, potentially to fill in innovation or technology gaps,” said Sean Sullivan, KPMG’s U.S. national telecommunications sector leader. “For many CEOs, M&A remains a consistent strategy to fostering top-line growth by transforming their business model faster than organic growth and eliminating a direct competitor.”

Top growth strategies include strategic alliances and organic growth. Talent challenges, along with operational and cybersecurity risks, were cited as the leading threats to their growth aspirations.

“Telecom CEOs expressed a higher level of confidence in their ability to grow revenue than might be expected,” Sullivan said. “While there is good reason for optimism within the industry, growth may be harder to achieve over the next three years as competitors from outside the sector build momentum, and customer preferences shift from traditional products and services.”

Despite a positive growth outlook, the study found that telecom companies are grappling with how to win over the millennial customer base. Some 44 percent said their organizations are challenged by how to adapt their sales and distribution models to this audience, and another 44 percent struggle with how to best engage millennials via digital channels.

Nearly half of respondents said it’s difficult to find senior leaders who can relate to millennials, and four in 10 CEOs said their organizations don’t understand how millennials’ needs differ from those of older customers.

“Meeting the needs of millennials is clearly an ongoing challenge for the telecom sector,” Sullivan said. “The oldest millennials are in their mid-30s and are expected to comprise the largest and most profitable customer segment for telecom providers for at least the next decade. The companies that do this quickly and effectively will be poised for success among this significant customer base.”

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