With a PESTEL analysis, identify 3 opportunities and 3 threats facing the Telecommunications industry. Identifying one of the companies demonstrates how it can exploit one of the opportunities and counter one of the threats.
When it became clear in early 2020 that the Covid-19 pandemic was poised to wreak havoc on the economy, most companies scrambled to build their cash buffers to navigate the storm
Except for mining companies, which have been riding on the back of a supersonic rally in commodity prices, companies from property funds to retailers withdrew cashrom credit lines, halted dividend payments and stopped buying backs hares.
But you would expect shareholders in telecoms companies, especially MTN, which issued its annual results on Wednesday, to be among those laughing all the way to the bank as telecoms services were more essential than ever during the first waves of
the pandemic when economies where shutdown and millions of people were forced to work from home.
No such luck.
MTN has turned off the dividend tap for 2020,saying it opted to focus on paying debt, which stood at R43.3bn at holding company level, and putting its net debt to earnings before interest, tax,
key measure used by lenders to work out how a company’s core earnings cover its debt— at 2.2 times. That iswell below its target of1.5 times. The reasons for that decision are sound. First, MTN, led by RalphBuy & SellLuxury Watches
Mupita, has been having a hard time bringing back profits from Nigeria, which is facing a chronic shortage of hard
currency as the central bank clings to its dollars amid waning foreign exchange reserves as the price of oil, the country’s
export mainstay, remains under pressure. In the year to the end of December, MTN repatriated almost R9bn from most of its offshore operations. That includes just R286m it was able to get its hands on in Nigeria, where it has built up R4bn in total
dividends. Second, Mupita’s plan to slim down the company via the sale of noncore assets to raise R25bn looked easy until the
Covid-19 pandemic struck, which forced companies to hoard cash and, if they ventured out to the mergers and acquisitions scene, to pitch ridiculously low offers. Two years after MTN launched the programme, it has delivered just more that R4bn in cash, making one wonder if it is still on track to achieve its target of raising the remaining R21bn by 2022 at the earliest and 2024 at the latest. But the company is confident things will be better in 2021, pledging to resume pay-outs and return more
cash to shareholders via share buybacks or special dividends. Still, MTN’s failure to reward shareholders, who have sent its shares more than 16% higher in the past year at a time when its services are in more demand than ever, underscores the need
for an industry that includes Telkom and Vodacom to push beyond basic telecoms services and data connectivity.
The trio (MTN, Telkom and Vodacom) may not recall the last time things were this good as business and entertainment shifted
online during the pandemic. But they are also spending billions of rand to meet surging demand while competitive and
regulatory pressures keep their pricing structures depressed. Investors would be justified in demanding to see a clear path to the next revenue-generating line-up beyond basic telecoms services. All three have rolled the dice on the so-called super app, the equivalent of a Swiss knife offering a dizzying array of services from payments to insurance to ride-hailing and ordering food in one app. The unrivalled success of WeChat, which has become an indispensable part of life in China and helps parent Tencent to regularly grind out record profits, has convinced executives in the mobile phone industry and beyond that the next revenue stream lies in super apps. MTN, which has an ambition to grow its subscribers to 300- million in the next few years, has been building such an app under the name Ayoba, which offers users free instant messaging, e-commerce and interactive
entertainment. Vodacom teamed up with an affiliate of Alibaba, Ant Financial Services, to launch its own version of a super
app which has also signed up retail conglomerate Massmart as an anchor tenant on the platform, while
Telkom is trying to turn its 70-year-old Yellow Pages telephone directory service into an online marketplace under the name Yep!. It remains to be seen who will emerge as the winner in the scramble to create the all-in-one app, but it won’t be easy.
Unlike WeChat, which was protected from competition as Facebook, Instagram and WhatsApp are sometimes blocked,
MTN, Vodacom and Telkom cannot count on the government to provide shelter from the Silicon Valley giants, which are themselves looking to branch out of advertising. Should Facebook advance its strategy across the world, SA companies will stand at a major disadvantage as the technology titan and its WhatsApp messaging tool are used far more widely on the continent.
With a PESTEL analysis, identify 3 opportunities and 3 threats facing the Telecommunications industry.
Identifying one of the companies demonstrates how it can exploit one of the opportunities and counter one of the threats.
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