On 2 October, UKTIN held its latest conference at BMA House in London.
Bringing together market analysts, policy makers, regulatory bodies, investors and telcos from the fibre and mobile space, it was a day of unvarnished truths, hard facts and reasons to be positive.
Here are some of our highlights:
Elephants in the room
Across the day a central theme emerged: we need to be honest around where the telecoms industry is right now. More than one person commented on the importance of an event like this to address the “elephant in the room”. After all, as Ian Smith, Head of UKTIN, remarked in his opening comments, “commercialisation is crucial to our sector; and our sector underpins all others”.
Ian Corden, CEO of Peira Consulting, remarked in his deep dive on telecoms finance that our sector is one with historically high R&D costs, high capital intensity, 10 year evolution cycles, high barriers to entry and global supply chains on equipment. Margins have been eroded and high competition in market has accelerated a race to the bottom in pricing.
Attendees heard a similar message from Emily Clark, CFO of Networks at BT Group, who noted that there are new obligations and challengers for operators against a rapidly increasing pace of change, where data growth and rising demand are resulting in high investment needs.
Corden identified that growth in telecoms is hard to find and investors are generally cautious on long-term growth prospects, but that growth is coming from innovation such as private networks, neutral host, FWA and vertical 5G.
Clark also shared the strategies she’s seeing emerging against this backdrop: specialisations in certain areas of the value chain (e.g. TowerCos and players like SMARTY focusing on the value end of the market), tech-telco adjacencies or bundling approaches, achieving market scale through consolidation (e.g. the proposed Vodafone / 3 merger) and asset monetisation (e.g. sale of tower assets to raise cash or exit a non-core activity).
Consolidation was a theme picked up by Karen Egan, Head of Telecoms at Enders Analysis. Noting an oversupply of infrastructure on both the fixed and mobile networks alongside depressed revenues and share prices, she didn’t hold back: “something has to change and we’re starting to see the sort of financial distress that will lead to change”.
Another elephant that was surfaced during the day was the loss of IP and capabilities out of the country. Simon Rowell, Senior Advisor at Innovate UK remarked that “we need these capabilities in the UK. We could use our R&D to do so much, but we need to support it – from a public and a private sector point of view. I don’t think the problem is innovation - we have tremendous innovation – it’s capitalising that and garnering benefit as a country.”
Reasons to be hopeful
There was no denying the fact that the market is tough, and capital has tightened. But there was a strong sense throughout the day that investment is available for the right opportunities.
In a fireside chat with Nalin Patel, Lead Private Capital Analyst for Pitchbook, Simon Bond, UKTIN Lead of Translation and Innovations, discussed the telecoms investment report Pitchbook has produced with UKTIN.
The report found that there’s been £1.4bn investment in UK telco over the last four years, with an increase in VC investment, increase in median deal size (c. £3m) and steady growth over the last decade. Patel remarked that “the UK is definitely the leader in Europe for telco investments, there’s no doubt about that.”
Patel observed that hyperscalers are bringing a lot of new capital to the sector and that with a lot of exits in 2021, more capital is flowing back to partners who have then reinvested, funding the next wave of start-ups.
Bond enquired as to whether the perception that telecoms isn’t attractive to VC is wrong and Patel’s response was a nuanced one: “AI is the one that’s front and centre at the moment, we’re seeing a lot of capital going into that. Telecoms is a sector that will definitely utilise AI.
“We’ve seen in VC that there has been an increase in granularity around segmentation in certain sectors. We’ve seen quantum computing and network of networks solutions, NTN, AI, all attracting funding. Investors are becoming more selective though and we’re seeing in a competitive market that the best start-ups rise to the top.”
In a panel on the opportunities and challenges from network economics to commercialisation, Sean Royce, CEO of Quickline, shared that they’ve recently raised £250m in debt funding but that it has been a tough process against a backdrop where only £900m has been raised in the altnet fibre market this year.
His take was that although the market is tight, investment is available for organisations that have a unique viewpoint. “You have to have a need and a want” he said, “you do need to look at where there are market gaps.”
Charles Murray, Partner at Analysis Mason concurred:” there’s no shortage of private capital looking for a home. The challenge is finding something that is fundable.”
Actionable advice and insights
Fortunately, panellists were on hand to advise on the path to securing investment. “Opportunities are derived from where there are problems”, said David Leftley, Co-founder and CTO of BlocVentures. “Innovation is based on needs and understanding those needs.”
Michelle Taychers Nishry, Senior Investment Manager from Qualcomm Ventures, echoed this, stating that “we’re more interested in the problems start-ups are solving than the solutions they’re developing. What is the problem space and the real pain that people are willing to pay for?” Simon Gibson OBE, CEO of Wesley Clover Corporation agreed: “from an entrepreneur’s perspective, check demand – you’d be amazed how infrequently that’s done.”
There was interesting discussion around whether start-ups are restricting themselves by describing themselves as a telecoms start-up. Taychers Nishry was unequivocal: “describing yourself as a telecoms start-up is not a good starting point.”
She went on to explain that Qualcomm Ventures “look for people who have big vision, backed up by a strong product mindset. We look for flexibility and the ability to pivot. Your competition will change, your market will change…if you’re stubborn about what you want to do, you won’t win.”
Gibson perhaps gave the clearest summary of the day around how he judges if an innovation is investable: “head, heart and gut. The head tells you about the idea, the heart tells you about the people and the gut tells you about the marketplace. If the three align then you’re onto something.”
