APAC Telco Landscape
- The population in Asia Pacific (“APAC”) is expected to reach nearly 4.5 billion by 2025, with the number of internet and smartphone users forecast to reach 2.7 billion and 3.1 billion, respectively
- Despite favourable macro tailwinds, telcos are set to experience lacklustre revenue growth, with mobile services revenues forecast to grow by a CAGR of 1.7% from 2020-25, reaching USD 427 billion
- This slowdown comes as telcos’ core revenue streams (i.e. mobile & internet plans, advertising, content downloads, and network sales) face stagnation due to downward pricing pressure, increased market saturation, and poor cross-selling capabilities
- To counter this slowdown, telcos have turned to various strategies, including: (1) 5F adoption; (2) Mobile Virtual Network Operator (“MVNO”) establishment; (3) data monetisation; and (4) merger & acquisition (“M&A”) activities, but continue to face various strategic, operational, and financial challenges
The Financial Services Opportunity
- The APAC financial services industry is expected to witness tremendous growth in coming years, with the market size increasing to USD 4 trillion by 2025
- However, there is a considerable gap between internet penetration and banked population rates across Asia, that telcos can look to plug via mobile banking solutions (e.g. 73% of Vietnam’s population has access to internet, but only 31% is banked)
- Moreover, traditional banks in the region are struggling to alleviate pain points for their retail and SME customers, opening themselves up to disruption from digital-native peers
- Although virtual banks have made great strides to address these pain points, they too are struggling with several hurdles, including exorbitant customer acquisition costs (“CAC”)
Potential For Telcos
- Given the lucrative revenue opportunity on offer, some telcos have begun to enter the financial services space, which we see as a natural extension for growth, expanding from core telco to digital services and now, payment facilitation and financial services
- Given their sizeable customer base and a vast trove of customer data, telco operators have robust demand-side synergies in place that they can capitalise on, such as customer insights via financial, app usage, and third-party data
- Telco operators can also leverage several supply side synergies, including value proposition, cross-selling, shared discounts, and acquisition costs
- By offering various financial services along the value chain, telco operators can capture the entirety of it without drawing the ire of anti-trust regulators (e.g. HKT and PCCW partnering Standard Chartered and Ctrip to launch a virtual bank in Hong Kong, launch of an eWallet, called GCash, by the Philippines’ Globe Telecom, and digital insurance offering by Malaysia’s Celcom, etc.)
- We project a sizeable wallet opportunity for telcos in APAC who can capitalise on the financial services landscape, with incremental revenue upside ~89 billion p.a. by 2025
Key Considerations
- However, telcos need to first determine: (1) where to play and (2) how to play?
- In terms of “where to play?”, telcos need to pick the right target customer segment(s) (e.g. mass retail, core affluent, etc.) and develop the right set of product / service offerings (e.g. deposits, payments, lending, etc.)
- In terms of “how to play?”, telcos need to take into account various operational enablers, including talent management, technological capability, risk management, regulatory compliance, data management, and marketing channels to arrive at a decision regarding which development option to pick, i.e.: (1) buy (i.e. direct purchase); (2) build (i.e. in-house development); or (3) partner (i.e. strategic partnership), all while keeping licensing requirements in mind
