Sarasin-Sustainability Spotlight: Telecom companies: market opportunities carry risks
(ENP Newswire Via Acquire Media NewsEdge) ENP Newswire - 31 October 2012
Release date- 30102012 - The steady fall in the cost of phone calls is gradually eroding the traditional business of telecom groups.
Instead, the volume of data traffic is growing at an explosive rate, but this is not generating enough revenue. Innovative telecom providers therefore need to break into new business areas. As a rule, however, data services also present high risks because of their vulnerability to cyber-attacks. There is therefore mounting pressure on providers to assure effective data protection. In its latest Spotlight, Bank Sarasin's Sustainability Research team singles out the best-in-class companies. Vodafone, Telefonica, Swisscom, Belgacom and Telenor have identified the opportunities and risks and delivered higher than average stock market returns over the last three years.
The digital business has an estimated worth of EUR 415 billion by 2015. Data transmission is very much the business of the future for telecom companies. Many providers have therefore set up their own dedicated innovation departments: These innovative services cover a broad spectrum of topics: assuring data transfer that allows the operation of intelligent electricity networks (smart grids), networking vehicles, e-health initiatives, cloud computing, and financial services. All this, combined with the development potential in emerging markets, provides the industry with good growth prospects overall.
New services in new markets
Many people in developing countries still do not have mobile phones. Unlike mature economies, where the markets are saturated, the penetration rate (number of mobile phones per 100 people) is less than 80% in emerging markets. In many countries the infrastructure for fixed-line calls is not even being built - instead companies are concentrating on mobile networks. These technological trends allow the immediate introduction of innovative applications. Financial services using mobile phone apps are therefore developing more quickly than in advanced economies. As this business was not deemed profitable by banks, some telecom companies are now successfully offering this type of service, such as Vodafone with its mobile payments system M-Pesa.
Risks should not be overlooked
These market opportunities carry risks as well, however. Every day new viruses, Trojans or worms infect Internet-enabled handsets, with five billion mobile phones worldwide connected to the Internet. The risk of cyber attacks is now even rated as more dangerous than the global threat of water shortage (WEF Risk Report 2012). The direct financial risks, such as a damaged reputation, that this can cause those companies affected can have serious consequences. A cyber-attack can even drive a company to the brink of bankruptcy. Although the origin of these attacks is not usually to be found in the telecom companies themselves, but with third-party providers, customers still hold telecom firms mainly responsible for the lack of data protection. Telecom companies are therefore under enormous pressure to implement new data protection measures.
Sustainable stocks produce superior returns
According to Bank Sarasin, 84% of the telecom companies studied have already introduced processes and guidelines to improve data protection and security. However, providers in emerging markets that promise high growth potential still have a lot of catching up to do. The consistent selection of sustainable stocks pays off. A rough performance comparison confirms that while the MSCI World Telecom Service Sector Index produced a return of 12.7% over the past three years, stocks with above average sustainability ratings returned 24.5%.
Sustainability Spotlight 'The telecom dilemma: more data, more threats'
The research paper 'The telecom dilemma: more data, more threats' (author: Thomas Dietzi) is available in German and English free of charge from: firstname.lastname@example.org
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