Exchange rate/foreign currency changes
As is the case with previous BDO Telecommunication Risk Factor Surveys, exchange rate/foreign currency changes is one of the top risks facing telecoms. 75.9% of telecomms surveyed identify it as a risk.
Factors like large, international customer bases, susceptibility to macroeconomic volatility and changes in specific markets contribute to making telecoms especially vulnerable to volatile exchange rates. This applies to the transaction, translation and strategic level of businesses.
Although some effects can be hedged through various financial instruments, none provide a fix-all solution. With the large deals and investments that telecomms often engage in, and their long strategic and investment timeframes, fluctuations can have a marked impact on the bottom line and profitability.
The impact is dependent on the scale and significance of operations in various markets, and seem particularly acutely felt by telecoms operating in Asia-Pacific markets, with 83.3% seeing it as a risk, compared to 78.1% for EMEA and 68.8% of telecoms in the Americas.
It is worth noting that there is a marked drop in the number of telecoms reporting exchange rates and foreign currency changes as a key risk in 2018 compared to previous years’ surveys. 2017 saw a high watermark with 93% of telecoms identifying foreign exchange rates as a risk, compared to 82% in 2016 and 81% the year before. It could be an indication that telecoms have had success with proactive risk management initiatives following last year’s geopolitical surprises and unrest.
However, large-scale capital expenditure projects and market volatility due to political unrest is still very much on the minds of telecom executives. Brexit and looming trade wars between the US on one side and various friends and foes on the other are just two factors creating unrest – and thereby potential exchange rate risks for telecoms, as markets will invariably react to political and trade-related changes.
The fluctuations also create strategic headaches for telecoms chief executives concerning areas like long-term acquisition strategies and can change the price of cross-border acquisitions between final signing and completion.
“As disruption and change continue to affect business strategies of telecoms companies, it is encouraging to see the lower risks associated with one of the central pillars that can affect long-term success.
While organic growth remains somewhat sluggish and profitability is under intense pressure – in part due to increased competition and ever-accelerating pace of technology – telecoms seem to be finding strategies and solutions to risks associated with exchange rates and foreign currency changes.
The future growth of telecoms companies is dependent on finding ways to navigate the evolving risk landscape facing them successfully. With regards to exchange rates, we continue to see both new portfolio, transaction and structural risks, which is one of the reasons why it remains one of the top risks identified in our survey.”
Christian Goetz, Leader of BDO’s Global Telecommunications team