The Telecom Sector's Currency Challenges

How do operators contend with the investment impacts?

Moving beyond the relatively stable currencies of North America, East Asia and Europe, one can quickly run into currency devaluations and depreciations that impact the telecom sector.  At Europe's edge stands Turkey, for example, which experienced a 79% devaluation of its lira against the U.S. dollar in 2021 and is now considering adding cryptocurrency as a legal tender.  Turkey's experience is less dramatic than Libya's, where the currency fell 244% in 2021.  Yet such currency collapses illustrate the kinds of macro challenges that an increasing number of telecom operators are experiencing with growing inflation, imploding trade flows, and other disruptions.

The impacts on telecommunications revenues, prices, and capital investment can be severe.   Unfortunately, these are not often acknowledged by regulators or even all operators, as they may not all be similarly affected.  Take a currency-depreciating country where two of the operators are owned or otherwise sustained by local investors while the third is a global or regional operator with operations in several countries, most of them stable in currency and other terms.  This third operator can weather the devaluation storm better than operators who depend entirely on local financial inputs.  How to ensure fair competition is such circumstances?

The consequences of currency devaluations are being experienced not only in Turkey but also in countries like Argentina, Chile, Colombia, Peru, Romania and Thailand.  There the currency declines have been more modest.  Still, a 10% to 20% value deficit can have a serious impact on locally-owned and -financed operators.  Unless an operator subject to such devaluation raises its prices, which its competitors may not need to do, it could face difficulties meeting rollout and other obligations.  Lower local currencies values means operators will find themselves paying more for equipment imports, denominated in dollars or another stable currency. 

Another result may be that the local operator does not densify or extend its networks as much as it had planned to do.  Do its financially less-impacted competitors follow suit?  Or do they continue with their original plans?  In the latter case, they could increase their market shares by providing higher QoS service levels and/or adding subscribers in ex-urban and rural areas.  And what do the operators (especially the local ones) do when the government announces the next spectrum auction, indicating that reserve prices will be similar to those applied in the last auction?  Unless they can stretch spectrum payments over an extended period, they may not be able to both win the spectrum they need and build out their next network.

Due to the division of labor at the government level, the operators' currency generally receives scarce attention.  The Treasury, for example, may be even more eager to activate a revenue-generating spectrum auction in the midst of a devaluation.  The telecom or digital policy ministry, meanwhile, is unlikely to factor currency devaluations into the sector's development beyond encouraging foreign investment in a general way.  And the regulator is unlikely to be sensitive to currency fluctuations, even major ones, in its spectrum assignments, review of service prices, or enforcements of licensing requirements.  

For competition, subscribers and policy's sake, let's hope the growing devaluations the world is experiencing are a short-term trend.  Otherwise, they could affect sector deployment in growing parts of the world.