Telecom CEOs are optimistic the climate for deals will remain favorable over the next three years, with nearly 75 percent indicating a high to moderate appetite for M&A activity, according to the 2018 KPMG Telecom CEO Outlook.

“Although the number of mega-mergers have dominated telecom and media headlines recently, the majority of deals in the short-term are likely to fall within a more moderate range, potentially to fill in innovation or technology gaps,” according to Sean Sullivan, KPMG U.S. National Telecommunications Sector Leader. “For many CEOs, M&A remains a consistent strategy to fostering top-line growth by transforming their business model faster than organic growth and eliminating a direct competitor.”

In the survey of 82 U.S. telecommunications CEOs, optimism about revenue growth emerged, with expectations that their companies will outpace the broader telecom sector, as well as the U.S. and global economies.

In addition to M&A, telecom CEOs reported that the top growth strategies include strategic alliances and organic growth. Talent challenges along with operational and cybersecurity risks were cited as the leading threats to their growth aspirations. 

“Telecom CEOs expressed a higher level of confidence in their ability to grow revenue than might be expected,” said Sullivan. “While there is good reason for optimism within the industry; growth may be harder to achieve over the next three years as competitors from outside the sector build momentum and customer preferences shift from traditional products and services.”

Despite a positive growth outlook, the study found that telecom companies are grappling with how to win over the millennial customer base. In fact, 44 percent of CEOs indicate their organizations are challenged by how to adapt their sales and distribution models to this audience, and another 44 percent struggle with how to best engage millennials via digital channels. Nearly half of respondents say it is difficult to find senior leaders who can relate to millennials, and four in 10 CEOs say their organizations don’t understand how millennials’ needs differ from those of older customers.

“Meeting the needs of millennials is clearly an ongoing challenge for the telecom sector. The oldest millennials are in their mid-30s and are expected to comprise the largest and most profitable customer segment for telecom providers for at least the next decade,” said Sullivan. “The companies that do this quickly and effectively will be poised for success among this significant customer base.”