Having just published my first analysis of the TMT sector, I wanted to share my thoughts on some of the key trends and market forces this important sector is facing.

When Cooke and Wheatstone demonstrated their commercial version of the electrical telegraph in 1837, the UK was already firmly established at the centre of what would one day be known as ‘telecommunications’. Since then the industry has evolved through telephones, television and radio to a world of digital wireless networks that facilitates instant face to face communication between people from all corners of the globe.

Recent figures on the UK telecommunications sector from Ofcom show that the ‘fixed voice’ services are still generating huge revenue - £1.6bn in the first quarter of 2021 – while the number of fixed broadband lines (27.4m) is creeping ever closer to the number of fixed voice lines (31.8m). The transformation of our telephony habits, however, is demonstrated by the £3.03bn generated in retail revenues by mobile telephony services in Q1 2021, not to mention the fact that the 11.2 billion minutes of fixed-originated calls pales in comparison to the 48.5bn minutes of mobile-originated voice calls.

A technology boom

Technology, meanwhile, is also booming – the UK has 105 tech ‘unicorns’ (private start-up businesses worth more than one billion dollars), the highest number in Europe. As the annual Tech Nation Report highlights, the UK tech sector raised the third highest amount of venture capital investment in the world, behind only the United States and China, while  investment in technologies such as AI, blockchain, and quantum computing was up 17% last year, the highest rate of growth in the world. The “white heat of technological change”, as espoused by then UK Prime Minister Harold Wilson in 1963, has never been more relevant or more intrinsic to the UK economy.

The UK Media landscape, meanwhile, is made up of a number of different constituents – namely television, radio, music and newspapers. According to Statista, UK television revenues amounted to around £16.27bn in 2020, radio remains consistently stable - generating £1.3bn in revenues in 2020 - while music industry body the BPI recorded that UK music revenue rose by 3.8% in 2020 to reach £1.12bn.

For newspapers, however, it is obvious that their whole business models have transformed in the past decade to not only embrace digital channels but to stave off the threat from a myriad of global news sources. Although UK newspapers are powerful brands advertising revenues and hard copy sales have been falling for many years (earlier this year proprietor Rupert Murdoch wrote down the value of his Sun newspaper to zero).

Current Threats

Companies across the board in the TMT sector have resilient business models with high gross margins and strong demand. A challenge for a lot of these firms is whether they are scaling fast enough to address customer demand. Organic growth factors like skilled staff shortages and managing orderly growth can also become acutely problematic.  

Externally, disruption from technological innovations by competitors and newcomers is also a threat as we increasingly see businesses that were once disruptive face a disruption themselves, so relaxing on R&D and product development is rarely an option in many TMT subsectors.

Covid in particular exposed those with international dimension to their businesses. This is slowly normalising, but problems persist and lessons are to be learnt across a lot of industries in how to structure operation for in-built resilience when operating internationally.

The Future

In comparison to other sectors, TMT remains a very high performer in terms of profitability which provides the perfect platform to reinvest retained profits (or borrow if preferable), scale through acquisition, and be the 'best-in-class', delivering product excellence across all relevant sub-sectors.

With regards to funding, some of the sub-sectors can be very attractive to private equity as they are able to offer substantial returns on investments via equity rather than debt.  However, given the funding appetite from the alternative lending market, business owners should carefully consider all options, as an affordable debt package will not seek to dilute ownership.  Now, more than ever, private equity houses need to bring substantially more to the table than just a cheque book.

The future for the Technology, Media and Telecommunications sector is extraordinary – the ubiquitous rise of Cloud computing, 5G, the Internet of Things, robotic automation, artificial intelligence, tele-medicine etc –  as well as being almost sinister with the – as yet – untamed power of Google, Facebook and the harvesting of personal data on an industrial scale. Regardless of where the road takes us, of all sectors it is the one that affords the greatest opportunities.

‍

Sources used in this article:

- www.techuk.org/resource/tech-nation-s-2021-report-shows-a-resilient-uk-tech-sector-despite-brexit-and-the-pandemic.html

- www.ofcom.org.uk/research-and-data/telecoms-research/data-updates/telecommunications-market-data-update-q1-2021

- www.prospects.ac.uk/jobs-and-work-experience/job-sectors/media-and-internet/overview-of-the-uks-media-sector

- www.statista.com/statistics/237778/value-of-the-entertainment-and-media-market-in-the-uk/

- www.bpi.co.uk/news-analysis/uk-recorded-music-revenues-grew-38-in-2020/

- www.standard.co.uk/news/uk/revolut-germany-europe-nicola-mendelsohn-boris-johnson-b956172.html#r3z-addoor

- www.sciencefocus.com/future-technology/future-technology-22-ideas-about-to-change-our-world/