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EMEA telcos stable, but revenue growth seen slow

Telecoms operators in the EMEA region are seeing a return to revenue growth following the downturn, but increases in turnover are likely to be slow. Meanwhile, cost-cutting measures put into force over the past few years mean cash flows and margins should remain solid, according to Moody's.

Analysts at the ratings firm predict that following flat revenues in 2010, EMEA operators will benefit from a compound annual growth rate (CAGR) of 1%-3% during the 2011-2013 period. European operators will generate €350 billion in total this year, around half the total revenues from the global sector.

"As of Q4 2010 we see signs of recovery and more revenue stability, although the companies are not free of the ramifications of the recession," Moody's analysts said in an industry outlook piece issued late Monday.

The firm expects ongoing cost-cutting measures will fuel profitability and "provide scope for increased investment in network upgrades and next-generation access."

Capital expenditure from European telcos declined to €50 billion in 2010, down 10% on the previous year; Moody's expects the capex/revenue ratios to remain at 13%-15% next year, reaching the top end of that prediction as an increase in revenues from bandwidth-hungry services triggers network investment.

Fixed-line telcos accounted for 70% of total capex in 2010, with incumbent operators responsible for close to three quarters of that. However, only a small proportion of the total was ploughed into new fibre-based access technologies, Moody's noted, repeating the ITU's prediction that a sizeable €300 billion will be required across Europe over the coming years to upgrade to fibre and meet demand for broadband.

The challenges associated with rolling out new access network technologies are not the only ones incumbent operators are currently facing.

"Public sector spending cuts that seek to reduce government deficits might put further pressure on some incumbents' revenues, although we do not expect significant revenue losses as a result of these cutbacks alone," Moody's said.

Indeed, in mid-October BT signed a memorandum of understanding with the U.K. government – which accounts for up to 10% of its revenue – and simultaneously reiterated its outlook. Days later rival operator Cable & Wireless Worldwide also reached an agreement with the government to ensure all its current contracts would be kept in place; the U.K. altnet had in July issued a profit warning due to its exposure to U.K. spending cuts.

However, according to Moody's, alternative network providers in general are less resilient to difficult economic conditions than the incumbents are, as they have less financial flexibility. "In protecting their financial profiles, they may have also affected service quality by curtailing expansion plans and commercial expenses," Moody's said, adding that this may have damaged their competitive position against the incumbents in the longer term.

The company also said that government spending cuts and corporate belt-tightening might prove to be more challenging for the altnets than for the incumbents.

"For example, in 2009 the public sector contributed 48.3% to Global Crossing UK's revenues, while it represented around 10% of BT's revenues," Moody's said. "During the process of contract renegotiations, the contraction of corporate spending within a difficult economic environment may be more visible in an altnet such as GCUK, as they offer price concessions to retain customers."

Moody's report also covered the mobile sector, which despite being the industry's main driver for growth, also faces problems of its own.

Smartphone penetration increases and the related growth in the use of mobile broadband services are good news for the industry. "The challenge will be to develop new business models that tap into a different source of end-user spending, because consumers show little inclination to spend more on traditional services," Moody's said.

"Operators also need to move to tiered pricing and away from flat rates in order to better align usage and revenue."

Источник: Total Telecom

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