After years of declining revenues, finally some good news: Europe’s telecom market is expected to halt this trend in 2015-16, with some countries set to reverse it altogether.
This is according to an S&P Industry Report Card published on Friday, in which the ratings firm detailed several trends that are reviving the sector’s health.
"Support for stronger revenues across the region is coming from sharp rises in data traffic and increasing monetisation of 4G investments, the beneficial impact of tiered pricing in most markets, and fewer price wars as M&A continues to consolidate and converge markets," said S&P credit analyst Mark Habib, in a statement. Continued cost control by operators also influenced S&P’s forecast.
As a result, the company expects Europe as a whole to see a break-even revenue trend in 2015-16, with pockets of growth in the U.K., Germany, and the Nordics.
It is worth noting the tone of renewed optimism running through the recent financial reports of Europe’s big telcos.
Spain’s Telefonica raised its full-year revenue guidance after reporting strong sales and profit growth in the second quarter, while French incumbent Orange’s Q2 revenue and adjusted EBITDA beat estimates.
Deutsche Telekom saw second quarter revenue in Germany edge up 2.1%, while strong domestic performances by Norway’s Telenor and Swisscom boosted the telcos’ respective top lines.
Vodafone CEO Vittorio Colao said in his company’s fiscal first quarter report that more of its European businesses had returned to revenue growth, while his opposite numbers at Sweden’s TeliaSonera and Telecom Italia made similarly upbeat comments about their companies’ recent performances.
S&P said mergers and acquisitions have been the single most important factor because they have relieved the competitive pressure that was eroding revenues. Convergent mergers between fixed and mobile operators have also softened competition as customers sign up to bundled services.
Furthermore, "after several years of lowered investment, European telcos have raised capital intensity over the past two years to deploy 4G networks and fibre rollouts, and install next-generation customer premise equipment (CPE), by turns enabling and benefiting from a surge in both fixed and mobile data consumption," S&P said.
This investment is helping telcos close the performance gap on Europe’s cable companies, which have for the most part completed their DOCSIS 3.0 deployments, Habib said.
Short-term regulatory headwinds are also receding, S&P said, as the last round of mobile termination rate (MTR) cuts will have been accounted for by the end of fiscal 2015. That leaves the phase-out of roaming charges as the main regulatory headwind when it comes to pricing.
In addition, the slow but continued improvement in Europe’s economy is stimulating demand among consumers; however, S&P cautioned that the recovery is taking hold much more slowly in some countries – particularly those in southern Europe – than others.
S&P maintains a stable long-term outlook on Europe’s telco and cable sectors.
