A glass-half-full attitude is all well and good, but before anyone is overcome with optimism, the ancient Chinese philosopher in us should always question what said glass actually contains.
This is certainly the preferred mindset when it comes to measuring the financial health of the European telecom sector after the first quarter, where the glass is half full of relief that the worst might be over, rather than confidence that long-term growth has returned.
Europe’s big five – Deutsche Telekom, Orange, Telecom Italia, Telefonica and Vodafone – reported modest revenue growth in some cases and slowing revenue declines in others, heralding a new era of fiscal mediocrity that if nothing else is preferable to what the sector has been going through for the last five years.
"It’s quite a good illustration for the industry when we are happy when things don’t get any worse," notes Bengt Nordström, CEO of Swedish telco consultancy Northstream.
Indeed, Orange in April reported a 0.3% decline in group revenue excluding the impact of regulation for the three months to 31 March, better than the 3% decline a year earlier. The French incumbent’s revenue performance was driven by its Africa and Middle East operations, which grew 6.8%; Orange’s domestic revenue fell 1.8%.
Similarly Telecom Italia insisted that stability in Europe is returning as domestic revenue fell 1.4% in the first quarter, far less awful than the 11.7% decline in Q1 2014.
Spanish incumbent Telefonica and its German counterpart Deutsche Telekom were the biggest improvers. The former declared it was entering a new cycle of profitability as revenue growt h in Germany and Latin America offset domestic declines to drive a 12.6% increase in overall group revenue.
As for the latter, it saw group revenue improve 13.1%, driven by ongoing gains by T-Mobile US and even modest growth in Germany, where Q1 revenue edged up 1.9%.
Last but not least, U.K.-based Vodafone last week reported a 2.6% organic increase in fiscal fourth quarter revenue, while service revenues improved by 0.1% organically.
"That wasn’t convincing enough," said Nordström of Vodafone’s results.
Vodafone has "been sending signals of recovery, but what they came with was very, very thin organic growth," he told Total Telecom recently.
"In Europe, the economy is not that strong – the threat of Greece leaving varies from week to week – and if that happens it will destabilise the market," he said, adding that in the telco sector, competition between operators is still very tough.
"This quarter looks to be a bit more stable but I wouldn’t necessarily say this is a long-term situation," he predicted.
Nordström said there is less and less to pick between operators’ service offerings and network coverage, meaning that price remains the most important point of differentiation.
Meanwhile, as network coverage and capacity improves, it strengthens the position of over-the-top (OTT) communication providers too, Nordström warned.
Overall, Europe is "still a market with very tough competition between operators," he said.
Consolidation is a predictable outcome in competitive markets that have stopped growing, but even then, there is evidence to suggest that M&As won’t ease the pressure on operators.
Research carried out by Frontier Economics on beha lf of the GSMA this week claimed that downward price pressure is driven more by new technology than the number of players in a market.
"The actual cost of delivering a call today is much, much lower than what the cost was 10 years ago, and that reduction in cost, where there’s competition, gets passed on as lower prices to consumers," explained George Houpis, director of Frontier Economics.
The GSMA’s head of regulatory affairs Gabriel Solomon insisted that there is "no robust evidence" that prices for telco service are higher in three-player markets than four-player markets.
"One shouldn’t automatically conclude that you get a better price market," with fewer players, agrees Nordström.
In addition, in many cases competition authorities impose merger conditions that facilitate the entry of new players.
"Regulators artificially try to create a new competitor, and that’s what it is: artificial competition," Nordström said. "The three-player market is probably a sustainable number of players."
