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Fitch: Europe's Mature Markets Pose Risk to Telecoms Operators
Maturing markets, continued regulatory pressure and the weakened economic environment have all had a significant impact on the headline revenues and EBITDA of European telecoms operators, reports Fitch Ratings. These challenging circumstances have forced operators to adopt intensive cost-cutting programs and, in some cases, more drastic capital expenditure cuts.
Fitch has assessed the H109 results of Europe's main incumbent operators as part of its mid-year sector review and identified some new factors that are beginning to emerge and which may well challenge industry players in the years ahead.
"The recession has brought into stark relief that fact that certain markets in Europe have too many operators and that in-market consolidation is needed, particularly in the mobile sector," says Michael Dunning, managing director of Fitch's TMT group in London. "The days of robust mobile and fixed broadband subscription growth are over. With competition continuing at these high levels, there is a real possibility that any uplift from new revenue drivers such as mobile data or bundled content may end up just being competed away."
The report shows that operators in certain markets, such as France, which are less competitive have fared better than companies operating in more competitive markets.Furthermore, operators with diversified emerging market portfolios have benefitted from higher emerging market growth rates which have helped offset softness in Europe. However, this softness has also, in part, been caused by underlying market dynamics that are unrelated to current economic weakness.
Fitch does therefore not expect the economy, in itself, to play a material part in ratings movement across the sector. Instead, the agency believes that the maturity of the markets, price competition and the need to continually invest in fixed (fibre) and mobile (LTE) network upgrades to maintain technological advantage will challenge operators' business models in the future. These factors will emerge as the key drivers for ratings movement, outside event-driven M&A, over the next three to five years.
The special report, European Telecoms: Mid Year Review is available on Fitch's website - registration required.
Posted to the site on 25th August 2009