The rating outlook on most EMEA telecom operators remains stable, but weak revenue growth and pricing pressure is likely to continue, Moody’s Investors Service said in two new Industry Outlooks.
The Moody’s reports, entitled “EMEA Diversified Integrated Telecommunications Operators” and “EMEA Fixed-Line Network Operators”, note that the telecom market is highly competitive, with pricing pressure making it hard for companies to drive top-line growth. There is a need for increased investment in broadband and economies of scale.
Diversified integrated telecom operators will experience pressure on revenue growth, but this will generally be offset by continued solid mobile performance albeit in increasingly competitive markets and a growing contribution from geographically diverse operations. The current margins will also be broadly sustained as a result of expense reductions through ongoing systems integration, investments in network convergence and staff reductions, according to Moody’s.
“We expect diversified integrated telecom operators to remain focused on developing their core businesses in the face of increasing competition, rapidly changing technology and the challenge of regulatory pressure,” said Carlos Winzer, a Moody’s Senior Vice President and co-author of the diversified report.
“They will continue to pay attention to shareholder remuneration and make selective cross-border acquisitions, mainly in emerging markets. There will be some consolidation and acquisitions among altnets.”
The report notes that fixed-line operators’ future growth depends on the extent to which broadband-derived services offset the mature nature of the highly competitive and regulated industry with constantly evolving technology.
Fixed-line operators continue to face challenges arising with technological innovation and modifications to regulatory policies, according to Moody’s, which will determine their long-term prospects, but overall, margins should hold as companies shift their revenue mix and business strategies to reflect the increasing contributions coming from data as opposed to voice revenues. The increasing contribution from broadband (data) is also expected to somewhat offset revenue pressures.
“While the fixed-line operators’ financial risk profiles have improved, their business models remain largely unchanged from when they were formed,” says Ivan Palacios, a Moody’s Analyst and co-author of the fixed-line report.
“Revenue from voice will continue to decline, somewhat offset by increasing revenue from data, but overall, revenue is likely to remain flat at best in the medium term.”
However, the report notes that fixed-line network operators in emerging markets such as
