Outlook stable for EMEA telecom sector

The outlook is stable for both incumbent integrated operators and wireless telecommunications companies in EMEA, Moody's Investors Service said in two Industry Outlook reports.
The outlook for incumbent integrated operators is supported by Moody's expectation of solid cash flow underpinned by growth in mobile services and maintenance of robust operating margins. In the wireless segment, the stable outlook is based on the industry's predictable revenue streams and large, generally consistent subscriber bases.
"Moody's expects the incumbent fixed-line operators to sustain solid cash flow over the next 18 months, as a result of their ability to maintain margins and low capital spending ratios that average less than 15%, which should continue to offset increased competitive and regulatory pressures," said Carlos Winzer, a Senior Vice President in Moody's Corporate Finance Group.
Admittedly, the incumbent operators' heightened focus on shareholder returns, acquisitions aimed at geographic diversity and investments in broadband pose some higher financial risks in the future.
The reports also address the outlook for fixed-line alternative telecom companies, which is also stable. For their part, alternative operators will need to show improving revenue trends and profitability in the midst of a more challenging economic environment, with expansion plans becoming more difficult to fund with external finance.
"However, Moody's believes that telecoms companies will be less affected by the economic slowdown in Europe than other industries," Winzer said.
"For the wireless segment, Moody's expects revenue growth, albeit slowing, to remain positive for the next 18 months," said Julia Pribytkova, an Assistant Vice President — Analyst in Moody's Corporate Finance Group.
"Furthermore, good operating margins and moderate capital expenditures should maintain free cash flow at healthy levels."
Subscriber growth will likely ease as penetration increases, but revenue from text messaging and data, as well as expanded offerings such as fixed broadband, should offset some of that decline and expand the revenue stream.
Moody's currently rates 14 wireless network operators in EMEA, four of which are based in Europe and 10 in emerging markets such as South Africa, Russia and the Middle East. In the incumbent segment, Moody's rates 24 fixed-line telecom companies, 20 of which are based in Europe, three in the Middle East, and one in Africa.