Reuters
Top executives at Europe’s telecoms firms dared to suggest this week that they might at last be turning a corner after years of declining revenues, as demand rises for 4G mobile broadband, regulatory pressures ease and the industry consolidates.
For the network operators a comparative recovery on revenue next year will come in part simply because the price cuts imposed by regulators on roaming charges and the termination fees operators charge for carrying each other’s traffic is now behind them.
But they are also starting to see the benefit of the billions they spent on the 4G networks that enable people on the move to watch TV and surf the web.
“The music seems good, but let’s see how it plays out. The question remains on if we can monetise 4G as more people get the phones in their hands,” Vodafone’s chief executive Vittorio Colao told investors and industry executives at the annual Morgan Stanley Technology, Media, and Telecoms conference in Barcelona.
Colao said he was confident that operating trends would improve as the group got more of its customers to use 4G, which tended to increase data traffic and hopefully monthly charges.
The world’s second-largest wireless carrier would not just shift customers to 4G for free, instead moving them to higher tariffs for the faster service, he said.
Meanwhile, Spain’s Telefonica, which saw a 15% drop in revenue in its home market last year, is seeing its strategy of selling bundled fixed and mobile broadband and TV services is beginning to bear fruit.
“The third quarter was significantly better than the second,” chief operating officer Jose Maria Alvarez-Pallete told the conference. “In 2015, we should go into positive revenue territory,” he added.
At the same time merger deals such as those already seen in Austria, Germany, Ireland and Spain are reducing the number of operators in national markets, meshing fixed line and mobile networks together as services converge and cutting costs.
Some mergers have also simply taken the immediate heat out of the competition to lifted the pressure on prices.
In Austria prices have increased by about 20% since the number of mobile network operators was cut from four to three last year with the takeover of Orange Austria by Hutchison Whampoa’s local rival Drei, according to the local regulator.
The newfound optimism has already buoyed the Stoxx Europe 600 European telecoms sector index, which is up 8.2% this year against a 5.6% rise in the overall market index, and led to several analysts upgrading the sector.
In third-quarter results 21 out of 24 west European telecoms companies beat expectations, according to Kepler Cheveureux Securities analyst Javier Borrachero, a trend which he says in a research note is “totally unprecedented in the last four years.”
Deutsche Telekom, Telenor, Swisscom and Telefonica all actually increased revenues in the quarter while declines at Orange, Vodafone and KPN were shallower than previously.
Morgan Stanley analyst Emmet Kelly now predicts that European mobile service revenues could be flat or even up by a couple of percents next year. They fell by 9% in 2013, with declines tapering to 4-5% in the third quarter.
Kelly said it was an open question how quickly the top-line would return to actual growth. “A lot will depend on whether there are benefits from in-market consolidation deals,” he said.
And the markets in France, Spain, Italy, and Denmark are all now ripe for deal making, said executives at the Barcelona conference.
On Friday shares in Bouygues jumped 4% after a Numericable director told the conference it would be interested in acquiring Bouygues Telecom, which would reduce the number of mobile network operators in France to three from four.
Telecom Italia close to $1bn masts deal
Telecom Italia is set to sell mobile phone masts owned by its Brazilian unit for almost €900mn ($1.1bn), sources said yesterday, as it considers possible acquisitions in the Latin American country.
Brazil’s telecom market is in the process of consolidating as growth in mobile telephony slows and operators bulk up to fund hefty investment in broadband networks.
Telecom Italia, which owns 66.5% of TIM Participacoes, was holding a board meeting later yesterday to review its options in Brazil, which could include acquisitions and network investments.
Two sources familiar with the matter said Telecom Italia was likely to sell its Brazilian mobile phone masts, also known as towers, to wireless infrastructure firm American Tower Corp for almost the full targeted amount of €900mn.
According to one of the sources, a deal had already been worked out and could be announced at the board meeting. Any agreement would have to be approved by the local competition watchdog which could take several months.
Telecom Italia declined to comment while American Tower executive vice-president Hal Hess, speaking on the sidelines of a conference in Barcelona, said the company had no comment.
Telecom Italia chief executive Marco Patuano put the Brazilian masts up for sale a year ago when he unveiled a €4bn business plan to cut debt and help fund much-needed investments.
After failing to complete a sale of its Telecom Argentina unit and delaying the disposal of its mobile masts in Italy, the Brazilian deal would be a step forward.
Sources said Patuano would tell the board on Friday the best option for the company’s Brazilian mobile business would be to pursue an acquisition of rival Oi.
Any tie-up with Oi would not involve a capital increase at Telecom Italia but TIM could raise as much as €2bn to fund the deal, one of the sources said.
Asati, a group of small Telecom Italia investors, said yesterday it wanted to see management given a mandate to strike an agreement with Oi. “A mandate without the understanding a small capital increase would be required would be merely words in the wind,” it said in a letter to the Telecom Italia board.
Telecom Italia was expected to release a statement after the board meeting.
