Informa Research Finds Telco Leaders Outperforming Broader Economy
Informa Telecoms & Media's new World Telecoms Financial Benchmarks (WTFB) service has borne fruit in the form of some good news for telco. At the end of November, the research firm reported that data collected by WTFB indicated that Q2 revenue at the world's leading telcos grew over 6 percent year-over-year to $327.6 billion, compared to 1.8 percent growth in the broader economy. Informa attributes this outperformance to resiliency in consumer and enterprise telco spending and to adherence to financial and operational discipline by the industry's leaders. Also, they point to strategies operators have adopted to buffer themselves from the global economic climate, notably tapping emerging and developing markets; partnering to share the load; and streamlining operations.
Milena Konecna, financial data analyst at Informa Telecoms & Media, said, "This broadly impressive performance has taken place against the back-drop, not just of weak growth in the global economy, but bruising competition from new entrants and MVNO players in conjunction with regulatory-led reductions in the amounts operators can charge each other for terminating traffic on their networks (MTRs), each of which has put considerable pressure on revenues, especially those generated by voice services."
Launched in early December, WFTB tracks key performance indicators—both financial and operational—among the 40 largest global operators. They identified one trend which finds big carriers are focusing less on growth and more on obtaining and keeping customers, as well as on upselling those customers on more types and ranges of service.
Operators are enjoying the benefits of snowballing demand for mobile internet; the proliferation of inexpensive smartphones; and a wealth of opportunity in enterprise M2M. However, the deck of economic conditions is largely stacked against them.
Says Konecna stated that, "Given the head-winds created by the global economy, plus often intense competition from non-telecoms players on core services, the operators have, looked at as a whole, successfully implemented strategies that have enabled them to significantly outperform the global economy."
One coping strategy involves expansion into developing markets, where the fields are ripe for the picking, notable adopters of which include Telefónica and Vodafone. Another finds carriers entering into strategic partnerships to share the burden—viz., O2 and T-Mobile's network sharing deals and the Deutsche Telekom/France Telecom-Orange joint procurement venture. Additionally, some companies are moving to leaner and meaner profiles by sloughing off their non-core assets.
Telecoms can expect to feel the financial squeeze tighten further, particularly as they invest more deeply in LTE and fiber rollouts. Paul Lambert, Senior Analyst at Informa, told us that the capex of the top 40 telcos grew 4 percent year-over-year to $47.5 billion in Q2 '11 but, compared to the 12.3% YoY growth seen in Q2 '10, this represents a slowdown of 8.3 percentage points. Interestingly enough, capex among developed operators fell 1.5 percent YoY in Q2 '11 after having grown 25.5 percent in the year ago period. Developing operators, however, witnessed the opposite: their capex rose 19.5 percent YoY in Q2 '11 after dropping 13.4 percent the previous year.
Lambert identified CSPs AT&T, China Mobile, NTT, Telefónica and Verizon as capex overspenders, owing to their investments in new technology and network equipment. He added, "China Mobile is rolling out a major nationwide TDD-LTE network and modernizing its GSM network to enable it to handle data. China Mobile also needed to invest heavily in the development of TDD-LTE as a viable global standard. The operator expects to have as many as 6,000 TDD-LTE sites by 2Q/12. Of the large scale multi-region operators who didn't roll out wide-scale LTE networks, Telefónica is quite typical in allocating capex to increase capacity of fixed and mobile broadband networks, e.g., doubling the amount of 3G base stations in Mexico."
Going forward, operators in adjacent sectors—like cable—pose an ever-present threat to telcos' customer bases. Lastly, Informa concludes that it is still too early to tell where telecoms fit in the connected device and M2M value chains, and how profitable those areas will ultimately be.
