Moody's predicts increase in consolidation, network spending among European telcos

Europe's telecom providers are going to suffer through continued declines in revenues this year, according to investment research and credit rating firm Moody's, to the tune of 1.5 percent through the rest of 2013. The firm said revenues will be flat next year. However, Moody's predicted in the years to come that an easing in regulations and an increasingly competitive marketplace will drive operators to boost spending on their networks as well as embark on consolidation activities among their peers.

"In the long term, we see more merit in telcos controlling their own networks and making greater investment," noted Carlos Winzer, a senior vice president in Moody's Corporate Finance Group and the author of the firm's new report on the European telco market: "European Telecom Service Providers: Network Deals Will Ease Short-Term Capex Burden But Investment Still Needed for Long-Term Revenue Stability."

Although operators will begin loosening their purse strings in the coming years, they will continue on their current money-saving path in the short term, Winzer predicted. He said European telcos will continue inking network-sharing deals and other tricks to improve their network capacity as they work to "invest without further compromising their already strained balance sheets." Indeed,  A December 2012 McKinsey study showed that Europe has much lower levels of public telecoms investment and LTE penetration than in the United States and some other nations, views that were underscored in a May GSMA report developed in collaboration with Navigant Economics. 

In the short term, incumbents like Deutsche Telekom will benefit from their trend by spreading the cost of their network enhancements among a group of network partners. Further, upstarts will also score an advantage by getting access to existing networks without major upfront costs, Moody's said.

However, Winzer noted, those trend lines will deviate in the years to come as operators begin to see the benefits of owning the access network and investing in that network.

"We also expect regulatory pressure to ease or at least support industry consolidation and companies that are willing to invest in the network through adequate returns on investment," adds Winzer.

Moody's pointed to TeliaSonera, Telenor and DT as those operators most likely to weather the current market and to begin increasing their spending on the network in the coming years. And it's reasonable to assume that those network vendors that are still in the game in the next three to five years will stand to gain from an increase in network spending by telcos.

For more:
- see this release

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