European telecoms sector eyes €100bn cuts
As much as €100bn needs to be cut from costs to return the European telecoms sector to sustainable growth given forecasts of a fifth consecutive revenue decline in 2014.
European telecoms operators have been “paralysed” by the complexity of the challenge in driving substantial operational change in a fiercely competitive market, according to AlixPartners, the business advisory group.
Telecoms operators need to go beyond existing plans for incremental cost-cutting and look for more meaningful cost reduction to set the conditions for revenue growth, it added.
Ahead of the annual Mobile World Congress in Barcelona next week, AlixPartners interviewed senior telecoms executives across France, Germany, Italy and the UK as part of its study.
About 60 per cent of executives said they would like to adopt “radical” cost-cutting methods but more than two-thirds admitted that their company approach to cost reduction had not changed over the past five years.
AlixPartners found that companies have failed to deliver significant transformation despite the pressure on their revenues, which has forced a number of companies into asset sales and forced equity raisings in the past two years.
The European telecoms sector has been hard hit by a combination of regulated price cuts and the economic downturn, which has forced sales lower even as they have needed to invest in next generation networks capable of 4G and fast broadband services.
Eric Benedict, managing director at AlixPartners, said: “[This] sheds light on the immense challenges facing European telecoms operators, who are today the poor relatives of their North American cousins. In order to stem the tide of revenue decline, they must admit the difficult truth that their business models need to be fundamentally redesigned and further simplified.”
Low financial returns and the mix of structural, strategic and regulatory pressures will contribute to increased M&A activity, according to the study, with major deals already in the pipeline including Vodafone’s attempt to buy Ono in Spain for up to €7bn. Vodafone has made a bid for the group ahead of a board meeting later this week.
More than half said that spending on infrastructure investment such as next-generation 4G technology would increase, but only a third expected “healthy returns” on invested capital in mobile and fixed data services.
Almost all planned a cost reduction project for the next 12 to 18 months, with the main areas in their network upgrades, product reviews and strategic reviews of countries.