Telecoms groups outperform growth expectations
Orange, Telefónica and Verizon all add customers through better offers and services
The global telecoms sector started to turn a corner in the second quarter as Telefónica, Orange and Verizon, some of the industry’s biggest hitters, all outperformed growth expectations.
The sense of recovery was underlined by results from two of the largest telecoms equipment makers, with Huawei reporting a 15 per cent rise in sales in the first half while Nokia pointed to a “deeper, longer” cycle of investment for 5G networks.
Orange, the French telecoms company, reported its best growth in a decade. While it recorded only a 0.5 per cent rise in revenue in France, it was the first time it had grown in its home market since 2009. Overall revenue increased 1.4 per cent to €10.2bn and mobile contract customers in France and its Europe segment grew by 350,000.
Stéphane Richard, chief executive of Orange, expressed confidence that it could sustain the performance in France, one of the most competitive markets in Europe, due to growing demand for bundled products that include mobile, broadband and pay-TV products.
“The strategy that we have been following for several quarters, which centred on giving customers an unbeatable experience through convergence around the home and a quality network, is now yielding results,” he said.
Growth was also strong in Spain, where its revenue increased 8.8 per cent. That did not come at the expense of Telefónica, the incumbent operator, which increased its own revenue expectations, after a better performance in the second quarter.
The Spanish company said it expects revenue to grow 1.5 per cent this year, compared with previous guidance of stable. The upgrade was the result of the 1.9 per cent growth rate posted in the second quarter to €13bn, as its organic growth improved and data volumes continued to grow. Net profit increased 18 per cent to €821m and debt fell to €48.5bn, a €279m reduction on the first quarter.
Growth in Spain is key to Telefónica’s recovery under José María Alvarez-Pallete, who took over as executive chairman in 2016. This week he promoted Ángel Vilá to the post of chief operating officer as part of a further shake-up of the heavily indebted business. The shares rose 3.5 per cent in Madrid after the results.
Analysts pointed to the positive of a 1.4 per cent rise in Telefónica-owned O2’s revenue in the UK, where it added 78,000 customers, but said there was concern over a “soggy” performance in Spain.
“Service revenue trends improved sequentially, but growth remained elusive,” said Dhananjay Mirchandani of Bernstein, who pointed to a near-2 per cent drop in earnings in Telefónica’s home market. He did note that 85 per cent of Spanish households now take a fixed-mobile bundle, a “staggering” number that has pushed up average revenue per user by 6.4 per cent.
Verizon Communications, the largest telecoms carrier in the US, reported its first revenue growth in four quarters, as it added more subscribers by offering unlimited data plans. The company was expected to report a 2 per cent year-on-year drop in revenue, but instead reported a 0.1 per cent rise to $30.5bn. Verizon shares gained 6 per cent to $47.13.
The new price plans, designed to deflect the impact of aggressive packages of T-Mobile USA and Sprint, helped Verizon add 590,000 contract smartphone customers in the second quarter. That was down from the 614,000 it reported in the same quarter last year, but a vast improvement on the first quarter when it reported its first ever quarterly loss of customers.
Lowell McAdam, Verizon’s chairman and chief executive, said: “Verizon reignited its growth engine in the quarter, both adding and retaining wireless customers while scaling our media business and continuing to invest in our superior networks.”
The company also said it expects to strip another $1bn in costs by 2020 from Oath, its digital arm that comprises the AOL and Yahoo businesses it has acquired.
Nokia’s results were boosted by a new licence agreement with Apple for the use of its patents in iPhones and iPads. Revenue at its Nokia Technologies unit soared 90 per cent due to €175m worth of “catch-up payments” from “a licence agreement”, namely Apple. Its stock rose 4 per cent in Helsinki.
The Finnish company proved more optimistic than its close rival Ericsson about the wider outlook for telecoms equipment, despite warning that the overall market for its kit could drop 5 per cent this year. Rajeev Suri, chief executive of Nokia, said spending on 5G is now expected to ramp up in 2019 not 2020 and that it could be a “a deeper, longer super cycle when it comes”.