Can EU-5 Service Providers Start Growing Again?

By Gary Kim October 23, 2013

Despite current revenue issues, the European telecom business, including fixed line and mobile segments, will grow from 2013 to 2025, analysts at IDATE now predict. The challenging part of the prediction, though, is that in 2020, revenue levels will only reach 2010 levels.

By 2025, industry revenue will be at about 2009 level, which was higher than 2010 revenue.  

The larger question is whether other smaller service providers can do so as well, whether they will continue to exist as independent entities or whether, in the end, revenue growth by acquisition might outstrip organic revenue growth.

That is a problem because, although it buys time, growth by acquisition does not immediately address structural issues, such as the need for new revenue sources and some way to change retail pricing for legacy services.

On the other hand, a simple continuation of current trends (declining gross revenue driven by declining revenue per account) seems the least likely outcome.

Observers have for nearly two decades suggested that tier one telcos are “dinosaurs” unable to adapt to an Internet Protocol era. But some competitors have discovered that large telcos are, at least so far, capable of change and adaptation efficient enough to fend off would-be competitors in some cases, and “attack the attackers” in other cases.

The ability of incumbent local exchange carriers in the United States to largely contain gains by competitive local exchange carriers is an example of the first trend. Telco ability to take video entertainment customers from cable firms is an example of the second trend.

Still, assuming you believe EU-5 telcos can make gains, revenue growth in both fixed network and mobile segments will be driven by non-voice revenues, according to researchers at IDATE.

IDATE researchers also note that performance could be worse, leading to a negative 24 percent revenue performance, or better, in which case revenue could grow 28 percent more than the scenario IDATE considers most likely.

The most likely outcome is based on an assumption that revenue growth for the top five European markets, or EU-5, will start to grow again in 2016, after shrinking by about four percent in 2013.

The big question some might have is whether future EU-5 service provider revenue growth comes at the expense of other telcos (growth by acquisition), or is driven at least in part by new service revenues and an ability to raise prices for legacy products.

Edited by Alisen Downey

Contributing Editor

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