European Fixed Network Providers Cannot Afford to Upgrade Networks

By Gary Kim November 25, 2013

European service provider revenues from fixed network services across Europe will decrease at an overall rate of around two percent a year through 2020, while mobile service provider revenues decrease 1.5 percent per year through 2020, analysts at A.T. Kearney have forecasted.

As you would predict, it is difficult to increase capital investment in expensive next-generation networks when revenue is falling.

The combined effect of revenue, operating cost and capital investment  reductions would be a decrease in the European telecoms sector’s free cash flow from 44 billion in 2011 to just 23 billion by 2020, A.T. Kearney analysts also project.

By some estimates, it will cost as much as 200 billion Euros. That would be tough to do if free cash flow is but 23 billion.

The latest estimate from the European Telecom Network Operators association suggests telecom service revenue will decrease by close to three percent in 2013 among major European countries, representing a drop of about 7.1 billion.

Across Europe as a whole Etno estimates that revenues will decrease by 3.7 per cent in 2013, twice the decline in 2012.

In 2012, total capital expenditure across the industry reached 46 billion, of which 26 billion was invested in fixed networks and 20 billion in mobile, according to Idate, which also has forecast potential costs of upgrading European fixed networks as high as 229 billion.

The problem is that, as a rule of thumb, fixed network service providers invest no more than about 17 percent of revenues in capital investment every year, according to Infonetics Research.

Some might argue that network capital investment in many markets is far lower than that, representing single-digit percentage of revenue spent every year in all forms of capital investment.

The problem is that at €23 billion free cash flow, all of Europe’s fixed network operators collectively would not be able to spend much more than about $4 billion a year to upgrade their networks. 

At that rate, it would quite a long time to rebuild European fixed networks to support gigabit speeds. 

Edited by Cassandra Tucker

Contributing Editor

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