Europe, Asia Telecom Prospects Diverge

By Gary Kim January 16, 2014

No two regions show the diverging fortunes of telecom service providers than Asia and Europe.

Moody's Investors Service has said that the outlook for telecommunications service providers is “stable” in the Asia Pacific region, with “ moderate revenues and earnings growth” and  gradual declines in profit margins.

"The telecommunications companies that we rate in Asia Pacific should record average revenue growth of around four percent over the next 12 months to 18 months, a level which is broadly in line with average GDP growth rates in the region," says Yoshio Takahashi, a Moody’s analyst.

In contrast, Europe's telecom operators will see a fifth year of revenue decline in 2014, although operating margins will stabilize, helped by cost cutting and the end of regulatory cuts to mobile call termination fees, Moody's said.

About the best outcome would be “revenue stabilization” in 2014, Moody’s says, with the telecommunications service sector remaining on negative outlook.

image via shutterstock 

"While we expect revenues to stabilize or marginally decline by zero percent  to -0.5 percent in 2014, it is not clear how sustainable any recovery will be," said Carlos Winzer, a Moody's Corporate Finance group SVP. "We have had a negative outlook on the sector since November 2011 and would expect to see a predictable and sustainable one percent to three percent annual revenue growth to make it stable."

Moody's estimates that the European industry's average EBITDA margin will be down approximately one percent in 2013, but will probably stabilize in 2014.

Moody's expects that prices in some of the most competitive markets will continue to drop Integrated incumbent operators such as Deutsche Telekom, Orange, KPN, Telefonica and Portugal Telecom will fare better than companies with just mobile or fixed offerings.

That’s an important observation: the firms that will fare best own both fixed and mobile assets. The other obviously significant observation is that revenue growth rates now have diverged around the world, with some regions faring better than others. 

Edited by Ryan Sartor

Contributing Editor

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