Footprint size doesn't equate to performance

Emeka Obiodu/Ovum
05 Mar 2013

Judging by the dominance of multinational telcos, it would be easy to conclude that having the largest possible operational footprint is always a good idea. This has become conventional wisdom and is always followed by the assertion that there are synergistic gains to be made from a new market entry.

Ovum decided to test this assertion empirically by using the financial metrics of 20 of the world’s top telcos between 2000 and 2011. Our findings were presented in the recently published report Examining the Case for Larger Multinational Telcos.

In the report, we showed that the performance ratios of a telco do not necessarily depend on the size of its footprint. It thus follows that it is more beneficial for a telco to have more customers in fewer countries than to have the same number of customers in more countries.

In other words, our findings indicated that vertical expansion is more important to a telco’s performance than horizontal expansion into additional countries. This is the most significant reason why AT&T and Verizon are outperforming their European peers, and sends an important message to Europe’s telcos and authorities as they consider consolidation, convergence, and the creation of a pan-European network or pan-European regulation/licensing.

The multinational telco is nothing new

Since the mid-1980s, market liberalization, privatization, and the opportunities provided by mobile telecoms have encouraged telcos to expand into new geographies. Most of Europe’s top telcos expanded into other European countries and then rode the mobile boom into additional international markets. US telcos also expanded internationally, although they have now mostly retreated back to their domestic market. In the past 10 years, a number of large emerging market telcos have expanded their presence so that they now dominate their regions and some of them are even taking tentative steps towards buying assets in Europe.

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