Q1 earnings show telcos aren't out of the woods

Matt Walker/Ovum
27 May 2013

Most telecom operators have reported 1Q13 earnings now. The results were largely as expected. Most telcos face flat to declining revenues, putting their cost base under pressure.

For telcos representing over 90% of the global market, revenues and capex both dropped by roughly 1% in 1Q13 versus 1Q12 (YoY).

The telcos with the slowest growth were also among the largest: Telefonica, FT Orange, Telecom Italia, and KPN. A weak European economy and ongoing cuts to mobile termination rates are the main causes.

Exposure to emerging markets is no guarantee of growth, either; America Movil’s revenues grew just 0.2%, for instance. By contrast, Verizon, Softbank, KDDI, Comcast, and Time Warner Cable grew nicely in 1Q13 despite their size. Even NTT grew revenues, by 2%, in terms of yen.

Price pressures, tough regulations, and new competition – both OTT and traditional – are not going away. But making an early move to new technology platforms, while expensive, does help deliver revenue growth. Rationalizing costs, both opex and capex, is likely to continue though, and operators will keep searching for new revenue streams as they tackle Big Data.

Global revenue growth goes negative on back of weak European results

On a year-over-year basis, operator revenues declined in 2Q12 and 3Q12, after ten quarters of post-financial crisis growth. Then 4Q12 delivered a modest recovery, with revenues up 2.1% versus 4Q11.

Early data from 1Q13 indicates a double dip, as revenues fell by over 1% from 1Q12. If constant exchange rates are used, revenues would have grown slightly, but by less than 1%. It’s a similar story with preliminary capex, down roughly 1%; constant exchange rates improve the measured growth only slightly. We’re not out of the woods yet.

More aptly, we should get used to the woods. Finding growth in this market is a constant challenge. Competition is always a threat, and a good thing for end users. Smartphones have enabled all sorts of new OTT applications, particularly in messaging, to eat into mobile revenues. The majority of many large operators’ postpaid user base is now on smartphones, including Verizon (61%), AT&T (70%), and DT (68%).

Smartphones also have displaced consumers’ spending; there is only so much disposable household income available to spend on telecom. Without subsidies, that becomes more apparent. Telefonica, for instance, removed handset subsidies in its Spain unit in March 2012; excluding the impact of mobile termination rate (MTR) cuts, its mobile service revenues in Spain have declined by 12% YoY in the last two quarters.

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