Ovum’s analysis of telcos’ key performance indicators in 2013 reveals a slightly better performance than in 2012. Revenues stabilized from the decline experienced in 2012, while profitability in terms of EBITDA and net profit margin improved.
Some telcos improved their bottom-line growth through cost-optimization activities, but others continued their opex spending spree in a bid to attract more subscribers. Nevertheless, telcos need to take steps to improve revenues, and growth strategies need to be underpinned by the need to launch new services and improve existing services.
Market consolidation accounted for some of the opex savings we saw in 2013. This trend presents both growth opportunities and threats for outsourcers. It provides opportunities as M&A activity in the telecoms industry is often associated with demand for integration services, while the threats relate to the resulting consolidated entities strengthening their bargaining power when renegotiating deals, and possibly truncating their existing telco IT supplier relationships due to intensifying competition for fewer bids.
Average revenue growth for the telcos analyzed remained stable compared to the 2% decline experienced in 2012. Revenue growth was driven by telcos with operations in emerging markets. However, some telcos (such as Zain and MTN) that recorded revenue growth in their local currencies missed our list of revenue gainers due to the strengthening of these currencies against the dollar.
Mature market players delivered varied performances. The US-based players returned improved revenues, while their Asia- and Europe-based counterparts recorded dips in top-line revenues. European markets continued to face poor macroeconomic conditions and unfavorable regulations, which led to cuts in mobile termination rates for roaming calls within Europe. Asian mature market telcos were encumbered with increasing marketing expenses as a result of growing competition for subscribers.
The emphasis on streamlining costs is yielding positive returns. Profitability improved, indicating the effect of strong cost-optimization strategies implemented by some of the telcos analyzed. EBITDA margin grew to 35%, while net profit margins almost doubled, increasing to 15.9% in 2013 from 8% in 2012, owing to Vodafone’s sale of its stake in Verizon.
The US players remained tightly focused on limiting their operating costs. AT&T and Verizon succeeded, cutting their operating costs by 17% following their strict application of lean operating principles and their increase in outsourcing activities. The sale of unprofitable assets also drove down operating expenses for our sample set of telcos, as they realign their portfolios to focus on more profitable markets and seek out new market opportunities.