EU regulation could threaten telecoms market recovery – report

The outlook for Europe’s telecoms service industry has gone from negative to stable, says Moody’s Investors Service in a report published today. It predicts that collective revenues will grow by one to two per cent in the next 12-18 months as customers increase their demand for broadband and spend more. However the EU regulation of mergers could threaten the recovery, it warns.

The Telecommunications Service Providers – EMEA: Revenue Growth Rings in Change of Outlook to Stable report says that increasing demand for broadband, more consumer spending capacity and a shift from price competition to service quality will boost revenues as telcos can put their charges up without denting demand.

“These price increases will underpin European telecommunications service providers’ return to revenue growth in 2016,” says Carlos Winzer, a Moody’s Analyst and author of the report.

Many companies already offer premium packages and charge accordingly for these services, Winzer notes. Telefónica, for example, reported domestic average revenue per user (ARPU) of €71.80 per month in the second quarter of 2015, which is up from €68.80/month in the first quarter. This trend is reflected in Germany, where Moody’s expects positive ARPU for Deutsche Telekom, which recently increased data allowances and speed increases for premium clients.

The outlook for African, Middle Eastern and Turkish telecom markets is also stable. However, in some commodity-driven markets, where GDP growth is slowing, the telecoms industry will experience negative pressure on revenue growth. The affected national markets include Kuwait, Oman, Qatar, the United Arab Emirates and Nigeria.

The big three Russian mobile operators, Mobile TeleSystems, MegaFon and Vimpel-Communications, will remain negative as the economic crisis in Russia continues to drive down profitability.

Moody’s expects telecoms mergers and acquisitions to continue in Europe. “Consolidation is mostly likely in France, Italy, Denmark, Poland, Sweden and Spain but we do not expect companies to make large debt-funded acquisitions which would put pressure on leverage and negatively pressure their current ratings or outlooks,” said Winzer.

However, the European Commission recently dismissed calls by telecoms companies for a more lenient approach to mergers in the sector. Many fear that consolidation in the sector could be halted after EU digital chief, Andrus Ansip, told a conference held by telecoms lobby ETNO that “relaxing competition rules is not the answer and industry consolidation is not necessarily the answer either.”

Tougher competition stances will only make in-market consolidation more uncertain, warned Winzer.

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