European operators first to feel full force of crunch

Just as Telecom Italia announces an extensive cost cutting initiative, industry analysts are warning that European mobile operators will be the first to feel the full impact of the credit crunch.

Research carried out by industry analyst Ovum indicates that while operators in other regions showed little signs of feeling the credit crunch during the third quarter, their European counterparts saw revenue generating prospects shrink.

Last month we reported that the North American mobile market has so far withstood the economic turbulence, helped largely by the rise in two year mobile contracts. While operators in the emerging markets continued to enjoy generous revenue growth rates, with Africa and Latin America carriers reporting double digit revenue growth rates.

“Unlike other regions where the mobile market has proved resilient so far, the third quarter financial results of Europe’s top mobile operators show a marked, credit-crunch-induced deterioration in their performance”, said Emeka Obiodu, senior analyst at Ovum.

However, the good news is that Ovum does not anticipate a major slowdown for the mobile telecoms industry. Although some operators may become vulnerable, the market remains overwhelmingly buoyant and is expected to ride out the financial crises.

“Reassuringly, the basics of the mobile market are still intact,” said Obiodu. “Mobile services have become the de-facto consumer communication tool of choice, and with an increasing shift to postpaid contracts, plus the opportunities enabled by high-speed mobile data services, there is still money out there to be made in the mobile market.”

The research reaffirms similar projections made by telecoms.com parent and industry analyst Informa Telecoms & Media last week.

Analysts advised operators to get their house in order and focus on the customer service experience. The name of the game next year will be retention over acquisition, so carriers should place the highest value customers at the top of their Christmas card list.

So while the reigning in of capex, generally viewed as a last resort measure, will principally be driven by a microscopic focus on stripping out excess operating expenditure and not a blind cost cutting exercise, in terms of opex, Informa expects saving initiatives to focus on advertising and publicity, acquisition and retention costs, discretionary expenses such as travel, training, conferences and consultants, and headcount – where cuts are being already being made.