The past couple of years have been tough for the European telecom industry, but there is finally hope for revenue stabilisation and light at the end of the fibre wire.
Until recently regulation has been seriously impairing the profitability of telecom companies.
Measures have been taken to regulate wholesale broadband access and roaming tariffs. Competition regulators have incentivised strong competition, while spectrum auctions have often been expensive, allowing for new operators to enter the market.
Product differentiation is difficult because of net neutrality regulations. As a consequence, telecom companies have been at the wrong spot in the value chain, while companies that sell telecom equipment, media content or cloud have performed exceptionally well.
This challenge for the industry has been loudly voiced by the European Telecommunications Network Operators’ Association, although it seems that the European Commission is still focused on lowering consumer prices.
Today, a number of investment opportunities arise for the industry and this will likely bring at least revenue stabilisation.
5G and fibre broadband are here to stay and we expect that 2022 will be the year when its uses will become more widespread.
5G handset availability is driving consumer demand for 5G networks, while network coverage also improves. For example, in Germany, half of the country was covered by 5G in December, while the roll-out continues.
In France, 5G was available in 239 municipalities in March 2021 and almost 900 at the end of December, which indicates a strong improvement.
However, this requires strong investments with operators needing to acquire spectrum, establish mobile towers, and purchase equipment.
The critical factor to achieve future revenue growth, however, will be in setting an optimal pricing policy for 5G services. Are users going to pay for new services like innovative gaming, virtual reality, augmented reality, and for solutions centred around industrial automation?
The build-out of fibre networks is progressing according to plan, also with the help of EU funds.
Money from Next Generation EU, the European recovery fund, will be used to accelerate the digital transition. At the end of 2021 approximately half of all European households had access to full fibre, with the fibre roll-out to reach approximately 60 per cent of European households by 2022.
A particularly exciting development is the novel way customers can connect to the internet in remote areas. Operators could connect homes using fast mobile networks, dubbed fixed-wireless access (FWA), as well as satellite connectivity.
Furthermore, satellite solutions are becoming very interesting to connect remote areas.
The war in the Ukraine shows the power of satellite technology with the government asking Elon Musk to divert more Starlink satellites to the area.
Besides investments in new technology, restructuring programmes continue to modernise the back-office of the operators and to phase out legacy technologies. Once implemented, this could be a tailwind for profitability.
Note that we expect that European-based telecom operators will be rather insulated from the conflict in the Ukraine, unless there will be a global recession.