TEXT-Fitch: European austerity drives negative telecom outlook
Dec 11 - Link to Fitch Ratings' Report: 2013 Outlook: European Telecoms and CableDec 11 - The impact of austerity measures on European telecoms revenue is the main driver of the negative outlook for the sector in 2013, Fitch Ratings says. We expect much greater pressure in the south than in the north, with a clear divide likely to continue due to GDP contraction in southern Europe. Consolidation in the sector would be a big help in improving profitability in light of the intense level of competition, although the stance of regulators remains uncertain. Many European operators are bracing themselves for a swath of cuts to their mobile termination rates (MTR) in 2013, with voice and data roaming charges probably next in line for steep reductions. The hardest hit by the MTR pressures are likely to be southern European operators, including in Italy and Spain, particularly those without large fixed-line franchises. Dozens of networks operate in Europe compared with just a handful in the US. This significantly reduces economy of scale advantages for European telecoms but also limits their cost-cutting headroom. We expect competition to remain extremely intense because even if in-market mergers do get regulatory approval they are likely to be slow to materialise. Meanwhile, the emergence of cable as a strong facilities-based competitor in many European countries will continue to eat into the incumbents' market shares. Competition has played into the customers' hands: subscribers are able to renew their contracts on better terms, leading to lower average revenue per user. Incumbents are particularly at risk because their high legacy data tariffs mean that a higher share of their revenue is at risk. For more information about likely drivers of M&A - and other topics - read our 2013 European Telecoms and Cable Outlook, available at www.fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.