February 22, 2018 / 3:03 PM / a month ago

Investments pay off for European telecom's old guard

BONN/MADRID (Reuters) - Europe’s former telecoms monopolies were able to show growth in their home markets this week after years under attack from challengers who have beaten down prices and eroded profits.

FILE PHOTO: Timotheus Hoettges, Chief Executive Officer of Germany's telecommunications giant Deutsche Telekom AG, presents a 5G based parking spot finder during the company's annual shareholder meeting in Cologne, Germany May 31, 2017. REUTERS/Wolfgang Rattay /File Photo

Deutsche Telekom (DTEGn.DE), Spain’s Telefonica (TEF.MC) and French Orange (ORAN.PA) said investments in better networks were finally paying off, as they were able to switch customers to faster, bigger bundles of broadband and mobile connections and media at a higher price.

The established operators had found it increasingly difficult to defend their natural advantage as owners of the biggest networks as they became obliged to allow new entrants to piggy-back on their infrastructure on strictly regulated terms.

But the so-called incumbents have regained some ground as consumers focus on network quality and as they exploit their buying power with equipment suppliers and media companies.

“Nothing happens in Germany without us,” commented Deutsche Telekom Chief Executive Tim Hoettges on Thursday, pointing to the company’s record 5.4 billion-euro ($6.6 billion) spending on German broadband last year.

“We are investing significantly more in these areas than our competitors,” he added.


Deutsche Telekom’s German revenue grew 0.7 percent in 2017, with adjusted core profit rising 2.8 percent. Telefonica posted stable revenue in Spain in the fourth quarter, with service revenue rising 0.7 percent.

Deutsche Bank said Telefonica’s domestic result was encouraging despite a slide in core profit, and kept its “buy” rating on the stock.

“We believe the improved revenue trend and decent KPIs (key performance indicators) are more important as an indicator that Telefonica is managing the low-end risks in the Spanish market,” wrote analyst Keval Khiroya.

Orange on Wednesday reported a return to annual sales growth in its home country for the first time since 2009.

Orange has been fighting a price war waged by younger rival Iliad (ILD.PA) in its home market, while Telefonica has contended with low-cost rivals including Mas Movil.

In Germany, challenger E-Plus was bought by Telefonica Deutschland (O2Dn.DE) in 2014, reducing the number of mobile operators to three from four and easing pressure to cut prices, although cable firms are still competitive on broadband.

That merger was hailed at the time as sending a signal for other European markets, but attempts at similar consolidation in France have failed, while Spain also still has four mobile carriers even after a wave of takeovers.


    An ability to offer superfast fiber connections is proving key to winning and retaining customers, and will be essential to building the next generation of faster mobile services, 5G.

    Here, the carriers’ approaches diverge, with Deutsche Telekom, like BT (BT.L) in Britain, favoring a method called vectoring that cranks up the old copper network to higher speeds without the costly extension of fiber all the way to buildings.

    Spain and France offer far more fiber-to-the-building or home connections, with penetration of 34 and 15 percent respectively as of last September, while in Germany the figure was under 3 percent.

    Fiber connections are offered by a host of smaller players as well as the incumbents.

    With the advent of 5G, the balance of power may change again, as fiber to the building could become less important.

    Commercial 5G services are expected to start to become available around 2020.

    Writing by Georgina Prodhan; Editing by Keith Weir

    0 : 0
    • narrow-browser-and-phone
    • medium-browser-and-portrait-tablet
    • landscape-tablet
    • medium-wide-browser
    • wide-browser-and-larger
    • medium-browser-and-landscape-tablet
    • medium-wide-browser-and-larger
    • above-phone
    • portrait-tablet-and-above
    • above-portrait-tablet
    • landscape-tablet-and-above
    • landscape-tablet-and-medium-wide-browser
    • portrait-tablet-and-below
    • landscape-tablet-and-below