Western
Europe's incumbent telecoms operators must look beyond their collective
EUR240 billion long-term debt and define their strategic options now,
says a new report released by Analysys.
A sample chart from the report is shown on the left.
According
to the report, The Future of Telecoms Incumbents: the impact of competition,
regulation and customer demand, 14 incumbents had long-term debt at
the end of 2001 ranging from around EUR1 billion to EUR67 billion, and
half of these operators had gearing of more than 95%.
A
table of Western European incumbents' long-term debt and gearing at
December 2001 - featuring (ranked in order of debt level) Deutsche Telekom,
France Telecom, BT Group, Telefonica, Royal KPN, Telecom Italia, Portugal
Telecom, TDC, Telia, Telenor, Sonera, Telekom Austria, OTE and Swisscom
- is available to the media on request.
"Management of long-term debt is clearly the principal driver of
incumbents' decision-making today, as they attempt to restore shareholder
value," says Tamsin Pert, the report's author. "But they also
need to consider how they can create value and maintain competitive
advantage in the longer term. In this respect, scenario planning will
be key to assessing the potential impact of the decisions they take."
According
to Analysys, despite the difficulties faced by incumbent and alternative
operators alike, the European telecoms market is still growing (by 9.5%
in 2001), but is characterized by unpredictable demand, weak competition
and confused regulation. The success or otherwise of GPRS and 3G networks
will be a crucial factor for most incumbents, many of which are already
under financial constraints and have capped capital expenditure for
the next few years.
"If
GPRS or 3G networks and services do not perform as customers expect,
or if costs are higher than planned, there will be huge implications
for many incumbents," adds Pert.
After a period dominated by a rationale of vertical integration and
globalization, incumbents are now being forced to adopt a more modest
approach based on achieving financial stability and increasing margins
in what is likely to remain a very uncertain market for the next five
years, says Analysys. This has led many incumbents to restructure their
portfolios and dispose of what they consider to be non-strategic assets.
The report sees three broad groupings emerging among incumbents as these
measures are implemented: those that are trying to maintain a global
strategy (Globetrotters); those that have ambitions in a more defined
market area (Eurovisionaries); and those that are downsizing to focus
on a core domestic market (Homebodies). One common theme across all
these groupings is that incumbents are putting fixed broadband at the
heart of their domestic strategies to bolster margins.
"Incumbents
are now having to reshape their service portfolios as quickly as possible
to focus on cash generation in the short term and to build revenue growth
and market share over the longer term," explains Pert. "The
challenge is do this while taking account of the expectation of numerous
stakeholders, especially the financial markets, and management teams
will need to have a clear understanding of what investment and divestment
decisions will be acceptable in the current climate."
The report examines the ways in which incumbents are reacting to the constraints and opportunities in today's market. It evaluates the impact of competition, regulation and customer demand, and considers how incumbent service portfolios are changing as a result. It uses three pre-defined scenarios - Championship Bout, Prize Fight and Free for All (see Scenarios for the European Telecoms Market 2002-2007: forecasts and analysis, published by Analysys in May 2002) - to consider how incumbents can plan for a more secure future and anticipate the effect of different environmental factors on their chosen strategy.
