- Incumbents must define strategic options now but take some measured risks
- Incumbents are adopting one of three approaches - Globetrotter, Eurovisionary or Homebody - but all are focusing on fixed broadband to boost domestic margins.
19 July 2002 -- Western Europe's incumbent telecoms operators must look beyond their collective EUR240bn long-term debt and define their strategic options now, says a new report released by Analysys, Cambridge, UK, the global adviser on telecoms and new media (www.analysys.com).
The Future of Telecoms Incumbents: the Impact of Competition, Regulation and Customer Demand reveals that 14 incumbents had long-term debt at the end of 2001 ranging from around EUR1bn to EUR67bn, and half of these operators had gearing of more than 95%.
"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."
Despite the difficulties faced by incumbent and alternative operators alike, the European telecoms market is still growing (by 9.5% in 2001), but is characterised 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 globalisation, 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.
Report pricing starts from EUR1105.