The credit outlook for European telecommunication operators remains stable. Total revenues, and mobile capex will hold steady in 2021 even though the introduction and roll-out of 5G is making the headlines, says Scope Ratings
The sector has demonstrated its fundamental stability during the Covid-19 crisis. Latest revenue figures published by European regulators showed little change from 2019 trends, particularly in comparison with the scale of the economic recession in Europe.
“Also noteworthy is the operational resilience of Europe’s industry which experienced no network failures despite the increase in traffic during the lockdowns and the shift toward remote working,” says Jacques de Greling, analyst at Scope.
“Helping operators cope with the rise in usage was that the surge in traffic took place mostly during the day when usage was usually low, pre-pandemic, rather than in the evening, typically the period of peak usage,” de Greling says.
Operators are at risk of a more material adverse impact from the pandemic should further economic disruption, as governments reimpose restrictions to contain Covid-19, trigger more bankruptcies and business closures. “Offsetting that risk is growing digitalisation of corporate activity, accelerated by the pandemic and pressure to cut costs, so, overall, the impact of a second phase of coronavirus infections would be negligible,” he says.
The pandemic’s biggest impact on the sector to date has been postponement of several auctions of 5G spectrum in 2020. Operators will likely incur the cost of acquiring spectrum this year though it will remain well within their financing capacity.
“We expect no new entrants in any of Europe’s biggest markets to compete for spectrum this year: the industry is mature with mobile penetration around 130%,” says de Greling. France’s 5G auction raised EUR 2.8bn last year with bids from four established operators – Altice SA, Bouygues Telecom SA, Iliad SA, Orange SA – whereas Germany’s raised EUR 6.5bn in 2019. The entry of 1&1 Telecommunication SE provided extra competition for Deutsche Telekom AG, Telefónica Deutschland AG and Vodafone PLC.
“The speed at which operators are putting 5G in place varies from country to country – 5G trials, spectrum auctions, network roll-out, service introduction, new handsets – while the industry continues its search for a ‘killer app’,” says de Greling.
“Beyond the hype, the impact on revenues and capex will not be significant: investment continues to increase slowly, driven in 2021 more by further investment in fibre networks (FTTH) around Europe than 5G which is replacing existing technology – much as 4G did with 3G, and 2G before that – and re-using existing infrastructure like masts,” he says.
“We see limited opportunities for large M&A given already concentrated national markets and no advantages from cross-border tie-ups, though operators will continue to sell infrastructure assets, such as towers and parts of their fibre networks,” he says. “This will leave the sector’s overall credit quality unchanged despite a likely slow, uneven economic recovery.”