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“The industry has demonstrated during the Covid-19 crisis that it was almost immune to the economic cycle, able to record resilient profit margins,” says Jacques de Greling, director at Scope Rating.

The sector’s credit outlook remains stable - excluding the unlikely event of largescale, debt-financed mergers and acquisitions.

“Driving the restructuring this year will be two issues: the need to improve efficiency to offset upward pressure on costs and the opportunity in digitalisation to automate more processes,” de Greling says.

Investment in 5G will continue but the spending required is in little danger of stretching balance sheets. After all, 5G investment is merely replacing previous investments in 2G and 3G networks, which have dwindled to nothing, while 4G-related capex is in decline despite the persistently rapid growth of traffic across mobile networks.

Source: Arcep

Data from France illustrates best how mobile capex has remained steady despite network upgrades and exponential growth in data usage. Mobile capital expenditure has been stable around EUR 2.6bn per year for the past 15 years in France even though mobile data traffic multiplied by around 60,000 times and the number of mobile operators in the country rose to three to four as Iliad SA entered the market in 2012.

As illustrated by the figures for the French market, it’s the investment in the fixed network that is driving the increased capex across Europe. In France in past 15 year, 90% of the increase has been for fixed, that is to say moving the network form copper to fibre, and in particular to fully fledged fibre, i.e. FTTH. 

“The speed of this transition varies significantly from one country to another in Europe, as illustrated in the latest OECD data, with, on average, about a quarter of broadband lines already fibre,” says de Greling.

“Among large European counties, Sweden, Spain, Norway and Portugal are the most advanced. Belgium, United Kingdom, Germany and Italy are among the laggards,” says de Greling.

M&A will remain low down on CEOs’ to-do lists largely because international deals are of little interest to European telcos given the lack of cross-border synergies to be extracted from such transactions. The European Commission remains hostile to national mobile consolidation on the grounds that the number of wireless operators in each country is already low – no more than three or four - to maintain sufficient competition. National telecom regulators have shown no more enthusiasm for more consolidation in domestic mobile markets.

The only national consolidation that looks possible is in merging a fixed operator with a mobile operator in the same country, as illustrated by recent the announcement of Orange Belgium’s acquisition of cable operator Voo. “However, after a decade of deal making, there are few remaining independent fixed-asset or cable operators in Europe,” says de Greling.