Fitch Ratings highlights in a report today that operational cost-cutting will become an increasingly important factor in the financial metrics and ultimately the credit profiles of Europe's incumbent telcos over the next five years as market growth becomes increasingly challenging to achieve.
"Increasingly, Fitch is seeing incumbents resort to cost-cutting to underpin margins," says Michael Dunning of Fitch's TMT group in London. "This is because the sector has reached a growth inflection point as broadband and telephony take up levels are at saturation point, and the effects of competitive pricing will erode future margin levels on new data and content offerings."
"However, the good news is that these entities are able to make significant cuts in operating costs, which Fitch estimates could represent as much as 30% in some cases," added Dunning.
The report notes BT Group and KPN as leading examples of incumbents well on their way to achieving these sorts of efficiency gains. However, it cautions that not all incumbents will be able to achieve the same scale of cuts as BT Group and KPN, or that they will take more time to do so.
Fitch continues to have a "Stable" rating outlook on the European telecom sector.
The full report is available on the agency's website - registration required.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=502046
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