Europe's operators face low-margin future - study

Europe's telecoms industry faces collapsing margins if it doesn't act to cut costs.

That's the message of a report from management consultants Arthur D Little, which predicts that European telecoms could become a low-profit business within five years.

It says that earning before interest, tax, depreciation and amortisation could drop from 35% to 40% now to 15% in five years' time, due to the proliferation of voice and data bundles and the increasing costs of discounts. The industry also needs to make substantial investments to keep up with rising mobile data traffic, the move to LTE networks, and the demand for much higher bandwidths to the home in the fixed network.

Operators face pressure on revenues, margins and cash-flow, so need to think more carefully about capital investment and operating expenses. The report says that operators have already made many of the obvious savings and so now need to identify possible hidden savings through more stringent analysis.

Arthur D Little suggests the industry could save around 10% of its annual operational budget by changing maintenance schedules, optimising their backhaul and using Quality of Service measures to manage the use of its bandwidth.

More complex strategic measures include merging the wireless and wireline sides of an operator into one business; sharing LTE and/or FTTx networks; and limiting mobile network investments by offloading mobile data traffic via WiFi or femtocell technology.

“Pressure on revenues, EBITDA and free cash-flow has triggered an urgent need to save on investment budgets and operating costs beyond the obvious areas. This requires the ability to 'think outside of the box'," said Klaus von den Hoff, global head of Arthur D Little’s telecommunication, information, media and electronics practice.

"Cost Reduction in the Telecom Industry" is available for download here

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