European telecommunications firms set to recover after major restructuring drive

After a protracted period of a sharp fall, shares of European telecommunications companies are showing signs of stability, according to a study by business consultant firm Deloitte. The firm’s sectoral index (Deloitte Global Telco Index), which records the capitalizations of the biggest listed telecom operators worldwide in the January 2000-August 2003 period, shows that the strict restructuring moves adopted by firms have begun to be reflected in their share prices. The world capitalization of telecom companies receded 68.7 percent in the above period, with European firms losing 67.1 percent of their stock market value, those based in the US 73.1 percent and Asian firms 69.5 percent. As a whole, European firms weathered the crisis in the sector less painfully than those of either of the other two regions, achieving speedier implementation of programs for reducing debt and boosting liquidity. Their total value stood at roughly half of the world total in July 2003 from about one-third in 2000. The study cites the examples of British Telecom (BT) which changed its structure, maintained four separate business units and sold its mobile telephony segment, while others, like Telefonica, Deutsche Telekom and France Telecom carried out write-offs of considerable assets. However, despite posting a 12 percent rise in operating revenues (against 15 percent for Asia and a 13 percent fall in the US), European telecoms firms had the lowest profit before interest, taxes, depreciation and amortization (EBITDA), which represented about 20 percent of operating revenue (against 40 percent in North America). The study notes a realignment of market shares from North America to Europe. North America’s share in the global market declined from 45 percent in 2000 to 30 percent in 2003, while that of Europe rose from 31 to 46 percent over the same period. Asia’s share remained stable at 24 percent. The study cautions that a large part of the increase in private companies’ revenues does not represent new business for the sector as a whole, but a shift from formerly public companies which were privatized. Britain’s Vodafone recorded the highest growth rate among all firms included in the index in the 2000-2003 period, thanks to an expansion of its client base achieved mainly through acquisitions. Its total capitalization amounted to $130 billion in July 2003, with 21 percent weighting on the Deloitte Global Telco index. Vodafone was the world’s largest telecom company, followed by Japan’s NTT Docomo, Verizon Communications of the US, Finland’s Nokia and also the US-based SBC – which are mainly service providers, except for Nokia, which is also a manufacturer of telecom equipment. Until a few years ago, the index was dominated only by US manufacturers. Greece In the 1999-2002 period, the Greek telecoms sector grew at an average annual rate of 9.1 percent, the fifth highest in Europe. The country’s telecoms market registered a turnover of 6.6 billion euros in 2002, representing 4.6 percent of Greek gross domestic product – third highest in Europe after Portugal and Finland. Growth plans are seen as the key to the strategies of Greek telecoms firms in coming years. The sector has recently seen a proliferation of alternative providers that is heightening competition and improving service to consumers. This is projected to continue, as considerable amounts of EU investment subsidies are expected to help the sector become more innovative and creative.

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