This ninth edition of the annual Exane BNP Paribas-Arthur D. Little joint report focuses on European mobile operators: Can they return to growth? If so at what cost? In preparing the report, we have conducted 87 meetings with 75 organisations in the telecoms-media-technology arena operating across 12 countries. We have drawn five main conclusions:
- Mobile operators’ revenues could stabilise from late 2010 thanks to the accelerated take-up of new data services, particularly mobile internet access on smartphones.
- Smartphone subsidies will put pressure on EBITDA margins in 2010–2011. This “margin investment” should create value in the mid term, in particular if the smartphone market becomes more balanced. Operators need iPhone alternatives to succeed, in particular Android-based handsets: this is likely, but not yet assured.
- The capex implications of the growth in mobile data traffic will vary from country to country. However, European carriers should be able to cope, with average capex/sales rising to only 12% by 2015e, from 10% today. We are confident for three reasons: we expect mobile broadband to develop mostly as a complement to fixed broadband rather than a substitute; until 2013, the best technology choice for most operators is HSPA+ rather than LTE; traffic offload through fixed access points (WiFi & femtocells) will help.
- We do not believe that mobile data will revitalise operators’ pricing power because differentiation will be very difficult on services and will prove elusive on networks. We therefore expect OpFCF and ROCE to decline slowly.
- Alternative scenarios with stronger demand for data could see long-term value rising but would lead to a dip in OpFCF in 2010–2011. Alternative scenarios with lower data demand and/or weaker voice outlook would lead to a long term OpFCF decline.