Moody’s study: a tale of two telco markets

European and US telcos are experiencing contrasting fortunes, with Europe’s players seeing prices rising thanks to their ability to sell converged bundles of TV, broadband and telephony while US operators suffer from increasing wireless competition, according to credit ratings agency Moody’s.

According to a report on the sector by Moody’s US telcos’ revenue growth will slow and free cash flow will decline this year, while European telcos will see sustained growth after a period of decline.

“US telcos’ revenue growth will slow and free cash flow drop by 2% in 2017 as price pressures intensify with the proliferation of wireless unlimited price plans and ongoing challenges in the wireline segment. In Europe, however, telcos look set to enjoy a sustained period of growth into 2018 after several years of decline with revenues expected to climb by up to 1.5% as consumer spending strengthens and high-speed data demand grows,” said Carlos Winzer, senior vice-president at Moody’s.

According to the report, Telecommunications – Europe and US: Divided by an Ocean and a Cycle, market consolidation is likely to happen both in the US and Europe as players seek to consolidate or diversify to secure cash-flow growth in a mature market. Moody’s predicts consolidation between wireless, wireline and cable operators in Europe, but points out that this will take time due to regulatory constraints and limited financial strength.

While European telcos need to prioritise paying down their debts in the wake of the downturn, US telcos have also accumulated large debts after a period of easy credit and are likely to enter a phase of prolonged contraction in cash flow and deteriorating credit metrics, according to the report.