March 15, 2010

No Quick Fix for Telcos, Says Ovum

A new report by Ovum warns that although the economic downturn hasn’t resulted in the downward pressure on telco top lines that many expected, revenue growth is in decline for many mature market operators, and slowing for those in emerging markets.

Telcos are struggling to grow revenues and are seeing their margins squeezed. The biggest downward pressure on telcos comes from declining fixed access lines, driven by substitution from mobile and VoIP.


“While the recession accelerated revenue decline, challenges such as market saturation, increased competition and regulatory intervention on roaming and termination rates won’t disappear just because the economy picks up,” said Ovum’s principal analyst Clare McCarthy, in a statement.

Ovum's analysis stems from a global consumer survey of 39,000 people conducted recently by Ovum’s parent company Datamonitor.

The survey indicated that while they do show some degree of resilience in consumer telecoms spend, (with only 7.6 percent of consumers indicating that they would definitely cut back on spending), over a quarter of consumers surveyed indicated that they either would, or consider cutting back on their telecoms spending, with a further 24 percent undecided.

When asked which services they would look to cut back on, over 30 percent indicated that they would consider downsizing their mobile phone tariff, while 24 percent saw fixed voice as an area where they could make cuts.

Telcos are responding with cost-saving measures. In addition to cutting opex, telcos have also sought to reduce their capex, either through postponing or cancelling investment projects, or simply through utilizing higher hurdles for return on investment in their decision-making processes. They are also accelerating employee release programs and stockpiling cash. Many telcos are emerging from the downturn with healthier balance sheets than when they entered, as well as significant cash balances.

Ovum analyst Mark Giles said in a statement, “We expect activity, partnerships and possible acquisitions to occur, with telcos looking at over-the-top (OTT) services for consumers, as well as developing vertical expertise in ICT provision for enterprises.”