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Planning for the upturn: recession strategies for telecoms operators


Description: “In the current recession, the operators that exploit the situation to emerge with an enhanced competitive advantage once the storm has passed will be the real winners.”

So far, the economic downturn has been relatively kind to telecoms operators: revenue is not collapsing, profitability is holding up and their stock value is, in general, outperforming the market as a whole. This extended period of 'phoney war' cannot last, however, and operators will be affected by the overall malaise; in particular, rising unemployment will change long-term trends in end-user spending.

The current economic crisis will select the strong operators of the next decade. This report will answer some of the questions that operators must address in order to fall into this category. The first questions relate to relative success in a poor overall environment: how should an operator balance the imperatives of maintaining revenue and profitability with keeping volumes high? And what sort of structural changes and efficiency measures can an operator effect to see it through the immediate crisis?

The economic crisis is unlikely to lead to the collapse of many operators because the sharp telecoms downturn in 2002 swept away lots of the structural weaknesses that still remain in many other sectors of the economy. So the most important question for operators will be: what can we do during the downturn that will give us an enhanced competitive advantage when the economic situation improves?

The issue of cost control has to be seen in this forward-looking light, and the questions 'What can't operators afford to give up?', 'What are false efficiencies?' and 'What spending might operators even accelerate in a downturn?' are just as important as 'Where can operators save costs?'. Similarly, operators should be asking the following question about their product portfolios: what kind of product set will attract the sort of customer base that brings long-term success? Recession focuses the minds of both consumers and businesses. Operators that focus on how to shape their telecoms businesses to emerge stronger from the recession will be the next decade's great companies.

Planning for the upturn: recession strategies for telecoms operators answers your key questions:

- What sort of strategy will create strong players in an upturn?

- Where is it best to continue to invest?

- How are operators trimming costs and what cost savings should they avoid?

- How should a recession affect the evolution of the product set?

- Does recession speed up or slow down long-term structural changes along fixed–mobile, vertical–horizontal and service–access axes?

- What can telecoms learn from other service industries about success factors in a recession?

- What are the strategies of players in deeply affected markets?


Contents: Summary

1 The economic downturn has been relatively kind to operators so far

1.1 The structure of the telecoms service industry is quite strong
1.2 Debt levels are low by general industrial standards
1.3 Telecoms services are not immune from the recession

2 Operators will be more risk-averse in their approach to major investment

2.1 Local factors will determine how fast to press ahead with NGA in a recession
2.2 Mobile networks’ cost structures may give MNOs an advantage in a recession
2.3 The timescales for NGN transformation are not aligned with the rhythm of economic cycles
2.4 There are many types of good, smaller and strategic investments to be made
2.5 Operators need to be aware of the cost implications of reducing opex
2.6 Operators need to take a long-term view of the value of outsourcing and of structural disposals

3 Operators must simplify portfolios and optimise price/cost ratios

3.1 Operators should provide longer and broader contracts
3.2 Operators should tie pricing to usage
3.3 Operators should consider ‘tariff rebalancing’ - also known as ‘price rises’
3.4 Mobile operators need to maintain contact with prepaid customers
3.5 Operators should eliminate ‘me-too’ services

4 The recession will slow innovation but accelerate some long-term structural trends

4.1 A different kind of M&A activity will emerge
4.2 The recession will hasten the demise of weaker players
4.3 Fixed-mobile substitution will accelerate
4.4 There will be some vertical and horizontal re-alignment
4.5 The operators that succeed will have more clearly defined positions in the network economy


Key to acronyms

- Research from Analysys Mason
- Consulting from Analysys Mason


List of Figures and Tables

Figure 0.1: EBITDA margins and net debt/EBITDA ratios of selected operators in developed markets, 3Q 2008 vii
Figure 1.1: EBITDA margins of selected major operators in developed markets, 2002-9M 2008
Figure 1.2: Net debt/EBITDA ratios of selected major operators in developed markets, 2000-9M 2008
Figure 1.3: EBITDA margins and net debt/EBITDA ratios of selected major operators in developed markets, 3Q 2008
Figure 1.4: EBITDA margins and net debt/EBITDA ratios of selected alternative operators in developed markets, 3Q 2008
Figure 1.5: EBITDA margins and net debt/EBITDA ratios of selected cablecos in developed markets, 3Q 2008
Figure 1.6: Household spending patterns under different levels of budgetary pressure
Figure 2.1: Capex as proportion of revenue for selected major operators in developed markets, 2002-9M 2008
Figure 2.2: Sharing agreements between mobile operators
Figure 2.3: Revenue per employee for selected major operators in developed markets, 2002-2008
Figure 2.4: Workforce reductions announced by selected operators in 2008 as a percentage of their total workforce at December 2007
Figure 4.1: Incumbent-owned altnets’ shares of retail broadband subscriptions, 1Q 2005-3Q 2008




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