Cost reductions will not stifle future growth potential

Looking backwards to most incumbents strategy, it appears very clearly how the original objectives to invest in high growth promising businesses (such as Internet and mobile telephony) as well as to build international operations spanning several countries, were in fact strongly over estimated.

Stuttgart, Germany (PRWEB) September 19, 2003 -- 19th September 2003 -- Looking backwards to most incumbents strategy, it appears very clearly how the original objectives to invest in high growth promising businesses (such as Internet and mobile telephony) as well as to build international operations spanning several countries, were in fact strongly over estimated. As the Internet/UMTS bubble burst, stock exchange plummeted and so did the value of acquisitions and investments, leaving most operators with very large debts and the value of their investments no longer potentially covering these debts. Consequently, the strategy changed to capex (capital expenditure) reductions, other costs (in particular staff) reductions, and the sale of non-core operations. Some went to the extreme of selling their entire mobile division, as BT. How is this new strategy now going to evolve in view of the results of the first half of 2003?

At the main Western European incumbents (BT, Deutsche Telekom, France Télécom, Telecom Italia and Telefónica) revenue growth in the first half of the year was very moderate, if at all. Telecom Italia and Telefónica recorded decreasing revenues, BT experienced flat revenues while France Télécom revenues grew only by less than 2%. On the other hand EBITDA and EBIT increased, in particular EBIT grew by about 8% for Telecom Italia and over 18% for the other companies. As now write-offs are largely done, net incomes are back in the positive for all the considered operators. As a consequence of reduced capex, improved results and the sale of certain investments, all operators have managed to reduce their debts. For the first half of this year operators saw their net debt decrease between 19% for DT and up to 33% for BT.

The question is now whether these capex reductions and generally speaking cost reductions might not stifle product innovations and slow down time-to-market, thereby limiting future growth potential. InfoCom does not quite take this view, as we feel there is still some scope for cost cutting. However, it is true there is a limit to how little capex can be invested. As equipment becomes obsolete, and increasing subscribers and usage puts pressure on capacity, capex will soon have to increase somehow, even though equipment prices have been decreasing.

This market outlook, and much more on international expansion strategy, comes from our monitoring service Profiles, as part of our Teleseeq product range, providing with effective and synthetic views of more than 100 companies world-wide. This service is available on-line and provides fundamental market data for the multimedia and telecoms industry in four main categories: Incumbents, Mobile, Internet, and others.

About InfoCom
InfoCom is a market research and consultancy company with over 15 years experience providing strategic planning assistance to stakeholders in the telecommunications and multimedia industry. InfoComs independent and fact-based perspective on the telecommunications and multimedia environment contributes to decision makers understanding of market dynamics, trends and opportunities in the key markets.
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