Rising competition, spectrum auction shape telecom
The U.S. wireless market is likely to remain highly competitive in 2016, due to pricing pressure and the threat of cable operators entering the business. In Canada, spectrum auctions, wireline stabilization and the sluggish economy are likely to be the main themes. Sprint and T-Mobile’s aggressive pricing is threatening industry margins, magnified by the potential entry of cable operators into the business. Mobile content is an emerging theme as carriers seek growth through new services.
Wireless competition is fierce in North America
The level of competition among North American wireless carriers will likely remain intense in 2016 amid a price war in the U.S. and a weakening economy in Canada due to oil price declines. In the U.S., a price war that is poised to enter its third year, with T-Mobile and Sprint slashing prices in a bid to gain share from AT&T and Verizon. The potential entry of cable companies into the wireless market in 2016 will only add to this pressure, likely weighing on revenue growth and margins.
Spectrum is the most precious asset in wireless
Wireless spectrum is essential to all wireless networks for over-the-air transmission of analog and digital signals including voice, video and data. The value of spectrum in the FCC’s latest auction rose significantly above prior auctions and the secondary market, underscoring the need for more of this resource. With the pending auction of 600 MHz licenses slated to kick off in 1Q, spectrum scarcity will likely remain a key industry theme.
Legacy services pressure wireline growth, margins
Incumbent wireline carriers’ significant exposure to legacy voice and low-bandwidth data services will further pressure their revenue growth and margins in 2016. Network investments, high-bandwidth data and business services promise to offset some of this pressure. Carriers may reconsider investment in data centers following Windstream’s sale of its data-center business and CenturyLink’s strategic review. The consolidation of fiber assets could slow as the number of potential targets shrinks.
European telecommunications 2016 outlook
Data takes center stage in telecom hunt for growth
Revenue growth for Europe’s telecom industry in 2016 will depend largely on the ability to stimulate and monetize demand for data amid a tepid economic recovery in Europe and regulatory uncertainty. Fixed-mobile convergence will set the tone of competition with varying levels of promotional activity across countries. Potential consolidation in Italy and the U.K., even with stricter remedy requirements, support pricing power. Capital spending will moderate as 4G networks near completion.
European 4G data boost to help stabilize revenue
Progress in 4G population coverage, which reached an average 75% in western Europe in 3Q, will aid revenue further next year compared with 2015, potentially driving industry expansion. The GSMA forecasts 1% growth in mobile revenue in 2017-20. Adoption of 4G remains relatively low at less than 20%. The take-up of 4G may accelerate in 2016 as smartphone prices decline and marketing efforts increase. Smartphone prices fell 12% in the first nine months of the year, according to IDC.
European telecoms are expected to return to growth
Next year is expected to mark an inflection point for the European telecom industry, with revenue growth anticipated for the first time since 2009, based on consensus. Operators’ cash flow will get a boost from continued operating-cost cuts and a lower capital spending requirement due to 4G progress and fewer spectrum auctions. Carriers that have advanced the most switching their subscribers to fixed-mobile converged subscriptions and that have a lead in network deployment may gain an advantage in cash generation.
European telecom differentiation pursuit brings convergence lead
Integrated carriers’ fixed-to-mobile bundled services in countries such as Spain, the Netherlands and Belgium are proving an effective way to reduce customer churn, prompting cable and mobile operators to complement their services. So far, demand has been stimulated by discounting bundles, offsetting some of the churn benefits. Regulators may intervene to ease switches between bundles from different operators as the market matures. Pay-TV content and broadband speed will be key differentiators between bundles.
This analysis is by John Butler, Matthew Kanterman, Joshua Yatskowitz and Erhan Gurses. It appeared first on the Bloomberg Terminal.