Causes for European telco optimism, despite rising inflation – Omdia

Rising inflation is hardly ideal for European service providers (SPs). It erodes the value of fixed-price contracts and hikes up costs.

But it's not all doom and gloom as 2022 approaches. European SP revenue grew in 2021, while demand for fast and reliable broadband connectivity continues to strengthen.

There are also ways SPs can mitigate inflationary pressure. Reducing operational costs through digital transformation is one approach, as is further rollout of fiber-to-the-premise (FTTP), which is more energy-efficient than legacy copper.

These were some of the observations outlined in a recent report from Light Reading sister company Omdia: 2022 Trends to Watch: European Service Provider Markets. "The outlook for telecoms service providers remains strong," concluded William Hare, the report's author and practice leader for European markets at the research firm.

Inflation busters

Hare highlighted that inflationary pressures will increase costs of new network rollout and lead to greater opex for existing assets. Legacy systems with high energy and labor requirements, he added, are likely to be the most affected. Moreover, new-build infrastructure will be most susceptible to any workforce shortages.

"Control of costs through digital transformation is key to dealing with a rise in inflation," Hare said. "Newer networks, systems, and platforms offer lower energy usage and reduced staffing and maintenance requirements." He added that SPs should accelerate the shutdown of legacy systems. Another inflation-mitigating tool in the SPs kitbag, according to Hare, is FTTP.

"Although FTTP rollout comes with a high price tag, it also brings savings in operational costs relative to legacy networks," he said. "It is more energy efficient, has lower staffing requirements, and reduced maintenance costs."

Another cause for optimism, argued Hare, is SP divestment of tower assets – already an established trend in western Europe and likely to spread into eastern European markets – to raise cash and reduce debt. "[Divestment] is an effective way of reducing costs through increased asset utilization," added Hare, "which is increasingly important as service providers look to increase coverage of 5G and FTTP."

Customer care

SPs will need to tread carefully, warned Hare, if they're thinking about invoking clauses in customer contracts to raise prices on account of inflation. "[They] must manage their customers' expectations to avoid bill shock that could lead to churn," he said.

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Developing a multi-brand strategy, tailoring product portfolios to suit customers' needs, is another Hare recommendation. Telecom customers, especially in the low end of the market, will be facing increased pressure on household spending, and will seek to minimize spend on their monthly bills. "A multi-brand strategy can be an effective way of serving the more price-sensitive customers without devaluing the main brand," he said.

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— Ken Wieland, contributing editor, special to Light Reading