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Summary

It is apparent that macroeconomic volatility has had major effects on operators’ reported financial results. A combination of large movements in exchange rates and several major M&A transactions is driving a wedge between reported growth rates in financial metrics and underlying growth, which is particularly scarce (but improving) in Europe.

Ovum’s World Telecoms Financial Benchmarks product (available by subscription) tracks financial performance and guidance of major telecoms operator groups in detail.

True revenue growth is increasingly hard to find

Most major telecoms operator groups have released 4Q15 results, but Ovum finds that reported financials are increasingly affected by currency and changes in the scope of consolidated accounts due to acquisitions and disposals.

Based on reported numbers, performance at several major operators with high growth rates are not what they might appear at first glance. While AT&T reported 10.8% revenue growth, this includes the acquisition of DirecTV during 2015. Similarly, Deutsche Telekom reported revenue growth of 10.5%, assisted by the strength of the dollar (the base currency for T-Mobile USA) against the euro; organic revenue growth was a more modest 3.0%.

The highest underlying growth rates have tended to originate from exposure to developing markets with nascent growth in data and value-added services. STC, for example, which operates primarily in the Middle East, experienced growth of 11% in consolidated revenues in 2015. By contrast, Europe’s top-line performance lags other regions, with several operators reporting low or even negative sales growth, although the trend is one of improvement after a few tough years.

One standout group in 4Q15 was Sprint, which originally guided to $6.5bn to $6.9bn of EBITDA for the year to March 2016 but now expects $7.7bn to $8.0bn. Furthermore, Sprint anticipates substantial future growth in EBITDA profitability beyond that, with preliminary guidance of $9.5bn to $10bn for the year to March 2017. Sprint’s margins are rising from low levels compared to most industry players, which are generally reticent to indicate increasing profitability and are suggesting similar margins to last year’s.

With macroeconomic noise increasing, constant-currency organic growth metrics, not currently reported by all operators, are becoming increasingly important in order to understand fundamental trends.

Appendix

Further reading

Telecom Industry and Operator Benchmarks by Key Financial Metrics: 3Q15, TE0009-001494 (January 2016)

WTFB: 2015 Group Guidance Analysis, TE0009-001440 (June 2015)

Author

Upin Dattani, CFA, Senior Financial Analyst, Forecasting & Financial Analysis

upin.dattani@ovum.com

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