Despite concerns about the performance of telecoms companies in the
face of recession and inflation, and warnings from the likes of
Vodafone and Telenor, early reporters of Q2 financial results have
shown some real resilience and a bit of growth.
In Europe, early reporters KPN Telecom NV and TeliaSonera AB both
delivered encouraging results with revenues up and performance against
most other metrics improving.
For instance, KPN's net line loss was down significantly year
over year, its VoIP service has penetrated about 15 percent of Dutch
households, and TV subscribers have increased to more than 650,000. KPN
profits did suffer, but that was mostly due to the higher
infrastructure investment (KPN's all-IP NGN construction initiative and
the upgrade of the E-Plus mobile network to HSPA), and restructuring
charges reflecting lower headcount.
In the States for the quarter, AT&T and Verizon grew revenues by
3.7 and 4.7% respectively while Comcast revenues were up by 11% year
over year. Profit wise, Verizon was up 12%, Comcast 19% and AT&T a
whopping 30% YoY
It's particularly instructive to look at service segment performance in the States:
On the plus side, wireless was the star for the Telcos, with
overall revenues growing by 12-16% and data growing 45-52%. New High
Speed Internet (HSI) and TV offerings garnered about 357,000 new
subscribers.
On the downside, access line drops and slower DSL growth plagued the
Telcos. Comcast picked up some of the slack here, growing revenues 50%
in VoIP and 10% in HSI despite some significant discounting due to
bundling. Comcast now claims to have 12.5% penetration in its regions
with its voice product, with virtually all of it included as part of a
larger bundle.
Even TV revenues grew slightly (3%) for Comcast, despite
138,000 customer defections and bundling discounts, as customers moved
to pricier digital TV packages, and HDTV and DVR penetration increased.
Notably, advertising revenue declined 2% for Comcast, despite a
boost from election year political advertising. Not surprisingly, this
reflects the weakness in the housing and auto sectors.
So at least early results indicate that the sector is more resilient
than some had predicted. I think this is due primarily to two factors:
1. Communications are embedded deeply into people's lives, and
only a very serious decline in economic conditions is likely to change
behavior.
2. Bundling and flat rate pricing, two market strategies that
have been criticized as detrimental to revenue growth, are at least
partly responsible for sector resilience. While it can be tougher to
grow revenue with flat rate pricing, its predictability makes it less
likely that consumers will lower their spend. And while bundling almost
always means package discounting, it really discourages churn, or a
move to fewer services.
Don't get me wrong here; there are still serious concerns for
the industry, and the transformation efforts by industry leaders need
to be at least maintained, if not accelerated. Investors are still
rightfully concerned about the industry's ability to pay off capital
investments with new services revenues and lower operating costs,
“free” internet services remain a massive threat, and regulators don't
appear to be particularly sympathetic these days. So we should not be
lulled to sleep on this.
But for now, industry resilience is somewhat reassuring.
Posted
10-09-2008 6:07 PM
by
Robert Rich