Most telecom companies in EMEA have demonstrated great stability compared with other sectors in the two years since the pandemic began. Although roaming, equipment sales, and enterprise revenue have generally suffered, reduced mobility accelerated virtualization in consumers' daily lives. Data traffic spiked by 50%-100% during confinement periods. This drove a surge in demand for fixed-line broadband telecom services that supported resilient operational performance.

That said, operators have been unable to effectively monetize the increased demand. This crystallizes one of the sector's long-term difficulties: how to charge more-for-more in mature, highly competitive markets. As a result, investors have been bearish on the sector's growth prospects, and equity performance lags that of broader corporate indices (see chart 1).

Chart 1

Our review of 15 major rated telecom companies in EMEA indicated that intense competition and the commodification of voice and data services has constrained company differentiation. Within each of our business risk profile levels, the quality of market exposures, and positioning within those markets has become, for most operators, the dominant factor in our relative strength comparison. Companies that operate in higher quality markets or have built competitive positions that can withstand weaker environments than peers stand out in our ranking process. In our view, these companies can support higher leverage at their respective rating, and we allow them looser credit thresholds than other companies in the same business risk profile category.

Our Ranking Process

We ranked 15 of our major rated telecom companies in EMEA that have strong or satisfactory business risk profiles. We grouped them into four ranks based on relative business strength by comparing the factors that we view as key to their competitive advantage: scale, scope and diversity, operating efficiency, and profitability. To normalize these comparisons, we compared each company against its peers on a stand-alone, unleveraged basis (that is, excluding support from the government or group and independently of each company's debt leverage).

The companies are listed in alphabetical order within each category (see table 1) and for each factor considered, we indicate whether we think it gives the company an advantage (denoted by '+'), a disadvantage (denoted by '–'), or is neutral (blank spaces) compared with its peers.

Within each business profile category, the stronger companies are those that have more advantages in highly weighted factors, such as market quality and positioning, combined with minimal or no disadvantages compared with peers. For example, Deutsche Telekom and Emirates Telecommunications Group Co. PJSC (Etisalat) are exposed to higher-quality markets than peers that operate in countries where intense competitive pressures have impaired growth prospects, profitability, and cash flow generation.

Chart 2

The Key Drivers Of Relative Strength

Our analysis indicates that differentiation depends on the quality of a company's market exposures and its competitive positioning within those markets. These attributes underpin many of the observable measures of operational performance--such as revenue growth (historical and forecast), profitability, capital expenditure (capex) requirements, and free cash flow generation (see chart 2).

Chart 3

Our opinion of market quality typically rests on the market structure and the intensity of competition--including the number of players and the level of aggression among challengers. We also consider a market's overall size and growth prospects; macroeconomic factors like per capita GDP and ability to pass on inflation to customers; the level of fixed-mobile convergence; and the regulatory environment.

Our view of positioning generally reflects a company's market share in terms of revenue and subscribers, and related trends like net customer additions.

Other considerations can include the scale of operations and product diversity (that is, ability to offer converged and other value-added services), as well as brand, technology, and infrastructure advantage. These additional elements can further support businesses through product bundling, alignment with customer preferences, and greater profitability.

Market Competition Is A Key Differentiator

Competition remains intense in many major European countries, especially in Italy and Spain, but also in France, due to lower-price value challengers pushing to increase their customer share in already-mature markets. This creates churn pressure and keeps a lid on growth in average revenue per user, despite ever-increasing data demand. It could also impair operators' ability to pass on potential cost increases, a growing concern as inflation rises.

By contrast, competition is more moderate in more consolidated markets like the United Arab Emirates (UAE) and, to a lesser extent, Germany and the U.S. (where Deutsche Telekom has exposure through T-Mobile US). There are only two main players in UAE and three each in Germany and the U.S.

Tellingly, we found that market quality proved more influential in our rankings than many of the additional considerations like scale, product diversity, and technology. Either the other considerations did not allow for material differentiation or market quality was simply the dominant factor.

Market Quality Outranks Infrastructure

European telcos benefit from relatively well-invested networks compared with other regions. Despite this, a favorable market environment was more important in our ranking than infrastructure status.

This disadvantages Telefonica, the Spanish incumbent and market leader, and Orange, which leads the French market and is one of the main operators in Spain. In infrastructure terms, these companies are particularly well-placed. Based on iDate DigiWorld's 2021 data, fiber coverage covers nearly 90% of households in Spain and 75% in France, placing these two countries ahead of Europe's five largest telecom markets and the U.S. in terms of fiber coverage. We therefore expect Telefonica and Orange to have healthy cash flow prospects, because capex requirements at both are moderating.

By contrast, industry peers that are further behind on the fiber investment curve will need to increase capex. For example, in Germany, only about 16% of households are covered by fiber and in the U.K. only about 15%. But in spite of its relative infrastructure disadvantage, we find that Deutsche Telekom's exposure to the German market--with its more consolidated structure and calmer competitive dynamics--is preferable to Telefonica's exposure to Spain and Orange's exposure to France, despite their more advanced networks.

Network Ownership Is Evolving

We consider the evolving model of network ownership in Europe as a factor in our elevation of market quality as a key relative strength. Many telecom operators have sold their tower assets, and some have also begun to sell off stakes in new fiber-building projects. Such transactions are often motivated by financial considerations, like bringing in outside investment, or pushing development capex off the balance sheet through deconsolidation. To date, we have not regarded such transactions as materially weakening business profiles, but as more infrastructure moves into the hands of wholesale providers, it can erode the importance of network status in our view of relative business strength.

At the same time, operators that retain their networks, such as Deutsche Telekom and Orange can preserve qualitative advantages, including operational flexibility, scale benefits from wholesale activities, and the maintenance of control over stable infrastructure cash flows. In addition, retaining the network offers greater financial flexibility, given that operators can still choose to pursue asset sales in the future.

Market Diversity: A Double-Edged Sword

The benefits of broader geographic diversity can vary, depending on the specific markets to which a company is exposed. For example, Deutsche Telekom's exposure to the U.S. (through T-Mobile US) and Orange's exposure to the Middle East and Africa have differentiated them in terms of growth opportunities, compared with peer operators that face generally stagnant growth prospects in Europe.

That said, for other operators, international business can increase their exposure to negative foreign exchange volatility, as well as country and regulatory risk. This can weaken revenue and leverage performance, even if organic performance is positive. We observed this affecting Vodafone in its South African and Indian operations, Telefonica and Telecom Italia in their Latin American markets, and Telenor at some of its Asian subsidiaries.

Five Companies Stood Out In Our Ranking

In our view, five companies--Deutsche Telekom, Etisalat, British Telecommunications PLC (BT), Proximus S.A., and Telekom Austria AG--can support higher leverage thresholds at their respective ratings than other companies in the same business risk profile category. Therefore, we allow them looser credit thresholds than their peers (see chart 3). For example, our downgrade threshold for Deutsche Telekom's 'BBB' rating is 4.0x, but it is 3.5x for Vodafone, even though both have a strong business risk profile.

The five companies either operate in higher quality markets or have built competitive positions that can withstand weaker environments than peers. Of the five, two have strong business risk profiles (Deutsche Telekom and Etisalat) and three have satisfactory business risk profiles (BT, Proximus, and Telekom Austria).

Our positive assessment of Deutsche Telekom's relative position is based on its leading incumbent position and operations in Germany, a three-player market where Deutsche Telekom offers on-net converged services. In addition, Deutsche Telekom's position as the second-largest wireless provider in the U.S.--also a favorable three-player market, and with a strong growth record--gives it greater scale, geographic diversification, and top-line growth than its European peers. Similarly, Etisalat primarily operates as the leading telecom player in the two-player UAE market. Etisalat has a very high 70% share in mobile, limited pricing pressures, and high profitability. We also consider Etisalat well-placed in terms of fiber-to-the-home (FTTH). FTTH coverage in UAE is more than 96%, one of the highest levels of fiber coverage in the world. And like many Gulf Cooperation Council (GCC) countries, UAE limits competition from Whatsapp and other voice over internet protocol (VoIP) providers.

By contrast, we tightened the threshold for Telenor, compared with its peers. It fully consolidates partially owned assets in Malaysia, Thailand, and Bangladesh. This favorably distorts leverage because they contribute significant EBITDA but adds relatively little debt.

Chart 3

Rating threshold differences may sometimes depend on our financial adjustments, rather than relative strength. For example, we allow 0.2x incremental leverage in the rating bands for BT and Tele 2 compared with peers:

• For BT, the expanded rating threshold is based on our view that switching accounting standards to International Financial Reporting Standards (IFRS) 16 has not changed its creditworthiness, despite an increase in leverage.
• For Tele 2, our looser threshold is based on a combination of IFRS 16 and its improving margins after successfully integrating Com Hem.

What Could Change Our Rankings?

Regulatory changes

Regulation sets the tone for competition and investment in telecom markets, and it can evolve over time. We believe that the pandemic has caused many governments to view well-invested networks, including fiber and 5G, as being more-critical national priorities. Some countries may therefore rebalance their regulation to reprioritize network investments by providing a more-supportive market framework. This could improve profitability and return on investment prospects, encouraging network investment and fostering a more credit supportive telecom environment.

In practice, this could mean a greater willingness to accept in-market consolidation--which would improve market quality for operators--or more relaxed wholesale regulation. We began to see signs of the latter in 2021. For example, the Spanish regulator updated the country's wholesale fixed broadband rules, significantly increasing the number of cities deemed competitive to 696 (accounting for 70% of the Spanish population) from 66 (35%). As a result, incumbent Telefonica will no longer be required to provide regulated wholesale access to its fiber network in these areas, improving return prospects for further network investment. The U.K. regulator, Ofcom, announced new guidelines along similar lines for the U.K. wholesale telecom market. These included a moratorium on wholesale price regulation of OpenReach's high-speed fiber, aimed at fostering fiber investments and supporting the shutdown of the copper network.

That said, regulators will need to build a record of supporting market consolidation and allowing lighter regulation to be translated into stronger revenue and margins before these developments will affect our view of relative strength at the individual company level.

Government and Next Generation EU Funding

We could see similar effects as governments offer more direct support to telecoms. The European Commission is likely to offer direct and indirect broadband support that we estimate at about €34 billion, or €5.7 billion per year over 2021-2026. Additional direct broadband support from national governments, including the U.K., could exceed €24 billion (€4.8 billion per year over 2021-2025). In total, we expect to see an annual contribution of about €10.5 billion per year over 2021-2025, nearly 12% of forecast annual capex for European rated telcos and cablecos.

Depending on how these funds are allocated, it could trigger changes to our relative rankings. However, neither we nor the operators are likely to incorporate such funds into capex or revenue assumptions until funding is more explicitly allocated or disbursed. The funding programs are still in their infancy and are likely to take a variety of forms, including supply-side loans and grants to support investments, demand-side customer subsidies, and indirect support to other stakeholders in the wider broadband ecosystem.

New revenue opportunities

Some operators are also trying to diversify away from more traditional voice and connectivity services, mainly through partnerships or mergers and acquisitions. They aim to add value-added digital services that cover a wide range of IT-related, cyber security, internet of things, or cloud-based services. Though largely nascent, this strategy seeks to find alternative paths for growth to compensate as traditional services become more and more utility-like. For instance, in 2019, Telefonica created Telefonica Tech, a subsidiary that seeks to capture the growth of the digital services market to enrich its business-to-business offering. Similarly, as part of its 2025 ambitions, Orange will also focus on accelerating IT service development for business-to-business customers, while scaling up its cyber security offering. These additional services may also enhance a company's ability to withstand price competition by increasing customer loyalty by offering unique products.

Finally, 5G services may eventually provide companies with similar opportunities to disrupt the competitive landscape. That said, this is still an emerging factor. As we have noted, most recently in "Industry Top Trends 2022: Telecommunications," published on Jan. 25, 2022, we expect monetizable use cases to exploit 5G will take time to evolve and require additional investment. The technology could ultimately provide a new, and potentially substantial, source of sustainable cash flow and competitive advantage. However, we believe meaningful revenue or differentiation benefits are likely several years away.

Company Ranking Profiles

Deutsche Telekom AG

Deutsche Telekom's domestic market compares favorably with more competitive countries like France, Spain, and Italy. It is a well-positioned incumbent and ranks at No. 1 in both the fixed broadband and mobile markets in Germany. It has about 40% of this fixed broadband market and over 30% of the mobile market, in addition to the lowest mobile churn rate among its large incumbent European peers, at less than 1% per month. It fully owns its infrastructure, although its fiber network lags peers in France and Spain and it faces significant capital investment that could compress cash flows. Its largest market exposure is T-Mobile US, which representing about 60% of revenue on a fully consolidated basis. Although T-Mobile is a challenger in the U.S. market, and has higher churn, it has helped fuel Deutsche Telekom's growth and this diversification has helped to set Deutsche Telekom apart from its European peers.

Emirates Telecommunications Group Co. PJSC (Etisalat)

Etisalat is the largest telecom provider in the UAE, where it has captured 73% of the market by revenue, supported by high-value postpaid subscribers. Etisalat generates 60% of EBITDA from its domestic market, which it shares with only one other operator, also state-owned. This supports its domestic EBITDA margin. Competition from Whatsapp and other VoIP providers is limited.

The group also benefits from its broad geographic presence in 16 countries across the GCC, Asia, and Africa and its large 155 million subscriber base. It has solid market shares in its international operations, ranking at either No. 1 or No. 2. The group's profitability is above average, as demonstrated by S&P Global Ratings-adjusted EBITDA margins exceeding 40%. The company's capex of about 15%-17% of revenue is directed toward network modernization, 5G rollout in the UAE, fiber investments in Morocco and Pakistan, and network coverage and expansion in other geographies. Etisalat generates steady and sizable free operating cash flow (FOCF).

Orange S.A.

Orange is a well-positioned incumbent in its domestic French market, where it generates over 40% of its revenue and 50% of EBITDA. It ranks No. 1 in fixed broadband (40% of the market) and mobile (35%). Orange has invested well in its network, which it largely owns. This has helped make it the leading converged and fiber provider in France; it passes more households with fiber across its portfolio than any other European operator. The company also has diverse geographic exposures, including Africa and Middle East markets whose faster growth contributes to positive revenue trends. However, its largest markets--France and Spain--are highly competitive and aggressive challengers in both countries contribute to churn and price risk. This limits our forecast for revenue growth and organic deleveraging.

Swisscom AG

Swisscom is the dominant incumbent in Switzerland, where it benefits from a market share of more than 50% in both fixed broadband and postpaid mobile, well ahead of its competitors and most other European incumbent telecom carriers. Its significant network investments have enabled it to maintain premium pricing despite significant competition from challengers in the mature Swiss market. Compared with other incumbents, Swisscom also benefits from Switzerland's ex-ante regulation, in which its regulator intervenes to control prices before there is evidence market power is being abused. This reduces the risk of new entrants and the regulatory impact on some of its wholesale products. Swisscom's ownership of Fastweb exposes it to Italy and provides revenue growth, mitigating the decline from the mature Swiss market.

Telefonica S.A.

Telefonica has an incumbent position in Spain, where its share of the fixed broadband market is over 35% and it has about 30% of the mobile market. Its well-invested network in Spain has one of the highest rates of convergence and fiber coverage of all the major European markets. However, because of fierce competition in its home market, revenue growth has been stagnant. The company has executed asset sales, including tower monetizations, to help it reduce leverage. Although it is exposed to emerging market growth in Brazil and its Hispam subsidiaries, foreign exchange (FX) volatility and a lack of similarly denominated debt exposure has impaired the contributions of these subsidiaries to consolidated earnings. It has also weakened leverage.

Telia Co. AB

Telia is the leading telecom service provider in the Nordics and Baltics. It has an incumbent position in Sweden and mostly No.1 and No. 2 positions in its other markets. In six of the seven countries in which it operates, Telia is a converged player that has diversified offerings (mobile, fixed broadband, fixed voice, television, and media services). The company has high quality mobile and fixed networks, including more than 50% coverage with fiber-to-the-home (FTTH) in Sweden and an expanding footprint in Norway and Finland.

That said, the competitive environment is tough, especially in the relatively small markets of Sweden and Denmark, which each have four players. This makes it difficult to monetize the increase in data consumption and demand for speed upgrades. Legacy products in the Nordics continue to decline, slowing the recovery of TV and media markets, which suffered significantly from pandemic restrictions in 2020. In 2021, Telia sold a 49% minority stake in its Finland and Norway towers, and it recently signed an agreement to sell a 49% minority stake in its tower assets in Sweden in 2022. Such transactions enable deleveraging and dividend distributions. We don't consider the full ownership of these towers to be a key differentiating factor for Telia, and therefore the impact on its business risk profile is limited.

Telenor ASA

Telenor is a leading operator that is present in the four Nordic countries and has a converged mobile and fixed offering. It is also present in five Asian countries, but only as a mobile operator. It is in process of exiting Myanmar and merging its operations in Malaysia with those of Axiata and its operations in Thailand with those of the No. 2 operator, True. Once these mergers are completed, Telenor subsidiaries will have No. 1 positions in both Malaysia and Thailand. Telenor has a strong position in most of its markets--it ranks well ahead as No. 1 in Norway and has a No. 1 or No. 2 position in most of its Asian markets. That said, it ranks No. 3 in the fairly evenly split three-player Finland market and has a lower market share in Sweden and Denmark.

Diversification in Asia (about half of 2021 revenue) could support higher revenue growth over time, given that penetration in these markets is lower than in mature Nordic markets. They also support high profitability, with adjusted EBITDA margins exceeding 45%, and solid and growing cash flows over time. At the same time, we think Telenor is exposed to country, regulatory, and economic volatility risks in Asia. In particular, the difficult environment in Myanmar caused Telenor to leave the country. Furthermore, the pandemic continues to weigh on revenue, especially in Thailand, where the absence of tourists and further lockdowns have weakened the economy and undermined Telenor's operations. Finally, negative currency movements caused reported revenue to decline in all Asian markets during 2021.

Telenor has a tighter leverage threshold for the rating than its peers. In part, we impose this because of the assets it partially owns in Malaysia, Thailand, and Bangladesh. These contribute significant EBITDA but add relatively little debt. As a result, there is a 0.3x-0.4x difference in the pro rata debt to EBITDA (calculated by pro rata deconsolidation of the partial ownership) and consolidated leverage. Telenor has mergers in progress in both Thailand (dtac) and Malaysia (Digi); when those go through, we estimate that the difference between our pro rata leverage and consolidated leverage ratios will reduce to about 0.1x.

Vodafone Group PLC

Although it is not an incumbent in any of its core markets, Vodafone has a top-tier mobile position in most countries where it operates. It is still largely a mobile operator, gaining about 60% of its revenue from this sector, but it has grown its fixed business significantly and offers converged services, especially in Germany and Spain. It has a more-efficient cost structure than most incumbent peers, which helps it to yield above-average adjusted EBITDA margins of over 40%. Vodafone has broad geographic diversity and solid exposure to the credit-supportive German market, which constitutes around 30% of revenue. That said, its operations in South Africa introduced FX volatility to earnings. In its core markets, exposure to intense competition, as in Spain and Italy, has hampered growth.

British Telecommunications PLC (BT)

BT holds a solid incumbent position in the U.K. telecommunications market, where nationwide fixed and mobile networks and wholesale fixed access is provided by its subsidiary Openreach. BT has captured about 34% of the U.K.'s retail broadband and landline market, and about 27% of its mobile market. Its share of the fixed retail market is about 34%, which we consider relatively low compared with incumbents in European countries such as Spain, Germany, France, and Italy. Incumbents in these markets typically have market shares of 36%-46%.

BT also holds the market-leading spectrum position in the U.K., with nearly 30% of immediately usable mobile spectrum, and market-leading 4G population coverage of 99%. BT's fixed and mobile integration provides a significant competitive benefit in the U.K. telecom market, enabling the group to sell convergent fixed and mobile services in a cost-effective way. BT's ongoing cost transformation and network ownership supports its solid adjusted EBITDA margins of 30%-32%, despite the impact of its lower-margin global division.

Key risks for BT are relatively intense price-based competition and Openreach's exposure to strong regulatory oversight. That said, price competition has eased recently--all the major fixed providers have increased prices. We view Ofcom's regulatory framework for fiber to the premises (FTTP) as relatively supportive for BT. There has been no fiber price regulation for at least 10 years on higher-speed services (over 40 megabits per second [Mbps] for downloads and 10 Mbps for uploads). In our view, BT has significantly less geographical diversification than peers such as Telefonica and Orange. It is predominantly based in the U.K., where it generates over 80% of its revenue and over 90% of its EBITDA.

Our view of BT's underlying creditworthiness did not change after IFRS 16 was applied, even though it resulted in an increase in our adjusted leverage of about 0.2x. The change is reflected in our leverage threshold.

Proximus S.A.

Proximus has a leading position in both fixed and mobile businesses in the Belgium market, where it benefits from its incumbent position. There are currently three players in the market, but the potential entrance of a fourth player into the mobile market could increase competition even further.

The company has a nationwide 4G network and an ambitious fiber roll-out plan that aims to cover 70% of Belgian homes and businesses by 2028, compared with less than 15% today. This will strengthen its position in the fixed wholesale market, which is currently dominated by cable providers because of their speed advantage. The company also enjoys balanced revenue streams from consumer, enterprise, and international carrier services. That said, its geographical diversification is limited compared with other operators in Europe, and it is more exposed to increased competition in both the consumer and enterprise markets in Belgium. Proximus reported a 2.3% revenue decline in its domestic operations in 2020.

Telekom Austria AG

Telekom Austria is a well-positioned incumbent in its domestic market, which compares favorably with more competitive countries such as France, Spain, and Italy. It has strong No. 1 positions in fixed broadband in Austria, with about 49% of the market, and in mobile, where its market share is over 39%. It fully owns its fixed and mobile infrastructures and has a low mobile churn rate of 1.2% per month.

Austria, with a population of 10 million, is a relatively small market. Competition between its three infra-based mobile players is intense and penetration of very fast fixed broadband in Austria is lower than the EU average. That said, Telekom Austria's mobile revenue has been underpinned by its successful 4G mobile router strategy, which provides households with hybrid mobile-DSL internet platforms. The company also enjoys a meaningful degree of geographic diversification; its operations in six neighboring European countries contributes to revenue growth.

Tele 2

Tele 2 is a converged fixed-mobile player in Sweden, where it ranks No. 2 behind the incumbent Telia, and has a solid position as a mobile player in the three Baltic countries, where it ranks between No. 1 and No. 3. Its relatively flat revenue trajectory reflects growth in the Baltics, offset by fierce competition in Sweden, where the decline in legacy products is not sufficiently balanced by growth in fixed broadband, mobile postpaid, and digital TV.

Profitability has increased gradually on the back of the successful integration of the cable operator Com Hem, acquired in November 2018, and the ongoing cost reduction plan which targets Swedish krona (SEK) 1 billion in savings by the end of 2022. As a result, adjusted EBITDA margin could rise toward 43%-45% by 2023. Despite its modest scale, Tele 2's cash flow generation is strong and it has a high ratio of adjusted FOCF to sales, at 20%-25%, because it shares network infrastructure in Sweden with Telia and Telenor.

Our view of Tele 2's underlying creditworthiness did not change after IFRS 16 was applied, even though it resulted in an increase in our adjusted leverage of about 0.2x. This, combined with the company's relatively good and improving profitability and free cash flow, caused us to set a looser leverage threshold, supported by a solid FOCF-to-debt ratio.

Koninklijke KPN N.V.

The 20 million population Dutch market is highly competitive. It includes numerous mobile virtual network operators and local fiber operators, but T-Mobile's acquisition of Tele 2 reduced the number of infra-based mobile players to three from four. The incumbent KPN has a No. 2 fixed broadband position behind VodafoneZiggo and a leading mobile subscriber position, with market shares of about 38% and 30% respectively. That said, in the mobile business-to-consumer market, it ranks No. 2 behind T-Mobile. KPN fully owns its fixed and mobile infrastructure. Its aggressive fiber and convergent fixed-mobile-TV strategy has allowed the company to defend its positions in recent years.

Elisa Oyj

The Finnish mobile and broadband markets have relatively stable structures but competition is intermittently intense. Networks in the Finnish mobile market are of good quality and mobile subscriptions are the highest as a proportion of population in the EU, at 150%. Despite its small geographic footprint, Elisa ranks No. 1 in the three-player Finnish mobile market, where it has a market share of 37%, and also leads the more fragmented fixed broadband market, with a 33% share.

Elisa was one of the first European countries to roll out 5G in 2019 and currently covers more than 70% of Finland's population in over 150 towns and cities. However, the saturated mobile market is leading to periods of intensifying competition and limits growth opportunities. Although intense competition also exists in certain pockets of the fixed broadband market, such as for multi-dwelling units, overall, competitive dynamics remain relatively stable. This is partly because the three main players' broadband networks are regionally concentrated and have limited competing overlap.

Telecom Italia SpA

Telecom Italia benefits from an incumbent position domestically in Italy (about 42% fixed broadband and 29% mobile share). However, competition is fierce in its four-player home market. Not only has mobile revenue declined sharply since the entrance of Iliad, but fixed revenue has also been under pressure because OpenFiber is gradually building out an alternative wholesale fiber network. Telecom Italia has executed asset sales--including the majority sale of its towers and partial sale of its secondary fixed network--to help it reduce leverage. Although it is exposed to emerging market growth in Brazil, FX volatility and a lack of similarly denominated debt exposure has impaired its contributions to consolidated earnings and weakened leverage.

Related Research:

• Industry Top Trends 2022: Telecommunications, Jan. 25, 2022
• U.S., Canadian, And European Telecom, Media, And Cable Majors Ranking: January 2022, Jan. 10, 2022