SYNCHROINFO JOURNAL. Volume 7, Number 1 (2021). P. 39-43.
Corporates, Scope Ratings GmbH, 8 February 2021. The credit outlook for European telecommunication operators remains stable. The sector showed its resilience during the Covid-19 crisis. Revenues, capex will hold steady even though 5G is making the headlines.
The credit outlook for European telecommunication operators remains stable, with the sector displaying considerable resilience during the first phase of the Covid-19 crisis. The progressive introduction of 5G networks is neutral for credit quality. Governments postponed several auctions of 5G spectrum in 2020. Operators will likely incur the cost of acquiring spectrum this year but it will remain well within their financing capacity in the absence of new entrants in national markets to bid up auction prices. We see limited opportunities for large mergers and acquisitions while operators will contine to sell infrastructure assets, leaving the sector’s overall credit quality unchanged despite a likely slow, uneven economic recovery.
The main trends we expect for 2021 are:
• Stable revenues and margins despite the economic disruption caused by the pandemic: telecommunications are essential services which make up a modest percentage of household spending.
• Auctions of 5G spectrum should lead to sales at reasonable prices partly through the absence of new entrants in the mature mobile market which would otherwise push up prices. Capex will not increase as 5G is rolled-out as operators are simply replacing previous technologies (2G, 3G) and reducing spending on 4G. Any increase in capex will be rather driven by investment in fibre-to-the-home (FTTH).
• M&A will remain limited. Transnational deals offer few synergies, while national “consolidation” will be rare as targets are scarce, for fixed-line operators, or out of bounds for mobile on competition grounds.
• Selling or listing infrastructure assets in part or in whole – mobile towers and fibre networks – should help operators raise funds to protect their credit quality amid the broader economic uncertainty.