Europe’s large operator groups are increasingly being required to look outside of their home markets in order to sustain sales, says Wireless Intelligence.

An analysis of Q3 2012 data from Europe’s four largest incumbent operators shows a decline in domestic sales across the board, though this trend was offset by revenues generated by their international operations.

Based on Q3 group sales, Europe’s top four operators are Spain’s Telefonica (€15.5 billion), Deutsche Telekom (€14.7 billion), France Telecom (€10.8 billion) and Telecom Italia (€7.3 billion). This is excluding UK-based Vodafone Group on the basis that it is not the fixed-line incumbent in its domestic market.

Telefonica is the least reliant on home revenue; Spain contributed just 23 percent to group sales in Q3. The group’s Latin American unit reported quarterly revenue of €7.6 billion (up 3.8 percent year-on-year), exceeding for the first time that of the European business, which posted revenue of €7.5 billion, down 6.8 percent. Brazil alone now accounts for 22 percent of group sales (compared to the 23 percent via Spain).  

Previously a standalone unit, Spain was rolled into Telefonica’s Europe division last year following a group restructuring. Spain weighed heavily on the Europe numbers in Q3, with revenue decreasing 15.3 percent to €3.64 billion. The Spanish mobile unit (Movistar) was particularly affected, with sales falling 19.8 percent to €1.57 billion – a decline blamed on lower handset sales, cheaper tariffs and mobile termination rate cuts.

The contrasting trends of Telefonica’s Latin American and Europe divisions are also evident in the subscriber counts; the mobile customer base in Latin America increased by 10 percent year-on-year in Q3 to 175 million, while the European customer base shrank by 2 percent to 70.4 million

The combination of a weakening Spanish economy and a €56 billion debt burden has forced Telefonica to take steps to reduce its exposure to Europe’s volatile financial markets. The firm has decided to sell equity via IPOs in O2 Germany, its second-largest European market valued at about €8 billion, and in Latin America where its total portfolio is worth more than €40 billion.

By contrast, domestic sales at Deutsche Telekom have remained relatively stable during the eurozone crisis, helping the group offset weaknesses elsewhere in its European businesses – notably in Greece where it owns 40 percent of the country’s incumbent operator OTE.

Group revenue was down just 0.1 percent to €14.7 billion, on the back of better-than-expected German sales of €5.7 billion, which were down 1.3 percent and represented 39 percent of the total. Sales in the Europe segment (which excludes Germany) declined 5.7 percent year-on-year to €3.7 billion, primarily due to a 11.3 percent decline in Greece to €825 million. US sales (T-Mobile USA) were up 6.3 percent to €3.9 billion.

France Telecom suffered the largest year-on-year sales decline of the four operator groups in Q3 (down 3.5 percent), blaming “a deteriorating macroeconomic outlook, strong competition in the French mobile market [via Iliad’s Free Mobile] and continued regulatory pressure.” It does not expect the situation to improve until 2014.

French sales fell 5.4 percent to €5.43 billion, accounting for 48 percent of the group total. With declines at France Telecom’s next two largest markets, Spain (down 1.0 percent) and Poland (down 5.5 percent), growth came via the group’s Rest of the World division, which increased revenue by 0.6 percent to €2 billion.
This included strong growth at France Telecom’s Africa and the Middle East unit, which increased sales by 4.6 percent, led by Côte d’Ivoire (up 20.9 percent), Egypt (up 2.0 percent) and Niger (up 33.9 percent).

Like Telefonica, Telecom Italia benefited from strong sales in its Latin American markets. However, revenue growth in Brazil (up 8.0 percent) and Argentina (18.2 percent) only partially offset a 7.9 percent contraction in organic terms in Italy. Group profit for the period was €681 million, down 13.4 percent, while group revenue was down 3.3 percent to €7.27 billion.

Unlike its more diversified peers, Telecom Italia is present in just three markets with its domestic unit accounting for 60 percent of sales in Q3.