The outlook for the telecoms sector in the EMEA region will remain negative for the coming 12 to 18 months, Moody's Investors Service said in its annual report on the sector. The ratings agency sees little chance of a return to revenue growth in the next year, amid continued pressure on prices from intense competition, constraints on consolidation from regulation and slower-than-expected GDP growth in Europe.
It's too early for 5G to start contributing to revenue growth, and regulatory pressure has not abated, Moody's said. Telecom operators will have limited financial flexibility in 2020 to face the new investment cycle, as some, such as Telefonica, Vodafone and Telecom Italia, still have high debt levels. New regulations on expanding broadband and mobile coverage and improving service quality will also require further investment.
Pressure on share prices in the industry suggests the potential for activist investors to enter the sector and seek to change financial policies and strategies, according to the report. This is likely to push operators to focus more on shareholder remuneration over debt reduction, further weighing on the sector's credit ratings.
The sector's outlook has been stable the past four years but Moody's downgraded it to negative in September after a weaker-than-expected performance in the year to date. The sector would need to return to organic growth of close to 1 percent for a prolonged period, with sustained GDP growth, in order to the outlook to return to stable.
Other negative factors include the uncertainty over Huawei as a supplier. This could impact investment decisions by operators.
Outside Western Europe, Moody's was more positive on the outlook for Russian operators, and the CEE and MEA regions are also expected to show continued revenue growth.
