HomeEditor's CommentsNot doom and gloom, only gloom

    Not doom and gloom, only gloom


    We’re back in the quarterly results cycle. Here’s a brief catch up on this week’s network-side announcements.

    Ericsson had a quarterly profit of SEK 3.3 billion, net income SEK 1.2 billion, clearly down from last year — a decline it said was “driven by Networks”. Overall revenue growth was 1% year-over-year, down 6% year-over-year for comparable units, that's basically the same as Ericsson had in the first quarter. Both Global Services and Support Solutions had strong quarters and are now contributing to around 50% of the turnover in the quarter of Ericsson. In Networks there was the expected impact of declining CDMA sales and weaker sales in the quarter in China and Russia – leading to networks being down 20% year over year. Ericsson’s operating margin for Networks ended at 5%. It was 14% in Q2 2011.

    So what does Ericsson see as improving, given its CEO said that “100% of its revenue base” – ie the customers –  see no change in conditions. Networks head Johan Wibergh said that the focus operators have on improving network performance “really encouraged” it to believe that its margin position can be turned around. “We have established ourself with a really strong platform product, and that is performing extremely well on quality and performance.” said Wibergh.

    Ericsson also sees VoLTE as providing a possible cause for optimism.

    “We also then see next step when it comes to the voice business. Those operators investing in LTE, they are now starting to prepare for launches on moving voice over to LTE. And there, we are working really hard to capitalise on both on our strong position in LTE, as well as in stock, to each quarter,” Wibergh added.

    Over in Paris, Alcatel-Lucent hasn’t reported its Q2 results yet but has warned that it has been doing its homework and things aren't looking so good. It thinks its 2012 results will fall short of its expectations, with the company reckoning it will report an operating loss of €40 million with revenue above €3.5 billion. Analysts were expecting Alcatel-Lucent to deliver an operating loss of €38 million on revenue of €3.83 million.

    Of more concern than a further loss of €2 million over the year was the vendor’s thoughts on its revenue mix, with the company warning that margins are as hard to find as an empty seat on London tube train during the Olympics. Well actually it said it had experienced “a lower than expected business mix improvement”. That's not a positive sign for a business that has already cut about as far as it can, and has already outlined a major programme of ongoing cost and operating efficiencies. Al-Lu’s CFO, Paul Tufano, a man who always looks on earnings calls as if he’d gladly knife the next person to query his free cash flow projections, will be glowering like an evening sky over the Olympic stadium on the next call.

    So can the buy side of the value chain offer any more cheer, seeing as how operators are clearly sweating the vendors for every inch of margin they can? Vodafone reported its 1Q 2013, and said Group service revenue grew 0.6%. This growth is slightly less than the previous quarter due, Vodafone said, to the boost in the prior quarter from the extra day in this leap year, as well as “continuing difficult conditions in a number of our European markets” (in particular Italy) offset by strong momentum from its AMAP region. Data grew by 17% driven by the increase in smartphone penetration, which is now nearly 29% in Europe.

    Of interest for those watching vendor margins was the nugget from Vodafone that it now has a single RAN across 38% coverage in Europe. The carrier said this makes future network upgrades very cost effective as well as reducing the network operating costs that it incurs. And for fans of backhaul investment, we have another titbit, Vodafone said that it has increased the penetration of high-capacity backhaul, with 46% of sites in Europe now connected to high-quality backhaul.

    In Germany, where the operator now has 193,000 LTE customers (20,000 of them mobile) service revenues grew 4%. U.K. growth declined for the quarter by 0.8%. The Netherlands was down too, but not as much as Italy, where mobile-only service revenue declined 8.3%. In Spain, service revenue was down 10%.

    All this was against a backdrop of rising data usage and user demand for data. Across the European region, growth in data revenues was at 18%, fuelled by rising smartphone penetration, now at 29%. It's becoming clear that increasing data usage alone will not drive operators out of the overall revenue decline – witness our story from Infonetics, or this bleak assessment from Telco2.0.

    Gloom, then, for most, if not outright doom.

    Those watching user demand closely for signs of a major shift in usage grabbed hold of a report from UK regulator Ofcom this week, stating that consumers are still texting away like mad. There's some analysis on these Ofcom stats still to come from us here at Mobile Europe, but in the meantime it's worth keeping your eye on Ofcom next week, when the regulator will deliver its "final" LTE auction guidelines. As it set itself a July deadline, Ofcom is going to have to publish next week or miss the deadline. And as we all know, Ofcom doesn't miss deadlines.

    Keith Dyer
    Mobile Europe