Discussion Papers

Christian Wernick with support from Dieter Elixmann

Performance of leading telecommunications carriers in Europe

No. 322 / August 2009

Summary

This study deals with the question of how different operators have dealt with similar market, technical, competitive and regulatory challenges and how these different approaches had actually effect on their performance. It is dedicated to a comparison of the performance of Deutsche Telekom, France Telecom, Telefónica, Telecom Italia, BT and KPN, which represent Europe’s largest telecommunication incumbent operators. It focuses on the period between 2004 and 2007.

Four types of strategic management decisions are distinguished: Diversification, internationalisation, innovation and rationalisation. Productivity, profitability, solvency and growth are defined as main business tasks. They are measured by appropriate indicators. These indicators build the fundament of our performance ranking, which takes centre stage of this report. Our analysis identifies large differences with regard to central performance indicators.

Thanks to the highest results in the categories of profitability and productivity KPN achieved the first place in our performance ranking. This is in accordance with the development of the market values of the companies under review between 2004 and 2007. Telefónica reported the highest growth rates due to two large acquisitions and its strong presence in South America. France Télécom managed to improve its performance with regard to all indicators in the period under review. After three successful years BT started struggling due to problems associated with its Global Service division in 2007. Telecom Italia and Deutsche Telekom performed weaker than its counterparts. Deutsche Telekom repeatedly achieved the lowest profitability results, whereas Telecom Italia is suffering from the weakest results with regard to the solvency indicator.

However, all operators face the same challenge, which is the low level of organic growth. Against this backdrop, external growth and innovations, both on the level of product and process design, enjoy high importance.

Finally, we do not find support for the frequently stated claim of incumbent operators, which says that those of them, which are obliged to carry out business in a heavily regulated environment show worse performance than other incumbents, which operate in regimes characterised by light regulation.

(Full version only available in German language)

Discussion Paper is available for download.

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