Recovery in Central and Eastern Europe Fueling Local Telecom Earnings Rise

A regional recovery underway in Central and Eastern Europe is boosting household spending and consumer confidence that will allow telecom providers to outpace their Western European counterparts in credit quality and revenue and earnings growth into 2018.

"Strong regional economic recovery is fueling household demand for telecoms services, such as smartphones and mobile data, driving revenue and earnings growth, improving credit quality and attracting M&A interest,” said Alejandro Núñez, vice president and senior analyst at Moody's Investors Service. “The pace of these improvements will eventually slow, but will continue for at least the next 18 months."

The ratings firm anticipates several telecoms in the region will see an average of 3.5% revenue growth this year and next, based on the sector’s being a less-mature market than in Western Europe as regards service penetration, pricing and usage. “CEE telecom markets have had more scope to expand their networks and increase the penetration of new services such as 4G mobile and Internet Protocol television (IPTV) services,” Moody’s analysts said. Prices in Central and Eastern Europe also lag behind those in Western Europe—from 44% in mobile voice revenue per minute to 14% in mobile data.

This growth potential is fueling M&A interest among foreign buyers, particularly in Poland, Moody’s said. “This trend will continue most likely in the form of in-market cable-to-mobile deals or foreign firms acquiring or merging with CEE operators.”

Earnings volatility for the sector is also likely to decrease as many telecom companies in the region have lowered foreign exchange risk over the past year by refinancing euro and U.S. dollar bonds with local-currency-denominated bank loans, analysts said.

– Nicholas Stern, senior editor

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