FTTP uptake biggest challenge for Europe’s telcos – ING

• Financial services giant ING has issued its Telecom Outlook 2025 assessment of Europe’s telco sector
• The overall picture is positive, with ING expecting the region’s communications service providers to report growing sales and earnings this year
• While achieving a return on investment for 5G is a concern, the biggest challenge for Europe’s telcos is achieving higher take-up rates for fibre-to-the-premises (FTTP) services
• But the ING team doesn’t expect to see much in the way of cross-border M&A activity

While there’s a lot of gnashing of teeth about the current and future digital competitiveness of Europe compared with other regions (North America, Asia Pacific), the near-term outlook for Europe’s telcos isn’t looking too shabby, according to an analysis of the sector by financial services giant ING, which expects 2025 to be a year of revenue and, in particular, earnings growth for the Old Continent’s network operators. However, that doesn’t mean Europe’s telcos aren’t faced with significant challenges, particularly those related to two key pillars of their service portfolios – high-speed fibre broadband and 5G.    

“We expect solid growth for the European telecom sector in 2025 with some revenue growth and solid EBITDA growth,” noted the ING team in a new report, Telecom Outlook 2025: A high-frequency future, which has based its research on the financial reports and expectations of 16 major service providers in Europe. “For 2025, we see a more stable operating environment for telecom operators now that many homes are connected with fibre. In many countries, operators have successfully improved their customer retention rates” as a result of offering converged fixed/mobile packages, added the report’s authors, Jan Frederik Slijkerman, senior sector strategist for technology, media and telecommunications (TMT), and Diederik Stadig, sector economist for TMT and healthcare, at ING. 

Underpinning this analysis is Europe’s relative economic stability. “A solid macroeconomic environment helps telecom companies to deliver good returns, given the relationship between GDP growth and telecom revenues,” noted the ING duo. 

“Our base case assumes modest economic growth in the eurozone, and this provides a stable operating environment in 2025 for telecom operators. While we do not expect large policy changes to take effect in 2025, it is possible that the investment climate for telecom operators improves as the Draghi report specifically addresses the challenges of the telecom industry. A more level playing field with technology companies and harmonised regulations across the EU could further improve the outlook for telecom companies,” the duo noted in reference to The future of European competitiveness report written last year by Mario Draghi, which raised hopes among Europe’s telco community that some regulatory (and even fiscal) relief might be forthcoming from the region’s lawmakers – see EC report proposes ‘fair share’ payments, easier telco M&A.

“We expect at least 2% revenue growth for the European telecom sector in 2025. This is similar [but slightly better] to the revenue growth rate in 2024,” noted the analysts, who expect EBITDA to grow at a slightly higher rate thanks to the impact of cost-cutting initiatives, wage growth stability and the potential impact that AI could make on efficiencies and productivity. “When evaluating AI use cases, there appear to be benefits for telecom operators on the cost side, and they can look towards efficiency gains – especially in fields such as customer service, networks, and administrative support roles. If AI becomes highly successful at enhancing productivity, EBITDA could grow faster than our expectations,” noted the ING team.

That revenue growth number is not exactly jaw-dropping, but that’s mainly because there’s a lack of cutting-edge services attracting higher levels of spending, especially as 5G hasn’t (yet) delivered the sales uptick that many in the industry had hoped for, as we’ve noted previously – see No wonder telcos are bitter about 5G.

“So far, new 5G services have not really turned into new revenue streams – although fixed wireless access (FWA) products and some internet of things (IoT) solutions could be considered exceptions. We expect the biggest revenue uplift from 5G to come after 2025, as not all companies have a 5G core network,” noted the ING analysts, somewhat hopefully. Some new services might come to market this year, related to private networks, telco APIs, gaming and AI, but “we now expect most new 5G business models only to come in 2026.” 

And there are challenges too with fibre broadband, but not because of the lack of availability – in recent years, network operators across most of Europe have invested heavily in laying fibre to homes and businesses, with fibre penetration rates expected to exceed 90% in 2028 across European Union member states and the UK, up from 66% last year.  

The problem is, despite its widespread availability, that the uptake of fibre broadband services is lagging, leaving the telcos with fallow infrastructure.  

“The most important challenge for telecoms currently is not the fibre rollout itself, but rather increasing the rather disappointing take-up rate. In 2023, just over half of all households in the EU27 and UK opted for a fibre connection when it was available,” according to the FTTH Council Europe. 

“Given the sizeable investments in networks, this number needs to increase quicker. However, we think this will prove difficult,” noted the ING team, as non-fibre broadband services (cable, xDSL) are proving good enough to meet users’ needs, and shifting from one provider to another is a hassle for consumers. As a result, the ING analysts expect the FTTP take-up rate to only increase slowly and reach 65% in 2028: That creates a bigger problem for fibre-only broadband network operators, especially the smaller altnets that don’t have alternative services to take to market. 

The ING team’s extensive report also tackles some of the suggestions made by Draghi in his report for the European Commission, noting that he rightly pointed out that the sector could do with some assistance to help ensure a strong regional telecom sector. The report’s authors analyse the various suggestions made by Draghi in some detail, and agree that a “level playing field” is needed with the big tech firms, but the one they strongly oppose is the suggestion that cross-border M&A activity could help strengthen Europe’s digital landscape.

“The argument that mergers will create stronger European telecom players sounds good in theory, as larger companies benefit from economies of scale. They have more means to invest in R&D and have procurement benefits. But in practice, benefits have not always been delivered, as the recent break-up of Vodafone shows,” the analysts explained. “Even if consolidation happens, the benefits remain questionable. As history shows, to manage their operations in many countries, multinational telecom operators must establish a strong local presence. This facilitates local marketing efforts but reduces economies of scale. Also, scale economies are often achieved through other means, such as outsourcing (with the drawback of making the company dependent on the outsourcing partner). 

“Will cross-border mergers promote the technological innovation Europe needs? In its current state, this part of the report fails to answer that question and does not offer a comprehensive solution to the current 5G investment gap with Asian countries,” noted the report. 

That makes sense, but it won’t stop the clamour from certain quarters of the industry. 

- Ray Le Maistre, Editorial Director, TelecomTV