Despite healthy financial performance overall, global telecom service providers in mature markets must optimize the performance of their business models to mitigate declining traditional services revenue and profit margins, according to Gartner, Inc.

Gartner analysts evaluated the business performance of the leading telecom service providers in three global regions (North America, Western Europe and Asia/Pacific), including 27 service providers in mature markets and seven service providers in developing countries in Asia/Pacific, against six critical business performance indicators. These six indicators included financial performance, cash flow, debt leverage, cost structure, investment in the future of the business and investor value creation. Gartner analysts said these indicators provide a holistic view of the effectiveness of carrier models today and prospectively in the future.

“Our research shows that telecom service providers need to reprioritize funding requirements to focus on targeting investments to achieve short-term business flexibility and long-term business model positioning,” said Alex Winogradoff, group vice president for Gartner’s Communications group. “These providers should continue to invest aggressively in stratified IP quality and IT automation/simplification (such as target zero touch order processing and fulfillment) to reduce operating costs, improve quality of service and service level agreements (SLAs), and market positioning.”

To have any chance of sustaining the current levels of internal funds generation, Gartner analysts said companies must be especially disciplined for the next five years when targeting investments to produce the dual benefit of expense reduction and revenue generation. Service providers must adopt an annual zero-based budgeting approach to reassess operational and strategic investment imperatives.

“Incumbent service providers in mature markets are facing an increasingly competitive market where incumbents are often disadvantaged by regulatory policies,” Mr. Winogradoff said. “Industry convergence is driving a burgeoning disconnection between service provider net revenue and costs, and between long-term investment needs and the generation of operating funds. Service providers in developing Asia/Pacific countries seem to be doing especially well, benefiting from growth-oriented and government ‘managed’ communications policies.”

Gartner’s evaluation of the leading telecom providers showed that service providers in developing markets have operating income before depreciation and amortization (OIBDA) margins of nearly 50 percent; exceeding those in mature markets by more than 10 percentage points. Free cash flow generation is nearly the same, except for North American providers, which are outdistanced by their Western European and Asia/Pacific counterparts.

Sourced From: Text 100 Public Relations Consultancy