New shoots and deep cuts – are telcos back in business?

Waylaid by industrial forums and public holidays, RCR is a little late here with a review of Vodafone’s latest financial scores, released yesterday (November 10). And meanwhile (today), Telefónica has issued its own, just as its counterpart’s results are digested? Both are included below – as a proper write-up and a PR link. But what to say of them, briefly – at the top of the newsletter? Well first, both reinforce this impression, from their US equivalents a couple of weeks back, that telcos are turning a corner, and posting sharper growth, generally, verging on real progress. Vodafone’s, especially, represent a decent return: 5.8% higher organic service revenue in the last six months; 6.4% higher adjusted EBITDAaL. There’s nothing AI-era double-digit here, but it looks like proper growth. RCR is fumbling with its tooth comb, but Telefónica, reporting nine-month results, recorded revenue growth of 1% and adjusted EBITDA growth of 2.5%; its performance last quarter was stronger, with adjusted EBITDA up 2.8%.

They’re a little tough to compare, oranges and apples – three, six, nine months, variously. But both firms report improved profitability, stronger cash generation, and progress against their turnaround plans – and both have upgraded their full-year outlooks – even if the quality and balance of their growth differ. There are also certain qualifications. Vodafone’s performance is uneven, with Germany still struggling; its first-half scores include a €3.6bn reported loss, besides, largely reflecting non-cash impairments and tax adjustments. Telefónica, meanwhile, has reduced debt by €1.6bn since January, although it has lowered its full-year revenue growth forecast. Most clearly, however, especially in the closer analysis of the UK firm’s results, is just how lean the big telcos have become. There is little fat here – and lots of job cuts, in case we’ve missed the headlines. Vodafone has been ruthless, having removed 11,000 jobs in Europe since 2019, and another 3,000 in the last six months.

A further 2,300 jobs are going in Germany, it has just said. Vodafone is now targeting more than €1bn in group-wide net savings by 2030, with a reduction of over 30% in addressable operating expenditure. Telefónica is pursuing the same logic, through ‘simplification’ (a favourite word in tier-one telecoms right now), plus digitalisation and automation (ditto, both), including early contributions from AI in network operations. Its German business is pushing further efficiency measures, while VMO2 has set a target of £800in annualised operating and capital expenditure savings by 2029, including around £300m from workforce reductions. So yeah, different companies, same directions, and we might rope in their US counterparts for good measure: fewer staff, leaner operations, more automation, plus some new services hopefully. On the latter, their business arms are strategically important.

Vodafone Business, with service revenue of €4.4 billion in the half, has seen money from digital services grow by almost 20% (and more than 25% in Germany), from cloud, security, AI, and IoT. Telefónica’s B2B business is also outperforming, with revenue up 5.6% in constant currency last quarter, supported by digital services. Say otherwise, but the cost-cutting is happening across the business, while most of the growth ambitions are concentrated in enterprise and digital services – as they were supposed to be, pre-’AI’, when 5G was first a thing. RCR has just wrapped up Industrial Wireless Forum (available on demand), where the whole conversation was about these topics – and there was hardly a carrier in sight – bar AT&T and Telenor (and Ericsson, if you want an incumbent vendor-side telco brand); you fantastic beasts of connected business. Others should get involved, and tell their enterprise stories; they are the best bits of telecoms, and we are all-ears.