A leading figure in European telecoms has criticised some of the biggest companies in the sector for being overly complex, too centralised and failing to listen to customers after a tumultuous year in which their value has tumbled.
Dutch businessman Olaf Swantee, who ran EE for five years between 2011 and 2016 and is seen by industry insiders as one of the frontrunners to become chief executive of Vodafone, said: “incumbent telcos have too many layers [and] too much bureaucracy”. He called for this to be loosened to boost performance.
Swantee did not name any group in particular but the sector has had a bruising five years in which some of the leading groups, including BT and Vodafone in the UK, Telefónica in Spain and Orange in France, have had their valuations slashed by up to 65 per cent.
At the start of the year there were hopes that, following years of heavy investment, their fortunes would improve with several companies starting to implement above-inflation price rises and a trickle of market consolidation. But soaring energy prices and inflation have increased their cost of capital and threatened to curtail consumer spending, while dealmaking activity has been lacklustre.
Vodafone has come under particular pressure from activist investor Cevian and several of its biggest shareholders to simplify its sprawling business, shed poorly performing units and decentralise its global operations.
The board ultimately decided earlier this month to part ways with chief executive, Nick Read, who will step down at the end of the year.
Out of the incumbents only Deutsche Telekom has managed to buck the sector trend, in large part because of its thriving business in the US which has bolstered group profits and enabled the company’s share price to rise around 28 per cent over five years.
“Telcos don’t show very quickly that they’re in trouble. It takes a while before they fall apart,” said Swantee, who has also been an executive at Orange but is now an investor in the sector.
He is strategic adviser to Warburg Pincus, as well as executive chair at Community Fibre, one of the biggest alternative networks in the UK, and chair of T-Mobile Netherlands, both owned by the private equity group.
Swantee also spent two months as a non-executive director on Vodafone’s board last year before deciding to step down. He declined to comment on rumours that he is being considered for the top job at Vodafone or on recent developments at the FTSE 100 company.
“The private equity model, where you can invest a lot to improve a telco, gives it the freedom to act, to move. It will typically strengthen that business,” he said, referring to challengers like MasMovil in Spain, Sunrise in Switzerland and the broadband fibre market, which has attracted billions from investors.
“Not just in the UK, it’s in Germany, France, Switzerland, you’re seeing this explosion of fibre, and with it an opening up of a market that was very much closed, where customers would stick around forever,” he said.
Swantee said that publicly listed telcos could learn from the more agile model of privately owned challengers, and were often not “customer-centric enough” and too “far away from customer services, people, and the front line”.
He also warned that many telecoms groups had got themselves into a “death spiral” of offering investors high dividends, which was stifling their ability to invest and innovate.
“When you don’t have growth in your model, and you just have a dividend story, the risk is that over a longer period of time, you can’t transform your business anymore, you’re just a bank for your investors,” he said. “The telcos that are stuck in a high debt/ebitda ratio . . . they are having a harder time to transform themselves successfully.”