The walking wounded from the eurozone debt crisis are trickling into the emergency room. Among them are Europe’s telecommunications companies. The further south the company – mirroring the eurozone crisis – the greater the threat to total shareholder payouts as regulatory demands, market share loss, infrastructure investment and deteriorating economies erode profits. The glory days of Europe’s telecoms providers as cash-rich, utility-like behemoths may be over.
Telefónica is a good example. Spain’s incumbent has been a freewheeling payer of dividends. In 2003 it paid €0.25 a share; by 2011 this had risen to €1.60. But during the same period, net debt also rose from €20bn to €60bn, driven in large part by the acquisition of O2 in 2005. The ratio of net debt to earnings before interest, taxes, depreciation and amortisation rose from 1.5 to 2.9.