Cash on the line: Telecom operators and working capital management

Key findings

  • Share

With revenues under pressure, the global telecommunications service industry has continued to evolve rapidly — striving to capture the growth potential from data bundling of services and new digital technologies, while protecting operating cash flows and improving returns on capital.

Against such a challenging background, most operators have maintained their focus on working capital (WC) management as a lever for improving cash, reducing costs, enhancing customer service, boosting network differentiation and funding new investment.

Yet, as the pace and scale of industry change continue to grow and with the “low-hanging fruit” in this area already largely harvested, managing WC will become increasingly challenging.

The leading operators of the future will be those that embrace more substantial and sustainable operational and structural changes in the way they address WC. This will mean targeting all the key operational levers and ensuring that a robust supporting infrastructure is in place, including:

  • Focused metrics
  • Aligned incentives
  • Strong risk management policies and processes

Other essential enablers include:

  • Improved billing and cash collections
  • More effective leveraging of procurement
  • Closer collaboration with suppliers
  • Consideration of fresh financing initiatives

Operators will also need to adopt an approach that strikes the right balance between cash, cost and service levels.

Cash on the line 2013 is the latest in our series of working capital management reports.

Take a closer look at the telecom industry results.

Key insights for 2013

  • 2012 results for European telecom operators show stability in net trade WC performance compared with 2011. This is in sharp contrast to the gains achieved in recent years in which seven out of 15 companies reported better results.
  • Operators in North America reported a further significant improvement in net trade WC performance, with five out of six companies showing better results. Compared to their counterparts in Europe, operators in North America continue to carry higher levels of net trade WC in relation to sales.
  • Looking at the results of operators in all regions, those based in other regions and countries continue to carry the lowest net trade WC in relation to sales, reflecting the importance of revenues from mobile services and the high proportion of prepaid subscribers. In addition, capital expenditure requirements remain large.
  • Within each region, current net trade WC performance still varies widely between operators. While this can be partially explained by variations in business models and payment practices, the scale of disparity in companies’ performance indicates fundamental differences, both in the degree of management focus on cash and in the effectiveness of WC processes.