ROCE Remains Depressed for Europe's Big Telcos

Amid growing concerns about an over-supply of telecoms capacity, Europe's major telcos continue to struggle to make an adequate return on their capital employed (ROCE). In this decade, Telefónica, Orange and Telecom Italia have generated a lower average ROCE than they did in the previous decade, while Deutsche Telekom has seen an uptick, mostly thanks to its success in the US. After making some divestments, Vodafone is performing significantly better on this metric, albeit after a woeful return between 2010 and 2019. 

The charts in this post show ROCE before tax, calculated as EBIT divided by the average capital employed.

In 2021, Telefónica's performance was boosted by gains on the sale of the towers divisions of Telxius, amounting to almost 6.1 million billion euros and from the establishment of VMO2 amounting to almost 4.5 billion euros. Even so, its average ROCE remains close to its weighted average cost of capital.

Still, the aggregate ROCE for Deutsche Telekom, Vodafone, Telefónica, Orange and Telecom Italia is at least rising again (see chart below), as they cut back on spending on infrastructure and spectrum.