Challenges in Germany in 2019
The largest units in the services business are in Germany, Switzerland and the UK. The decline in net sales in Germany was due to both a temporary reduction in work under the service agreement and the lack of separate customer projects, with there having been several project deliveries in the comparison period. In Switzerland, progress was made according to plan and profitable growth was achieved. In the UK, the decision was made to focus on the rapidly growing fibre-optic network design services and other high added-value services.
Internal development programmes
The strategic focus of the Network Services business is to improve profitability by developing the operational activities. Teleste’s German subsidiary Cableway has had particularly significant challenges with profitability. To rectify the situation, Cableway negotiated a new three-year frame agreement in 2018 with its largest customer, Vodafone Germany, and launched extensive internal development programmes in 2017.
Progress has already been achieved by focusing on areas including real-time monitoring of efficiency and the strengthening of the organisation. Subcontracting needed for network construction has also been reduced by recruiting personnel to alleviate the situation in the overheated excavation market. Vehicle route planning has also been used to reduce fuel costs and the environmental footprint. Productivity improvement measures will continue, as cost-efficiency is still below set target levels.
Potential growth in Germany
While the performance in 2019 was disappointing, there is potential for growth in the German market. Vodafone’s acquisition of Liberty Global’s operations in Germany, which was signed in the summer, can create growth opportunities for Teleste due to its strong position as a service provider for Vodafone. Vodafone’s acquisition will double its network capacity in Germany. The transaction is still pending approval by the authorities.
The need to start network investments within the coming years is also apparent in other markets, and Teleste’s strong reputation supports its position in the competition for these projects. In addition to network maintenance, Teleste’s service offering also covers network design and construction, which are areas where an increasingly high level of expertise will be necessary as the technology develops. Teleste has held active negotiations on fibre installation projects with new potential customers in Germany as well as the UK, where the use of fibre infrastructure remains low. Teleste’s subsidiary Flomatik Network Services Ltd is a significant provider of network design services in the UK.
Development of the service offering
The outlook for the early part of 2020 does not promise a quick change with regard to the growth or profitability of the services business, but the expectations are more positive for the latter part of the year. The focus will be on the continuous improvement of the efficiency of operations and increasing the share of higher added-value services. The pricing of these services can be based on their benefits for the customer, not only the cost of producing the service.