European telcos pursue operational efficiency to drive margin growth

In a region where revenue growth is hard to come by, many European telecom operators are continuing to focus on operational cost savings as a way to improve their financial fortunes.

BT, Deutsche Telekom, KPN, Telefonica, Swisscom, Telia and Vodafone all pointed to operational efficiencies as a contributor to EBITDA or EBITDA-AL growth in financial results for the period ended 30 June 2026.

The focus by communications service providers (CSPs) on becoming operationally leaner coincides with the end of a cycle of heavy investment in 5G and fiber networks, which failed to significantly improve revenue. It also reflects a growing willingness by a number of European CSPs to discuss their advances in the use of automation and AI to increase efficiency, as well as reduction in workforce numbers.

Vodafone, for example, combined a 12.6% increase in revenues from its African operations with a 0.9% revenue increase for Europe to deliver a 5.2% increase in organic Group service revenues.

This overall increase in Vodafone’s group revenues, coupled with “multiyear cost initiatives announced in May, delivered an organic adjusted EBITDAaL increasing by 6.2%,” according to the company. Redundancies were part of the initiative, with 1,200 job losses announced during the quarter. The company expects further cost savings in 2026 stating that: “Europe and Shared Operations are on track to deliver material net opex reductions by year end.”

Telefónica, which in December announced a redundancy program affecting 5,500 employees across seven companies, accredited a 2.7% improvement to its adjusted EBITDA to a combination of job cuts in Spain and “simplification”.

“Efficiencies are gaining traction, driven by simplification and the redundancy program, boosting margins year-on-year,” the operator stated.

Telefonica said during its Capital Markets day presentation in November that it is targeting a €3 billion Euro cut in total costs by 2030, of which €2.01 billion would come from OpEx and €0.92 billion from CapEx, supported by a simplified operating model and a 25% reduction in the operating costs of its corporate and global units. At the same time, it is investing in its ‘”technical capabilities”, which include IT system upgrades, network automation and improvements to its product portfolio.

To this end, Telefónica has earmarked an investment of €32 billion networks and IT from 2026 to 2028. In return the CEO expects to achieve a network automation level of 3.75 by 2028 in Brazil, Germany and Spain.

BT, which is also in the midst of a major multi-year cost-cutting program, reported that "cost transformation delivered efficiencies across all units, with year-on-year reductions in network energy usage of 8%, total labour resource excluding international of 8% to 94k, and in Openreach repair volumes of 21%."

Like Telefónica, BT is highlighting its investment in automation. It refers in its latest annual report to work with AWS to introduce AI Ops capability into its mobile network so it can move to a self-healing, autonomous dark NOC (network operations center). The company also noted it had equipped nearly 5,000 engineering and software development employees with AI tools and is using a Gen-AI enabled assistant to answer customer queries and to summarize interactions.

Deutsche Telekom’s CEO, Tim Höttges. was also explicit about the importance of the role of AI in reducing costs during the company’

“We systematically leverage AI to drive additional efficiencies,” he said during a call to discuss results of the period ended 30 June with analysts.

“On the European side, we are using AI currently very broadly to drive efficiencies and to be less dependent on people to run this organization.” For Europe, the company reported 4% organic service revenue growth and 4% organic EBITDA growth.

Höttges also pointed to progress in achieving cost-saving scale in service delivery and procurement. “So for example, we will have one transport network across the European countries. We have basically finalized a big tender in order to secure memory chip supply across all European countries, which came with a significant cost effect.”

Not every company is underlining the operational efficiencies it hopes to derive from automation. Orange Group benefited from strong service revenue growth of 13.9% from operating companies in Middle East and Africa for the first half of 2006, where EBITDA-AL grew 16.1%. It also succeeded in growing revenues by 4.1% in Europe to €3.61 billion, coupled with EBITDA-AL growth of 6.1% growth. However, Orange’s CEO, referred briefly to the company’s “efficiency program, powered by AI,” during the company’s conference call, despite its investment in automation, which include progress in developing network autonomy.

There were some outliers in the latest financial results when it comes to combining cost efficiency and higher EBITDA. Telenor said several factors contributed to a year-on-year 0.7% decrease in service revenues as well as a 4.8% drop in adjusted EBITDA for the quarter ended 30 June 2026. These included revenue pressure in the Nordics, a VAT provision in Norway, a challenging market in Bangladesh, and a strong performance in the same period last year.

Operational transformation also poses a current cost challenge to Telenor: “We are currently in a period with dual IT cost structures and peak implementation costs,” it said in its latest financial report. Going forward, however, the company expects a “simplified organisational structure to yield annual cost savings of some NOK 375m from 2027.”

The trend towards capturing margin growth through lower operational costs is likely to continue unless Europe's CSPs find new revenue streams.

"All the large European CSPs now have major programs underway to simplify, automate and modernize operations. These initiatives serve two purposes — first to to help their organizations move faster, and secondly to generate cost savings," says Mark Newman, Chief Analyst, TM Forum. "Unless CSPs can recapture revenue growth — for example by building new lines of revenue using AI — they will continue to rely on OpEx savings to protect and grow margins."