Two of Europe’s biggest telecom operators reported lower revenues yesterday, blaming the weak European economy and stiff regulation while seeing some bright spots in markets abroad.

The figures from Spain’s Telefonica SA and Deutsche Telekom AG chimed with recent statements from peers such as France Telecom, Swisscom and KPN as European operators struggle with an overcrowded market, tough regulations and recession.

They complain such pressures are hampering their ability to invest in faster networks, important for future growth.

Telefonica, Europe’s biggest telecom group by revenue, reported a 11.7 per cent drop to €6.7 billion for its European operations in the first quarter, with total revenue down nine per cent at €14.1 billion.

Deutsche Telekom said revenue in Europe shrank 6.9 per cent to €3.33 billion, while overall revenue fell 4.5 per cent to €13.8 billion.

Reflecting the pressures the sector is under, European telecom stocks are much lower valued than US peers and trade at roughly 11 times prospective earnings against 19 times for US peers, according to Reuters data.

Telefonica aims to cut debt to less than €47 billion by year end but reported net debt of €51.8 billion at end-March, against €51.3 billion three months earlier. The company has sold all its treasury stock and 40 per cent of its central American businesses to slash debt this year.

Deutsche Telekom shares were up 2.5 per cent, top of the sector gainers after reporting slightly better-than-expected core earnings and the first net addition of customers in the US since early 2009.

While Telefonica generated cash in some Latin American countries, it depleted its cash reserves in Europe, with operational cashflow decreasing particularly in Britain, the Czech Republic and Ireland. Operational cashflow was 22 per cent down on a year ago at €2.6 billion, with cashflow in Europe falling 40 per cent to €1 billion.

European telecom operators face particular challenges at their home markets.

In Telefonica’s recession-hit domestic patch, revenue fell 16 per cent to €3.3 billion, though margins continued to improve, reaching 47 per cent following Telefonica’s decision to scrap costly handset subsidies last year.

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