Markit, the financial services agency, said that telecoms dividends fell by 44% last year, from the peak of €22 billion which was paid out in 2011.
The dividend yield in the sector has been renowned as high, with the sector traditionally attracting more defensive investors, due to a long record of shareholder returns from fixed-line and mobile growth.
Revenues in the past few years have declined, however, with competition, combined with the economic downturn and effects of regulation, affecting the cash position of companies looking to enter new markets.
Markit claims 12 of the 19 major telecoms companies in the sector have reduced or suspended payments during this year and last.
"Bandwidth auctions, LTE network roll-outs, regulation and changing customer behaviour all add up to a squeezed cash flow," said Tom Matheson, analyst at Markit. "BT's £1-billion assault on premium content for interactive services is just the latest example of how hot competition is getting."
Dividends will be 16% lower overall this year, but the report did not take into account the fact that Telefónica has resumed paying out dividends following a one year hiatus, which could be worth up to €3.4 billion.
The financial services group did suggest the situation could improve in 2014, with the expectation that five groups in the sector could even begin to increase pay-outs.
However, KPN and Deutsche Telekom will cut dividends by the end of 2013, with Telecom Italia and Belgacom also expected to suffer because of their poor respective financial situations.
Norway's Telenor was named as the industry's outperformer, with the company increasing its dividends every year and its favourable results showing no signs of regressing.
