Monday, May 14, 2018

Vodafone to acquire Liberty Global assets

Vodafone acquires Liberty Global assets for EUR 18.4b o/w 10.8 cash, 7.6 existing Unitymedia debt.
  • Operations
    • DE (Unitymedia; together 25m HP = 2/3)
    • HU (1.8m HP = 43%)
    • RO (3.1m HP = 41%)
    • CZ (1.5m HP = 33%)
  • Valuation
    • EV EUR 18.4b
    • 10.9x EBITDA 2019 (pre synergies)
    • 8.6x EBITDA (post synergies 5 yr)
    • 12.5x OpFCF (post synergies 5 yr)
  • Closing
    • To close mid 2019
    • Break-up fee EUR 250m payable to Vodafone, or payable to Liberty if for antitrust issue.
  • Synergies
    • Cost/capex synergies (network integration, IT/billing simplification, procurement, consolidating overlapping functions) 535m EUR/yr from yr 5 (before integration costs)
    • NPV EUR 6b (after integration costs) o/w rev synergies NPV EUR 1.5b (from cross-selling)
    • Integration cost EUR 1.2b (in first 5 yr).
  • Accreditive to FCF from yr 1.
  • Increases targeted net debt/EBITDA to 2.5-3.0x (pro forma at high end).
  • Liberty Global to provide transitional services to Vodafone (IT, TV platform tech, connectivity, other support) max. 4 yr; pro forma EUR 128m in 2019.

Monday, April 30, 2018

T-Mobile US acquiring Sprint: doing 5G-based FMC after all

T-Mobile US (DT 62%) acquires Sprint (SoftBank 83%)
  • $26b in shares (no cash out), EV $59b: 9.75 Sprint for 1 T-Mobile US (1 Sprint = 0.10256 T-Mobile US = $6.62), EV combination $146b
  • DT to own 42% (voting rights 69% incl. perpetual proxy from SoftBank; SoftBank has certain veto & info rights), SoftBank 27%, to be consolidated by DT
  • synergies NPV $43b (net of $15b integration costs) from network integration & build-out (incl. 5G), sales & marketing, store fittings, advertising, customer support, repairs & logistics, efficiencies in internal IT & billing; run-rate savings >$6b from 2024 (assuming effective from YE 2018; excl. IFRS 16 effects)
  • to close 19H1, subject to DoJ, FCC, security authorities; no break-up fees
  • John Legere CEO, Mike Sievert COO & President, Timotheus Höttges Chair, DT to appoint 9 (incl. 2 indie) of 14 Board members, SoftBank 4 (incl. 2 indie)
  • outlook & dividend DT 2018 unchanged, positive effect on EPS after 3 yr, leverage to exceed 2.0-2.5x (2.9 YE 2019), expects max. 1 notch downgrade (current Moody's Baa1/neg., S&P BBB/stable, Fitch BBB+/stable), return to 2.0-2.5 (i.e. 2.5) by 2021 (1.8 in 3-4 yr)
  • T-Mobile US to redeem all shareholder loans from DT (to reduce directly by $8b to $6.6b)
  • T-Mobile US to pursue Un-carrier strategy; "... will be able to roll out 5G technology more quickly and better than either T-Mobile US or Sprint would have been able to do alone. To do this, the intention is to focus on convergence products combining fixed and mobile communication offerings, a portfolio with which Deutsche Telekom is already very successful in Europe"
  • to invest $40b in first 3 years; to employ more staff than the two previous companies put together (from call center capacity in rural areas, network build-out, maintenance, new stores)

Tuesday, March 13, 2018

Iliad 17Q4: targets maintained, to bid for 5G spectrum in Italy

Most targets were reiterated.


  • div 2017 68c
  • acquired 50% stake in Sepia (housing Telecom Reunion Mayotte) in 2017
Targets fixed
  • LT 25% market share BB
  • grow FTTH subs 300-500k/yr from 2018
  • 9m FTTH HP YE 2018, 20m FTTH HP YE 2022
Targets mobile
  • add 2k sites in 2018
  • 3G coverage 95% & 4G (all incl 1800 band) 90% YE 2018
  • LT 25% market share mobile
Group targets
  • EBITDA margin up in 2018, EBITDA margin FR 40% by 2020
  • capex FR 2018 EUR 1.4-1.5b (excl. spectrum & new Freebox launch)
  • FCF (EBITDA - capex) FR >EUR 1b from 2020 from lower national roaming charges (2G & 3G with Orange, expires YE 2020), improved mobile subs mix, nationwide mobile network by 2020
"Almost ready for launch in Italy"
  • in place: infra (10k km backbone) & interconnections, offers & mkt plan, distr. network, full team, testing for QoS
  • launch summer 2018
  • to bid in 5G auction 2018 (700 & 3600/3800 bands)
  • investments Italy 2017: € 314m (o/w 50 for spectrum from Wind Tre, 220 for 1800 licenses renewal until 2029)
  • target: EBITDA break-even at <10 market="" share="" span="">
FTTH strategy
  • virtuous model, first benefits from 18H1
  • medium dense areas (co-finance model) capex < 1000 EUR/home
  • French corporate tax rate (33%) to 28% in 2020, 25% in 2022

Wednesday, February 07, 2018

Orange BE 17Q4 highlights: Luxembourg impairment, underlying high growth

  • Impairment Orange LU 17.9m
  • MSR -3.3% (+2.9% excl MVNO impact, +6.7% excl MVNO & RLAH impact)
  • Adj EBITDA -21% (-1.8% excl Wallon pylon deal; +11% excl Wallon deal & RLAH impact)
  • Opex related to BB+TV 13.4m (~x2)
  • Rev MVNO-loss impact (Telenet) 2017 on rev -9.1m (17Q4 -15.3m), RLAH impact -36.4m (o/w -8.4m in 17Q4)
  • EBITDA impact MVNO-loss -7.5m, impact RLAH -7.3m
  • Cable business 2017 EBITDA impact -18.5m
  • NB-IoT & LTE-M nationwide
  • Launches unlimited mobile data/voice/SMS plan 180212 (a first in BE)
  • Targets 2018
    • adj EBITDA 280-300m (incl MVNO loss impact -30m on rev [also lost Lycamobile, will lose VOOmobile]
    • RLAH impact on rev -26m & on EBITDA -17m
    • capex (excl cable) flat
    • focus on oper efficiency
    • mid-term BB market share target 10%
    • div 2017 50c
    • started using network data (dropped calls) to identify & target eligible residential customers for a femtocell
    • Big Data for targeted network investments, churn mgt, rev assurance/fraud detection
    • plans one-stop shop (fixed & mobile) for businesses, coop with Orange Business Services

Thursday, February 01, 2018

KPN Q4: FTTH to migrate to PON technology after 2018

Details from the main release

  • Outlook 2018
    • Adj EBITDA flat, capex 1.1b, FCF up (excl TEF DE div), div 12 c/share; Telefonica DE stake 8.6%
  • IFRS 15
    • recognition & measurement of revenues
    • different timing of revenue recognition for handset transactions via direct & indirect channels, and a higher threshold probability in revenue related disputes
    • revenues for handsets sold via direct channels are recognized in the P&L as nonservice revenues at date of the transaction, matching the associated handset costs. Revenues (nonservice) and fees (SAC) for handsets sold via indirect channels are no longer recognized in the P&L, but reported in the balance sheet. The threshold in revenue related disputes (variable consideration) is raised, meaning that revenues are only recognized when highly probable (>75%), up from >50% under IAS 18)
    • impact (from 180101): adj rev -130m, adj EBITDA -100m, FCF unchanged, equity (at 170101) +285m
  • Q&A
    • RLAH more favorable than expected (wholesale costs, VR income, data usage grew multiple (>3x)), effect 2018 comparable (shorter yoy effect but expanded usage)
    • Expects Business Market stabilisation in 1-3 yr
    • 3.5 GHz band crucial for 5G
  • Technology update
    • Fiber reduces latency to 6 ms (DSL 14 ms, LTE 20-26 ms)
    • FTTH reaches 2.3m HH, new build FTTH only, AON in 2018, thereafter migration to PON (not for existing lines), plans access on 3rd party FTTH
    • Stepped up FTTO (after regulation ended)
    • FTTS reaches 80%
    • Bonded V Plus roll-out from 18Q2 (>400 Mb/s), cabinets suitable for VDSL & FTTH, local loop typically 150 meters
    • Hybrid DSL/LTE has 1400 subs (Nijkerk trial), average download 6 to 73 Mb/s (note: DSL is needed for IPTV & fixed IP address, LTE for peaks & streaming)
    • LTE-M nationwide by 18Q2
    • Plans 4 5G pilots: urban, rural, transport & logistics, automotive ("4G connects people, 5G connects society")
    • Plans VoWiFi
    • Network integration
      • Access
        • 1. Combine (hybrid access): FTTC/FTTH & DSL/LTE
        • 2. Massify (facilitate massive device comms)IoT over LoRa, LTE-M and 4G M2M
        • 3. Verticalise (5G for verticals): eMBB (broadband), mMTC (massive), URLLC (latency)
      • Core
        • 4. Rationalise (simplification): all-IP
        • 5. Virtualize (increase scalability, reduce time-to-market): NFV (generic cloud hardware, faster time-to-market) & SDN (smart routing)
        • 6. Decentralise (content closer to consumer): CDN at 161 metro locations (for content caching, core-network offloading, improves experience), edge computing (for 5G, improves latency for automotive, e-health, smart industry)
    • Simplification: phase 3 of simplification will follow (savings 1 & 2 relative to 2016: 570m EUR/yr)
    • IT simplification: originally for 80k subs, invisible for customers, focus on a single My KPN app, focus on open source, added 150 developers in 2017 (total 30 nationalities), time-to-market (halved to 7 days) to be halved again

Wednesday, January 10, 2018

Tele2 acquires Com Hem: target 'untapped customer demand'

Merger announcement & presentation:
  • Acquires Com Hem
    • HH coverage 60%, 1100 employees
    • Results TTM: rev SEK 7.1b, adj EBITDA SEK 2.9b, OFC SEK 1.8b)
    • Merger, Tele2 absorbs Com Hem.
    • Cash (per share: SEK 37.02 SEK) + stock (per share: 1.0374 B-shares) = SEK 6.6b + 26.9% of Enlarged Tele2 = 146 SEK/share (11.8% premium over 180109 closing price, 15.9% premium over -30 trading days)
    • To issue 184.8m new B-shares, total 687.6m shares (o/w 22.8m A, 664.8m B); Kinnevik (to own 27.3% & 41.9% of votes) supports (lock-up 6 mo after completion).
    • To close 18H2 (latest 190331).
    • Refers to EC, prepared to effect pro-competitive measures if required to complete the merger.
  • Total synergies
    • 50/50 from costs (mostly opex) & rev (complementary, cross-selling)
    • Total 900m SEK/annum in yr 5 (65% in yr 3, 80% in yr 4)
    • Integration costs SEK 600m
    • Rentention bonus 12-24 mo base salary for mgt & key employees
    • Accreditive to FCF from yr 1.
  • Management
    • Anders Nilsson (Com Hem) to replace Allison Kirkby as CEO.
    • New Board to be chaired by Georgi Ganev (Tele2), >= 2 Com Hem members (incl Andrew Barron).
  • Targets
    • Increase shareholder remuneration.
    • Target leverage remains 2.0-2.5 (at closing net debt/EBITDA TTM 2.8).
  • Rationale
    • Untapped customer demand
    • Value accreditive
    • Complementary, complete proposition to improve customer satisfaction & loyalty
    • Greater scale & diversification
    • Unlock synergies
    • Revenue & CF diversification
  • 2017
    • Dividend 2017E: 4 SEK/share for Tele2, 6 SEK/share for Com Hem.
    • Combined results TTM: rev SEK 31.8b, adj EBITDA SEK 9.2b, OCF SEK 6.1b.
    • Sweden 72% of revenues & 78% of EBITDA (TTM).
    • Market shares in Sweden pro forma: 28% mobile, 22% FBB, 39% DTV.

Tuesday, January 09, 2018

Altice strategy update: USA spin-off, Europe disposals, both deleveraging

  • To spin-off Altice USA (incl Altice Technical Services US; 67.2%; excl Netune stake) by end 18Q2; 0.4163 Altice USA shares (A (1 vote) or B (25 votes)) for 1 Altice share, CEO Dexter Goei. Altice USA free float from 10.3 to max 42.4% (voting from 0.6 to 47.2%), Next to hold 51.2% of votes.
  • Altice Europe to reorg into France (incl FOT; bought from Int for EUR 550m o/w 300m cash), International (Meo, HOT, DomRep, Teads), Pay TV (content, sports rights, other premium content: Discovery, NBCU), Dennis Okhuijsen CEO
  • Separate mgt teams, Patrick Drahi control of both (President Europe, Chairman USA) via Next.
  • Altice USA plans $1.5b cash dividend prior to spin-off from Optimum facilities o/w EUR 900m for Altice Europe (o/w 625m for debt, to retain 275m).
  • Altice USA plans $2b SBB after spin-off.
  • Altice Europe strategy: turnaround in FR, PT; optimising performance, invest in infra, monetising content (various pay TV models & ads); non-core asset disposals (towers; DomRep; Switzerland; int wholesale voice to be sold).
  • Altice France 17Q4prel: revenue declines in B2B, wholesale, equipment, FY 2017 rev -2%, target opFCF 2018 EUR 1.6-1.7b (incl 300m pay TV content expenses & 200m drag from French VAT changes); Altice Europe net debt pro forma at 170930 EUR 31.0b (5.4x EBITDA TTM), targets 4x leverage.
  • Altice USA strategy: investments in networks & video product, simplification, improved customer service, improve rev growth, complete opex synergies, Altice One (platform), FTTH & MVNO (on Sprint) completion.
  • Altice USA 17Q3 pro forma incl planned div: net debt $22.7b, leverage 5.8x EBITDA TTM, target leverage 4.5-5.0x (reduced from 5.0-5.5).

Monday, December 11, 2017

7 Predictions for 2018 for the Dutch market: consolidation, newcomers and an IPO

1. T-Mobile NL/Tele2 NL a strong #3
This merger seems inevitable. What is more intriguing, is options for creating an even stronger challenger to the KPN/VodafoneZiggo 'duopoly'. Candidates include the M7 Group (Canal Digitaal, Online, Stipte, Fiber NL) and EQT's Dutch assets (Delta, CIF, Caiway).

2. VodafoneZiggo IPO
Greater independence from the 50/50 parent companies would instantly create value. Hundreds of millions of euros are extracted from the company every year.
Alternatively, either Vodafone or Liberty Global could buy out its fellow shareholder, but this seems unlikely. Both are actively trying to get rid of assets in countries where there is no overlap.

3. KPN creating PTT network
KPN will want to be part of a new wave of consolidation. Most multinationals are ruled out, for various reasons (Orange not looking to expand its footprint, Altice not in takeover mood currently, etc). Bloomberg recently suggested Proximus, TDC and Elisa could be partners. In fact, there could be many more in this league (Swisscom, Eir, Telenor).

4. KPN will start losing broadband market share
Leapfrogging is rather predictable. ADSL, Docsis 3.0, VDSL and next .... Docsis 3.1. Once VodafoneZiggo turns on Docsis 3.1, it may herald a new phase of growth. KPN's broadband market share will decline and at some point it may relaunch FTTH and do a number of small takeovers to regain share.

5. Eurofiber to bid in 5G auctions
Eurofiber is actively exploring value-creating innovation. It has an extensive fiber network, connecting anything (including bridges & traffic lights) outside the FTTH segment. A 5G network could be devised as wholesale-only. The company could consider bidding through a consortium with T-Mobile/Tele2.

6. Talpa Netwerk to bid for Eredivisie summaries
John de Mol, having sold part of his assets to ITV, has re-created a wide-ranging media company, Talpa Netwerk (TV, radio, streaming video & music, web, events). It appears as a no-brainer to buy the very valuable Eredivisie summaries for the SBS channels.

7. Subsidisation moving to high-value plans
Operators will start realising that subsidisation (handsets, mobile data, content) may reduce churn but destroys value by offering it to all subscriptions. Vodafone's Passes may be too expensive for the Dutch market, but the concept or providing benefits to high-value plans deserves to be copied.

Monday, September 11, 2017

Vodafone DE's Gigabit Investment Plan

Vodafone DE launches Gigabit-Offensive, or Gigabit Investment Plan: EUR 1.8-2.2b in 4 yr (18/19 - 21/22), for 1/3 of all HH: 13.7m connections.

3 pillars
  • GigaKabel (Cable): 12.6m HH; EUR 200m (excl CPE); accelerates Docsis 3.1 deployment from 4 to 2 yr; target 0.5-1.0 Gb/s.
  • GigaGemeinde (Municipality): rural, 1m HH = 2m pops, FTTH; EUR 200-400m; requires 33% participation; muni to own passive and apply for subsidies; Vodafone active operator (incl CPE).
  • GigaGewerbe (Business): 100k FTTO in 2k parks; EUR 1.4-1.6b; with partners incl. Deutsche Glasfaser for passive; long-term full ownership of passive; requires 40% participation.
  • IRR minimum 20%
  • Pay-back: max 4 yr (FTTO), 6 yr (rural FTTH)
  • Contribution to SR growth: 1-2 pp from mid-term (FY 19/20)
  • EBITDA-margin above-average/materially higher (currently 34.1%)
  • CF impact limited due to coop approach (17/18 limited, then 100-200m EUR/yr)
  • Group capex/rev unchanged (mid-teens mid-term) excl Gigabit Investment Plan (disclosed separately)
  • Limited FTTH.
  • Smart way of reaping subsidies and sharing cost with partners.
  • Focus on (ultimately) vertically integrated model. Not a word about open access.
  • Attractive financials.
  • Deutsche Glasfaser takeover target eventually (others not clear).
  • Cost per connection/household
    • Docsis 3.1: EUR 15.87 (excl CPE)
    • Rural FTTH: EUR 300 ad mid-point for part of the investment
    • FTTO: EUR 15,000

Wednesday, June 14, 2017

The arbitrariness of RLAH regulation

There is a certain level of arbitrariness to the RLAH (roam-like-at-home) regulation, taking effect 170615, looking at it from this perspective:

  • Pricing of mobile services is extremely complex, containing all sorts of elements.
  • Operators try to balance pricing with their own return, competitiveness, differentiation and fairness (giving the customer a sense of the-user-pays and usage-based or volume-based pricing).
The result is a high degree of opaqueness.

Now, the EC decided to act on the apparent unfairness of the cost of roaming, singling out one of many elements constituting the monthly bill. (Why not act against extortionist SMS pricing?) Operators will not worry. The have many levers to pull, not least raising fixed-line prices in case of integrated (fixed/mobile) operators.