Telecruise, Kiel, May 8 2013
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Select credit clients
Backdrop of the new proposed telecom regulation
Political background
 Europe has gone from industry
leader to laggard in less than a
decade
 Political need to reposition European
telecoms as a motor of growth
 Conflicting need: to deliver results
from Brussel to Euroskeptical
consumers/voters
3
Backdrop of the new proposed telecom regulation
Business background
4
2014 EBITDA FORECAST
5
European Telecoms shares have massively underperformed cable…
Five-year historical share price development (indexed from 100)
Index = 100 at 2008-10-31
500
+396%
400
+253%
300
200
Selected fibre
companies have
outperformed
selected cable
companies by 259
percentage points
and selected
telecom
companies by 422
percentage points
over the past 5
years
+42%
100
0
2010-01-01
Fibre
2011-01-01
Cable
2012-01-01
2013-01-01
2014-01-01
Telecom
Source: Factset
Note: Trading multiples include: i) Fiber companies: Cogent, tw telecom, ii) Cable companies: Liberty Global, Telenet, Zon Optimus, Ziggo, Time Warner Cable, Charter
Communications, Cablevision Systems, iii) Telecom companies: Telenor, Teliasonera, Elisa, TDC, BT Group, Swisscom, Belgacom, Telecom Italia, Orange, Deutsche Telekom,
Telefonica, Telekom Austria, Portugal Telecom, Vodafone, Mobistar, Telefonica Deutschland.
…on the back of structural, regulatory and technological headwinds
EV/EBITDA 14E vs EBITDA CAGR 2014E-2016E
EV/EBITDA 2014E
16,0x
15,0x
R² = 0.6
14,0x
13,0x
12,0x
11,0x
10,0x
Correlation
between
EV/EBITDA
multiple and
EBITDA growth
prospects
9,0x
8,0x
7,0x
6,0x
5,0x
4,0x
3,0x
2,0x
1,0x
0,0x
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
EBITDA CAGR 2014E-2015E
Fibre
Cable
Telecom
Source: Factset
Note: Trading multiples include: i) Fiber companies: Cogent, tw telecom, ii) Cable companies: Liberty Global, Telenet, Zon Optimus, Ziggo, Time Warner Cable, Charter
Communications, Cablevision Systems, iii) Telecom companies: Telenor, Teliasonera, Elisa, TDC, BT Group, Swisscom, Belgacom, Telecom Italia, Orange, Deutsche Telekom,
Telefonica, Telekom Austria, Portugal Telecom, Mobistar, Telefonica Deutschland.
So, what is the EU doing to create a more positive growth climate?
New telecom rules: Key elements
Objectives
1. Less red tape
2. Harmonized access to fixed networks
3. Harmonized spectrum management
4. Easier roll-out of WiFi and small cells
5. More aligned copper access prices
6. Phasing out mobile roaming and call
premiums
7. Net neutrality
8.
1.
End blocking and throttling
2.
Allowed to offer «specialized services»
with QoS provided no quality degradation
of the «best efforts» Internet
More consumer-friendly contracts
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Cross-border
consolidation
Is consolidation really needed?
9
Forgotten elements in the EC comparison with the US
Macro backdrop
• Growth in the US
• Austerity and youth unemployment in Europe
Structural issues
• Workforce dynamism/mobility
• 65 000 civil servants in Orange
Spectrum allocation
• US: Tradable spectrum
• Foresighted regulator
Absence of MVNOs
• US: Consumers buy phones, not tariff plans
• Much more room for MVNOs in a savingsoriented market
• Positive CF: Only Verizon and AT&T
Cash Flow
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DNB Study: Relative scale is the key profit driver
A strong correlation between market share &
margins..
.. Top two market position is critical for profitability
....although exceptions exist in certain markets...
.. absolute scale economies are present but not
dominant
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Source: DNB ICI TMT Analysis based on Wireless Intelligence data
DNB Study (i)
A strong correlation between market share &
margins..
12
Source: DNB ICI TMT Analysis based on Wireless Intelligence data
DNB Study (ii)
A top-two market position is critical for profitability
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Source: DNB ICI TMT Analysis based on Wireless Intelligence data
DNB Study (iii)
...most #2 operators have margins in the 30-35%
bracket, but #3+ operators typically below 20%
14
Source: DNB ICI TMT Analysis based on Wireless Intelligence data
DNB Study (iv)
... absolute scale economies are present but not
dominant
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Source: DNB ICI TMT Analysis based on Wireless Intelligence data
Renewed predictability?
New telecom rules: Key elements
1. Less red tape
2. Harmonized access to fixed networks
3. Harmonized spectrum management
4. Easier roll-out of WiFi and small cells
5. More aligned copper access prices
6. Phasing out mobile roaming and call
premiums
7. Net neutrality
8.
1.
End blocking and throttling
2.
Allowed to offer «specialized services»
with QoS provided no quality degradation
of the «best efforts» Internet
More consumer-friendly contracts
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Sounds good?
Reality?
Keep in mind: Extreme variations in the price of «digital fuel» in Europe
Data prices in Europe:
Vodafone’s various country
operations highlighted
Data prices in Europe:
Main brands in Denmark
highlighted
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Source: Digital Fuel Monitor
12.05.2014
Too many questions linger in order to create predictability
•
“Roam like home”
•
How can unfair arbitrage be avoided?
•
What is «fair usage»?
•
Who will track usage?
•
“Specialized
services”
•
•
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Telecom is a service linked to local salaries and
cost levels, not a trading commodity
IP TV, Video conferencing, QoS/Through-theMiddle video
Under constrained bandwith, if one serivice is
prioritized, another will suffer – this will not be
allowed
Who will monitor this?
Investment and capital availability in Europe
Equity: harvesting
•
Growth investors sold out of telecoms years ago
•
Now: More dividend-oriented investors
•
•
•
Debt financing
•
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European debt levels are not high, but
deleveraging ability is low due to dividend payouts
Hence, capex is being held back
Debt has become cheap and readily available for
stable, established operators
Fiber and broadband projects still suffer from lack
of attractive debt funding schemes, as they are
really subject to equity risk, not bank risk
What is needed?
In-market
consolidation
Tax incentives
•
From 4 to 3-player markets
•
EU wide measures?
•
Structural
solutions
•
Let others
innovate services
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A mordern telecom/data network does not need
65000 civil servants
Advice to operators: Focus on the plumming
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