Belgian operators cut opex ahead of increase in capex

Thursday 29 December 2016 | 14:21 CET | Background

Belgium's three largest telecom operators increased their sales by 10 percent in the third quarter of 2016. The increase was driven by Telenet's takeover of mobile operator Base. Excluding this, revenues were up 0.8 percent to a total EUR 2.037 billion. 

Both Telenet and Proximus have announced major infrastructure investments. The financial impact is limited, as Telenet profits from the cost synergies with Base and Proximus merely shifts spending from VDSL to FTTH. Orange has only a mobile network to worry about, as it's using wholesale cable access in the fixed market. This means lower capex but higher operating costs for Orange. 

The three operators generated EBITDA of EUR 816 million in the quarter, up 11 percent year-on-year, and saw their collective margin increase to 40.1 percent. Capex rose only slightly to EUR 327 million, helping free cash flow (EBITDA minus capex) rise 19 percent to EUR 489 million, or 24.0 percent of revenue.

Telenet acquisitions: Base and SFR BeLux

Pro forma for the takeover of Base in February, Telenet's revenue was down 1.0 percent in Q3, while Proximus (BeLux only) and Orange Belgium each showed growth, of respectively 1.6 and 1.7 percent. Base appears to be responsible for the drop in revenue at Telenet, with a fall of 4.5 percent in sales, while the cable operations grew by 5 percent. 

Due to lack of public information, we don't include SFR BeLux and Post Luxembourg in this analysis. Telenet's just announced takeover of SFR BeLux will add another 240,000 homes passed, of which 90,000 customers in Belgium and 15,000 in Luxembourg. The question is now whether Voo will also fall prey to Telenet, completing its national coverage. 

Proximus: Fiber For Belgium

Proximus Domestic (excluding BICS) is showing fairly stable growth. Its margin has reached a historically high 39.4 percent, underlining its success with cost reductions. At the same capex has fallen to a low level, at 16.1 percent in the latest quarter. Free cash flow reached a record EUR 256 million in Q3. 

Its recently announced Fiber For Belgium programme will see the company invest EUR 3 billion over ten years to roll out FTTH and FTTO. The first three years will see it increase annual capex slightly to EUR 1 billion, from around EUR 950 million in recent years. Only a small increase, which suggests ongoing investments in 4G and VDSL will also be reduced. Proximus also promised to maintain its dividend at the same level and keep its healthy balance sheet (debt-to-EBITDA around 1), while keeping capex under 18 percent of revenue. The financial impact of the fibre plan thus appears limited, based in part on room for further opex savings. 

Telenet: Grote Netwerf and mobile upgrade

Telenet's growth has slowed since the takeover of Base. A year ago it was growing at an annual rate of 3.1 percent and this has now turned negative. The margin is at 46.5 percent, and the question is whether this can increase further in the coming quarters, closer to what is more normal in the cable sector. The same question holds for the free cash flow, which is now at 28.2 percent of revenue.

Telenet is also planning major investments, both in fixed (De Grote Netwerf) and in mobile - all 2,800 of its sites will be upgraded in the next 18 months at a cost of EUR 250 million. Telenet is also able to minimise the financial impact, as capex is expected to increase only marginally, to around 23 percent of revenue from 22 percent now. Telenet will also profit from the synergies with Base, which are expected to reduce opex by EUR 220 million per year by 2020. 

Orange BE: still small in fixed

Orange BE reported a small increase in revenue, up 1.7 percent to EUR 311 million, without much impact from its launch on the cable market earlier in the year. The number of cable customers is still small, at just 16,300. Orange's margin is clearly lower than Telenet and Proximus, at 29.6 percent, as it does not have its own fixed network. Free cash flow, at 18.6 percent of revenue, is nevertheless healthy. 

Free Headlines in your E-mail

Every day we send out a free e-mail with the most important headlines of the last 24 hours.

Subscribe now

::: add a comment