BeLux market Q3: moderate growth, with a focus on FMC

Wednesday 17 January 2018 | 16:00 CET | Background

The three largest operators on the Belgium/Luxembourg market booked a combined increase in sales of 0.6 percent in the third quarter of 2017. Telenet and Orange showed growth, while Proximus' revenues were stable. The fixed market was important for all three in terms of growth, and the focus remains on bundling fixed with mobile services. 

We exclude smaller operators due to the limited public information available. Post Luxembourg only reports annual results, so it's not included in the Q3 analysis. Its quarterly revenues are around EUR 180 million, of which some 60 percent comes from telecom. 

Our calculations include:

  • Proximus Domestic. That includes Luxembourg but excludes the international wholesale carrier BICS. 
  • Telenet. Mobile operator Base is consolidated since February 2016 and SFR BeLux since June 2017.
  • Orange BE. Also includes Orange Luxembourg.

In general terms, the Belgian market shows the following characteristics:

  • Proximus and Telenet each have their own fixed and mobile networks. Telenet's cable network is not national. If one day it's able to acquire Voo, then it would have national coverage. Orange BE has its own mobile network and uses wholesale access to the cable networks for the fixed market. The latter gives it near national coverage. 
  • Proximus is working on a fibre roll-out in the local loop (Fiber for Belgium), and Telenet is also upgrading its network (De Grote Netwerf).
  • Proximus owns the rights to Belgian football and has an exclusive agreement with the production company Studio 100. Telenet also has rights to the Jupiler League and is even more closely tied to the media sector via its 60 percent stake in De Vijver Media. Market rumours suggest Telenet wants to buy all of DVM. DVM owns SBS Belgium (the channels Vier, Vijf and Zes) and production company Woestijnvis.

Football costs bite in Q3

Together, the top three operators in Belgium/Luxembourg achieved revenues of EUR 2.067 billion, up 0.6 percent from a year earlier. Operating costs rose a bit faster, leading to a drop in their collective EBITDA margin of 1.8 percent points to 38.5 percent. Total investments (capex) reached EUR 494 million, up 30 percent year-on-year due largely to the costs of football rights. As a result, free cash flow fell to EUR 301 million or 14.6 percent of revenues, versus 21.8 percent a year earlier. 

Proximus Domestic: growth in broadband, TV and ICT

Proximus Domestic reported revenues of EUR 1.105 billion in Q3 2017, unchanged from a year earlier. Higher direct costs led to a drop in the gross margin of 1.4 points to 75.2 percent. Indirect costs fell slightly. Altogether this led to a 2.1 percent drop in EBITDA to EUR 426 million, and the margin dropped to 38.6 percent from 39.4 percent a year earlier. Capex increased to EUR 205 million, and free cash flow (EBITDA minus capex) fell to EUR 224 million from EUR 256 million. The latter was equal to 20.3 percent of revenues, down from 23.2 percent in Q3 2016. 

The consumer division showed growth thanks to broadband, TV, postpaid mobile and handset sales, and the business division also showed growth in ICT and new services (advanced business services). Prepaid mobile and fixed telephony declined at both divisions. Higher visitor roaming revenue, driven by the introduction of roam-like-at-home in the EU, supported growth at the wholesale division. 

The bundling trend continued unabated, with more quad-plays offsetting the other 'plays'. Notably the multi-play revenues were flat on a quarterly basis, at EUR 599 million. This is the result of several factors:

  • The shift from 1P, 2P and 3P to 4P.
  • An increase in the number of RGUs per households, from 2.71 to 2.73. 
  • A decline in the total number of households served, which fell by 14,000 to 2.942 million.
  • Growth in the share of households taking multiplays (FMC), from 56.1 to 56.4%.
  • Stable ARPU per household (EUR 67.7), but slightly lower ARPUs for the various 'plays' (e.g. 4P ARPU fell from EUR 116.5 to EUR 116.4).

Telenet: quad-play drives growth

Telenet grew its revenues 4.0 percent year-on-year to EUR 646 million in Q3 2017. EBITDA rose 8.0 percent to EUR 319 million, and the margin improved to 49.3 percent from 47.5. The football costs led to a jump in capex to EUR 255 million. Free cash flow equaled 15.5 percent of revenues, on a rolling 12-month basis. 

The growth at Telenet is driven by the rise of the 4P (WIGO), price increases in February 2017, growth in the SME market and MVNOs (mainly Lycamobile). This was offset by lower handset revenues and bundle discounts (WIGO discounts are attributed to the mobile segment).

The same as at Proximus, Telenet shows a shift to bundling, with the 4P and 3P growing at the expense of the 1P and 2P.

Orange BE: growing in fixed

Orange BE showed sales up 1.7 percent to EUR 316 million in Q3 2017. Its direct costs rose sharply, leading to a drop in the gross margin to 53.6 percent from 60.2 percent a year earlier. Indirect costs were lower, but EBITDA still showed a sharp drop to EUR 83.1 million (margin down 3.3 points to 26.3%). Capex rose to EUR 37.4 million, leaving free cash flow of EUR 45.7 million (14.4% of revenue).

Orange's growth is coming from fixed services (+27%), while mobile is stable. Nevertheless, fixed still contributes a tiny share of revenues (7%). The number of mobile customers who also take fixed services from the operator rose to 129,000, with net additions of 23,200 in Q3. That equals 5.6 percent of postpaid customers in Belgium. The operator's total mobile base in Belgium showed growth in postpaid and M2M, but lost prepaid and wholesale SIMs. The latter is due to the Telenet MVNO moving to the Base network, a process that should be completed by March 2018. 

Sub-markets growing slowly, apart from fixed telephony; focus on FMC

Looking at the customer net additions for the top three operators in BeLux, we see a somewhat predictable picture: fixed telephony contracting (-35,000 in Q3), while fixed broadband, TV and mobile showed moderate growth of respectively 24,000, 11,000 and 16,000 new connections. For a more detailed view of the figures, please ask about acquiring our quarterly sheet for the sector

The quad-play market (FMC: fixed/mobile convergence) is important for all three operators and continues to grow. For the moment, this is limited to Belgium, and not Luxembourg. Proximus is in the lead with 673,000 mobile customers also taking fixed, followed by Telenet with 265,000 and Orange with 129,000. In total, the three added 75,000 such subscribers in Q3 2017 to reach 1.067 million at the end of September. 

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