BeLux Q4: TV, broadband drive growth at market leaders

Monday 5 March 2018 | 13:03 CET | Background

Belgium's three largest telecom operators generated revenues of EUR 2.098 billion in Q4 2017, little changed (+0.1%) on an annual basis. Their collective EBITDA margin was fractionally higher at 36.1 percent. Capital expenditure reached a near record of EUR 651 million, equal to 31.0 percent of revenues. This led to a fall in free cash flow to just EUR 107 million, or 5.1 percent of revenues. 

The underlying differences at the three operators are large. Proximus and Telenet are growing, while Orange's sales are falling. Regulation plays a role of course. Proximus is growing in several areas, mainly in ICT. Telenet is still the most profitable, despite weakness in mobile. Orange is also suffering from the latter, and its cable revenues aren't enough yet to compensate. 

Our analysis focuses on the top three operators. Post Luxembourg only reports annual figures, while the others Voo (cable and MVNO), M7 (TV Vlaanderen and TeleSat) and small virtual players such as EDPnet do not disclose results. 

  • Proximus Domestic. The incumbent, including Luxembourg but excluding the international wholesale unit BICS. The Belgian government owns 54 percent of Proximus.
  • Telenet. Combines cable (incl SFR BeLux) and mobile (Base). Listed, but with Liberty Global still the controlling shareholder (57%).
  • Orange BE. Mobile operator with a nationwide virtual cable business. Listed, with Orange holding 53 percent.

Takeovers drive growth

Revenue growth remained positive in Q4 2017, despite the impact of regulation (especially RLAH, roam-like-at-home). Telenet's takeover of SFR BeLux from 17 June 2017 played an important role in this, adding around EUR 20 million to quarterly revenues. So without SFR BeLux, the top three would have seen a drop in sales of around 1 percent. Small acquisitions by Proximus also contributed to growth. BICS bought Telesign but this is not included in our analysis. 

The EBITDA margin of 36.1 percent is at a relatively low level, compared to a recent peak of 40.3 percent in Q3 2016. Capex may appear high, but that is more the result of the timing of certain investments and income. Measured over four quarters, the picture is less dramatic, with capex at 24.2 percent of revenues. This is still on the high side for the recent period, but the figure has varied little, between 21.9 and 24.2 percent.

Broadand and TV growing after takeover SFR BeLux

RGUs (revenue generating units) show continued growth in fixed broadband and TV, while fixed telephony and mobile decline. The total number of broadband subscribers rose by 5.3 percent in Q4 to 3.776 million. That's more than the population or household growth, and this is again due to the acquisition of SFR BeLux. The same is true for TV subscribers, which increased by 3.9 percent to 3.712 million. Fixed telephony has been showing a double-digit decline for around two years and lost another 27,500 lines in Q4 to 4.055 million. The mobile market lost 40,000 customers for a total of 12.524 million. Unlike fixed telephony, this is not a structural decline, but more the result of a clean-up of the prepaid base at Proximus and the transfer of the JIM Mobile MVNO from Telenet to Medialaan (129,100 customers).

Proximus: growth mainly from ICT segment

Proximus Domestic reported underlying sales growth of 0.9 percent. Notably Proximus reported growth on most sales lines, apart from fixed telephony and prepaid mobile. The biggest growth is in the business segment ICT services.

The company's margin was down slightly from the previous quarter at 35.9 percent. Free cash flow, measured over the past four quarters, was 13.5 percent of revenues, a historic low. 

  • Customer growth in TV, broadband and postpaid, losses in fixed telephony and prepaid.
  • FMC: 56.8 percent of households served also take mobile services. A total of 687,000 quad-play subscribers.
  • Consumer: telephony ARPU shows a slightly downward trend. Broadband and TV ARPUs are stable. Postpaid ARPU fell slightly to EUR 27.8.
  • Business market: telephony ARPU falling, while broadband ARPU up marginally. Postpaid ARPU fell to EUR 21.6. 

Telenet: most profitable, but weak in mobile

Telenet achieved rebased growth (pro forma for SFR BeLux takeover) of 1.2 percent. Mobile and fixed telephony were weak, but growth came from TV, broadband and the business market. 

Adjusted EBITDA jumped 11 percent, and the margin rose to 46.4 percent. Free cash flow over the past four quarters reached 16.9 percent of revenues, slightly lower than previous quarters. This makes Telenet the most profitable of the three operators. 

  • Customer growth in broadband and postpaid, stable in fixed telephony, losses in TV and prepaid.
  • FMC: 303,600 households on quad-play (WIGO), equal to 13.9 percent of all households served. 
  • ARPU growing on the fixed market (per customer). We calculate a declining postpaid ARPU of EUR 18.9. 

Orange: cable offer and Luxembourg can't stop fall in revenues

Revenues fell 1.3 percent at Orange. Luxembourg made a positive contribution, both in fixed and mobile. In Belgium, mobile service revenues and equipment revenues were lower. Revenues from the cable services are growing quickly (+28%), but the business is still too small to make a major contribution to growth. 

Adjusted EBITDA declined, leading to a drop in the margin to 19.5 percent. Free cash flow over the past four quarters was just 9.1 percent of revenues. 

  • Customer growth in TV, broadband and postpaid, losses in fixed telephony and prepaid.
  • FMC: 163,000 (7.0%) of the postpaid base also subscribe to cable services. 
  • Orange doesn't report ARPUs for the fixed market. We estimate a blended ARPU per RGU to asses its performance over time and see a declining trend over the past year. The ARPU is blended over TV, broadband and telephony, taking account of a decline in telephony customers. This suggests price pressure in TV/broadband.
  • Postpaid ARPU was stabile at EUR 30.0. 

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