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Wireless

Mobistar Q4: negative growth continues, despite counter measures

Monday 10 March 2014 | 13:50 CET | Background

Mobistar, the number two player on the Belgian mobile market, recently reported results for the fourth quarter of 2013. Revenues fell 26 percent to EUR 357 million, hurt by price pressure, regulation, its withdrawal from the fixed market and the weak economy.

 

EBITDA fell by 40 percent to EUR 47 million, giving a margin of 13.2 percent, down from 27.7 a year earlier. Net profit plunged to EUR 3.8 million from EUR 48 million. Capex more than doubled to EUR 203 million, in part due to the spectrum auction. In November 2013 each of the three operators in Belgium acquired 2x10 MHz in the 800 MHz band for EUR 120 million. Mobistar's free cash flow was negative in Q4, at EUR 17.6 million versus a positive EUR 42 million a year ago.

 

Belgium

In Belgium, revenues fell 21 percent to EUR 350 million, with mobile service revenue down 21 percent to 249 million and handset sales down 17 percent to 69 million. Mobile EBITDA fell 67 percent to EUR 39 million. Fixed-line revenues, including consumer and business, totaled EUR 33 million, a drop of 21 percent year-on-year. Fixed EBITDA almost doubled to EUR 6.3 million. In terms of customers, Mobistar shows a shift from retail to wholesale (mainly Telenet) and M2M. It lost 74,200 retail customers in Q4 2013. In absolute numbers, this was offset by 67,600 new wholesale customers and 54,000 additions in M2M, but Mobistar could not make up the revenue difference. This is clear from the ARPU figures, which are reported on a trailing 12-month basis. In Q4 2013, ARPU was at EUR 25.13, down from EUR 28.74 a year earlier. The 12-month average dampens the negative impact, as does the exclusion of wholesale and M2M connections (which have lower ARPU).  On the fixed market, where the operator is no longer actively marketing its services, the customer base fell to 47,000 ADSL subscribers and 200,600 telephony users, down from respectively 72,000 and 233,300 a year earlier. TV (satellite) has already been completely phased out.

 

Luxembourg 

In Luxembourg, revenues fell 7.7 percent to EUR 19.3 million. Mobile service revenue was down 6.0 percent to EUR 15.8 million, and equipment sales were 15 percent lower at EUR 3.5 million. EBITDA fell by 28 percent to EUR 1.8 million. In Q4, the operator grew the customer base 600 to a total 102,200. ARPU (averaged over 12 months) fell slightly, from EUR 51.88 in Q4 2012 to EUR 50.15 per month in Q4 2013. The company has also reached an agreement with cable company Eltrona Telecom for resale of its cable services. 

Response 

The increased competitive pressure is the result of the changes to legislation that took effect in October 2012, which reduced the maximum contract period to six months, as well as the entry of Telenet on the mobile market, which conveniently took advantage of the new law. Telenet buys network capacity from Mobistar. Mobistar's response to the new market conditions include: 
  • Cutting costs further. The second phase of its ACE project (agility, cost, execution) targets business processes and is expected to lead to EUR 50 million in annual savings in operating costs. By the end of 2015, Mobistar will also close 30 shops. 
  • A return to the consumer fixed market. The launch is expected for Q4 2013, and this time not using Belgacom's network with satellite TV, but the cable networks of Telenet, Brutele and Tecteo in Belgium and Eltrona in Luxembourg. New regulations require the dominant cable operators to open their networks to other providers for the resale of analogue and digital TV and broadband. The fixed services are expected to contribute to revenue growth at Mobistar as well as make its mobile products more attractive and reduce churn through new bundled offerings. In Luxembourg, the operator is already registering interested customers. 
  • Tariff adjustments, with lower prices and simpler plans. The postpaid plans come with unlimited on-net calls and animal names: Kangaroo (no data), Dolphin and Panter (a lot of data). Already 89 percent of postpaid customers are on one of the plans, compared to 43 percent a year ago. 
  • New services, such as Mobile Cloud (500 MB free storage). 
  • LTE roll-out. The network was activated in 30 Belgian towns in November 2013 and in Luxembourg in October 2013. Mobistar aims to offer 4G everywhere it has 2G coverage in the course of 2015. In Luxembourg, 4G coverage should reach 90 percent by early 2015. 
  • Focus on wholesale and M2M. 

Targets 

Mobistar notes that it met its annual targets for 2013, but these were already sharply reduced at its Q2 report. The profit warning resulted in new targets of 12 percent lower revenues, EBITDA of EUR 300 million and free cash flow of EUR 100 million - much easier to achieve.

The guidance for 2014 is a further drop in EBITDA to EUR 250-280 million due to lower ARPU, higher subsidies and regulation (MTR). It will also face a bigger tax bill. In addition, the shift in the customer base from retail to wholesale and M2M is having an effect. Retail customers are worth more, with a higher margin. Given the company has been losing retail customers for five straight quarters, it clearly hasn't found a way to stop the bleeding and will need to cut prices further. 

The launch on the cable market comes with some reservations. Mobistar stopped reselling the Belgacom product due to operational problems, and there's no reason to assume the cable operators will make it any easier for the company. Nevertheless, opening up cable networks remains an interesting phenomenon, which will be followed closely in other cable countries like the Netherlands. We are cautious though about whether it will contribute to growth at Mobistar. 

Conclusion

It's not going well at Mobistar. Growth is negative, margins are extremely low and cash is flowing out of the company. The competition is tough, both in mobile (where Mobistar is a strong number two after Proximus and much bigger than Base) and in fixed (where Mobistar as challenger still needs to face up to Belgacom and the cable comapnies). There's little to criticise in the measures the company is taking to address the problems, but the question is when it will hit bottom. Mobistar is positioning itself well, improving its competitive position, but in the current duopoly of Belgacom and the cable, Mobistar still has a lot of catch-up to do on the fixed market.


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