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General

Swiss/Austrian telecoms in Q2: a flat but highly profitable market

Wednesday 30 August 2017 | 18:49 CET | Background
The top seven of the combined Swiss/Austrian telecoms markets, excluding Salt Mobile, had almost stable revenues in Q2 of 2017 of EUR 3.97 billion. This includes the negative effect of MTR regulation. The combined EBITDA margin was roughly stable at 40.9 percent. Free cash flow was a relatively high EUR 976 million (24.6% of revenues).

Obviously, cumulative results of seven operators have limited relevance, but it does measure the market's growth (-0.1%) and it gives some idea of the investment level of the sector in absolute terms (almost EUR 1 billion).

A history of consolidation

Before diving into the individual performances, a few words on the basis of our calculations.

  • We have combined Switzerland and Austria because of a lack of information on the Swiss market. There is one big omission in particular: Salt Mobile (originally Orange CH). After the takeover by Iliad's Xavier Niël (NJJ Capital) at the end of 2014, the company stopped publicly reporting its results. Furthermore, Liberty Global's UPC Switzerland/Austria cannot fully be split. We have not included Sky Austria, whose numbers cannot readily be extracted from the Sky or Sky DE results.
  • From Swisscom's results, we only include Swisscom Switzerland and leave out Fastweb (Italy). Naturally, we only use the A1 (Austria) part of Telekom Austria's portfolio (incl. 6 operators in Eastern Europe). 3 Austria reports semi annually and we have simply split the results evenly over both quarters.
  • The Swiss operators report in Swiss francs (CHF). The translation into EUR creates a currency effect. For our discussion of Swisscom Switzerland and Sunrise Communications we focus on the results in CHF.
  • Sunrise Communications includes the former diAx and has SBC, TDC and BT as previous  investors. It operates its own mobile network and the company is listed in Switzerland since 2015. Sub-brands include Ortel Mobile and Lebara. It acquired Tele2 CH in 2008. Freenet, the German virtual mobile and television operator, holds a 25 percent stake.
  • In Austria, considerable consolidation took place on the mobile market. Orange AT was acquired by 3 AT in 2013 and currently the company is taking out Tele2 AT. This will reduce our set of companies to six. Before that, A1 bought the MVNO yesss! from Orange AT, when Orange was taken over by 3 Austria. T-Mobile (established originally as max.mobil) acquired the operator tele.ring back in 2005.

General market conditions

  • All operators provide both fixed and mobile services except 3 Austria and T-Mobile AT, which focus on mobile exclusively. 3 Austria will add fixed-line services upon completing the Tele2 AT takeover.
  • The Swiss mobile market has three operators (Swisscom, Sunrise, Salt) and UPC is an MVNO since Q2 of 2014. The Swiss TV market is led by cable (UPC controlling just over half), followed by Swisscom (one third) and Sunrise (4%). Digital terrestrial and satellite control 10 percent. The Swiss broadband market is divided roughly two thirds for Swisscom and its resellers and one third for cable.
  • The Austrian mobile market has three operators as well (A1, 3 Austria, T-Mobile AT). And here too UPC is an MVNO, since Q4 of 2014. The broadband market is historically split between fixed and mobile. The fixed-line segment has two main players, A1 and cable, with Tele2 taking just a small share.

For specific research on the Austrian mobile markets, we refer to our quarterly sheets. In Austria, a 3.5 GHz spectrum auction (3,400-3,800 MHz) is expected to take place during H2 of 2018. In Switzerland, a multiband auction is expected in 2019.

Swisscom and Sunrise focus on convergence

Swisscom's current plans include an all-IP network (75% complete), ongoing cost savings and fixed/mobile convergence. The new inOne quad play plans, launched in April 2017, highlight the importance of multiplays on the Swiss market. By 30 June 2017 already 10 percent of the postpaid mobile base took an inOne plan and 12 percent of the broadband base. Swisscom Switzerland had revenues of CHF 2.24 billion in Q2 of 2017 (-2.2%, i.e. worse than in EUR). The EBITDA margin stable at 41.2 percent.

Sunrise followed soon after Swisscom with its Sunrise One 4P offer. Year-over-year the 4P base grew by 26 percent to 124,000. Revenues in CHF were down 3.6 percent, but without MTR regulation effects down 1.1 percent. As at Swisscom, customer numbers in mobile postpaid, internet and television are up. In mobile, postpaid and prepaid ARPUs are trending down but migration to postpaid makes the blended ARPU go up. The fixed-line voice ARPU is going down, whereas the internet and TV ARPU is rising slowly.

A1 and UPC lose customers

A1's broadband share recently came under pressure, with lines down slightly in Q2 2017. The number of TV connections was stable. On the mobile market, the postpaid and the prepaid customer bases were down. Year-over-year revenues were up 2.5 percent, but with recent subscriber developments growth could come under pressure. The EBITDA margin was stable at 35.5 percent.

UPC is losing customers in both countries, but mostly in Switzerland. This partly explains why Swisscom performs better than Telekom Austria. However, the digitisation of the video base decreases the basic video base, while enhanced video growth isn't quite capable of making up for this loss. Internet and telephony numbers are up in both countries. The same goes for mobile, but the bases are still relatively small (92,500 in Switzerland and 47,200 in Austria). All in all, revenues were almost flat (-0.1%) in EUR terms. The OCF (EBITDA) margin stands at a very healthy 61.3 percent and free cash flow was no less than 42.4 percent of revenues in Q2 2017.

T-Mobile AT's base grows as 3 Austria is eyeing the convergence market

T-Mobile AT is growing its postpaid base, and in Q2 2017 its prepaid base even more as it included M2M SIM cards. This reduced the ARPU, but overall revenues grew by 3.4 percent. According to the parent company, Deutsche Telekom, visitor roaming income related to the roam-like-at-home regulation contributed to the growth. The EBITDA margin is rather volatile and stood at 32.1 percent in Q2 of 2017.

3 Austria has been losing customers in H1 of 2017, both postpaid and prepaid. Revenues nonetheless grew by 3.5 percent as 3 Austria manages to continually raise its ARPUs. The EBITDA margin was at a high 44.3 percent and free cash flow too is at a high level of 34.5 percent of revenues. The company is in the process of acquiring Tele2 AT, which in itself is a declining business. 3 Austria stated that it will enter the convergence (multiplay, 4P) market, leaving T-Mobile AT as the single mobile-only provider. Tele2 AT will also give it a foothold in the business market.

Tele2 AT has a declining customer base, even though mobile is relatively new (launched Q2 2016). The mobile base was flat at just 8,000 in Q2 2017. Revenues were down 1.3 percent to EUR 29.7 million. Free cash flow generation was low at just 12.2 percent of revenues.

 



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