T-Mobile NL: on the way back up with business and 4G focus

Monday 29 February 2016 | 18:30 CET | Background

T-Mobile Netherlands's fourth-quarter results were at first glance very weak, but bear a closer look, especially in comparison with the other mobile operators. We expect that T-Mobile has probably passed its low point, and an increased focus on the business market, supported by its 4G network and the market perception of that, could make the company much stronger. 

Quarterly revenues fell by 16 percent, and EBITDA was down 31 percent, leading to a drop in the margin to 34.7 percent from 42.4 a year ago. The number of customers has been shrinking since Q3 2012. The same is true for the ARPU (note: the blended ARPU, averaged over postpaid and prepaid customers, is misleading given the shift from pre- to post-paid. We are looking mainly at postpaid ARPU). T-Mobile NL said it was disappointed with the sales and pointed to competition and general price pressure. It emphasized the recent growth in postpaid and the opportunities on the business and consumer market with its recently announced new services (OTT service Knippr, convergent business service Cloud & Clear, flexible subscriptions, quality of the 4G network).

Sales: price pressure offsets growth in handsets

Looking first at the sales growth, the drop of 16 percent (to EUR 340 million) is an absolute low point, but there are some reasons that soften the news: Simpel and Bliep were sold and T-Mobile NL probably had a tax benefit in Q4 2014, as other companies have reported. The company did not give an organic figure, which in itself is not a very good sign. However, the one-time effects will disappear, and T-Mobile's figures should look better from Q1 2016 as a result.

Service revenues (excl. wholesale, transit and visitor roaming but incl. M2M) fell by a sharper 24 percent, to EUR 233 million. The same reasons as above apply. The decline was caused by both fewer customers and lower ARPU. Customer numbers are falling mainly in prepaid, which now makes up 24 percent of the total base compared to 28 percent a year ago. Postpaid has been growing since Q2 2015, and in Q4 the postpaid grew both on an annual and quarterly basis. The question is whether that will continue, but T-Mobile appears well-positioned. 

The prepaid ARPU was stable (note: M2M is included in this segment, but is largely stable). The postpaid ARPU showed a clear decline, to EUR 21 from EUR 26 a year ago. One of the likely causes of this is growth at the budget brand Ben (Ben only offers postpaid). However, the drop is all the more remarkable given that usage of both data and minutes is increasing. 

The difference between service revenue and total revenue is the revenue from handsets, wholesale, transit, visitor roaming and 'other' (this is our assumption. It's unclear where transit and visitor roaming fall. For a more detailed analysis, see our upcoming Dutch Mobile Operators report). These revenues rose by 12 percent to EUR 107 million. The handset revenue is difficult to estimate, as these may be falling due to the rise of Sim-only or increasing due to the growth in postpaid. Wholesale is also difficult, as Bliep left for Tele2, Simpel moved from retail to wholesale after the management buy-out in 2014, and Tele2 is moving its customers to its own network.

T-Mobile also gives a breakdown between consumer (incl. handsets), business (incl. handsets, M2M and fixed) and 'other' (wholesale, transit, visitor roaming, other). Consumer fell by 18 percent, business by 7.5 percent and other by 8.3 percent. The big drop in consumer is again due to the loss of Simpel and Bliep, as well as the mentioned price pressure and shift to Ben and SIM-only.

We can also calculate from the figures provided handsets + fixed, from the difference between consumer and business and the service revenues. This is equal to EUR 74 million, an increase of 23 percent. A year ago, when fixed was not included, the figure totaled EUR 60 million.

Costs keep falling

T-Mobile NL has historically realised a high EBITDA margin, thanks to cost efficiency (opex) and a 'lean & mean' organisation, as well as a solid share of wholesale, which carries a high margin. With the new Simplicity project it targets cutting costs even further in order to keep pace with the drop in revenues. The margin has since fallen to more 'normal' levels. The subscriber acquisition and retention costs already fell significantly in the past quarter, but new services, such as Cloud & Clear and Knippr, will generate extra costs.

T-Mobile is also built on an efficient investment policy. Its ratio of capex to sales is remarkably low, even if the roll-out of 4G did lead to an increase, to 13 percent from 10 percent.

Postpaid: only KPN doing better

To finish, a comparison with the other MNOs:

  • Vodafone provides only limited figures in its fiscal third quarter (calendar Q4). Service revenue rose 0.2 percent, but was largely due to the fixed services. Mobile service revenue (excl. MVNOs and M2M) fell by 2.6 percent. It lost a net 11,000 postpaid customers in the quarter. Prepaid accounted for 23.7 percent of total customers. Postpaid ARPU fell 2.7 percent to EUR 32.1 (blended consumer and business). The EBITDA marge was 34.9 percent, and capex was worth 17.5 percent of revenues.
  • KPN Consumer Mobile: revenue +4.3 percent, service revenue retail +3.3 percent, handset sales retail +18 percent. KPN added 80,000 postpaid customers in Q4 and is also seeing a shift from pre- to post-paid. Prepaid accounted for 31.5 percent of total customers. Postpaid ARPU fell by 3.8 percent to EUR 25. As the network is grouped at the KPN NetCo division, we cannot calculate EBITDA and capex margins. 
  • KPN Business mobile: revenue (incl. M2M) -5.9 percent, service revenue (incl. M2M) -5.4 percent. Quarterly loss of 4,000 subscribers. ARPU (excl. M2M) down 11 percent to EUR 33.
  • Tele2 mobile: revenue +31 percent, mobile service revenue +33 percent, handset sales +32 percent. A total 3,000 mobile customers added in Q4 (excl. M2M). ARPU up 25 percent to EUR 18.9 (blended). Negative EBITDA due to transition to own 4G network. Capex at about 40-50 percent of revenue.

Based on these results, KPN Consumer Mobile can be considered the winner in Q4. It added the most postpaid customers, followed by T-Mobile. T-Mobile and Tele2 had especially low ARPU, probably due to their limited presence in the business market; KPN Consumer Mobile has a clearly higher ARPU than both, but Vodafone is even higherTele2 achieved the highest revenue growth, both in customers and ARPU. T-Mobile shows the weakest revenue development, but has likely reached its bottom. 

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