Ziggo: growth continues, but first signs of FTTH impact visible

Tuesday 24 April 2012 | 15:21 CET | Background

Ziggo showed another strong quarter in Q1 2012. The high growth and market share expansion is continuing, while the capacity utilisation on its network is falling slightly. ARPU is increasing, and cash flow generation is helping to reduce debt. The figures published earlier by Tele2 suggest that the DSL market is still struggling, and Ziggo's results confirm this. Ziggo reiterated its outlook for 2012, and the current trends can be expected to continue throughout this year.

This is a good moment then to look critically at Ziggo's operational performance, an indicator of its financial results. Are any little cracks appearing or is the growth rate slowing? Is Ziggo running up against saturation? We will focus here on the consumer market; the business market is a growth engine for Ziggo, but still a small area for the company.

TV market

Ziggo lost 34,000 customers in the quarter. In absolute numbers, this is almost a record (that was Q3 2009, with a loss of 35,000). In relative numbers, it's a clear record, as the customer base shrunk by 1.16 percent in three months. There is an acceleration in the loss of customers, and given that cable is winning customers from DSL, the cause can only be the growing impact of FTTH. 

Next, there's the conversion from analogue to digital (or better, analogue/digital, as digital subscribers still keep the analogue signal). The number of analogue-only customers fell by 85,000. In absolute terms, this is unremarkable, but in relative terms, it's a lot, namely 11 percent of the analogue customer base compared to the previous quarter. Quarters with a sequential decline of more than 10 percent are rare. Furthermore, not all the analogue customers lost are converted to digital customers. The gain of 51,000 digital customers was in line with the low point reached in the last quarter. The digital customer base grew by only 2.4 percent sequentially, versus over 6 percent in Q1 and Q3 of 2011. In other words, of the analogue customers lost, only 60 percent were maintained as digital subscribers. That is a record low. In Q1 and Q3 of 2011, this figure was over 80 percent. The cause can firstly be a degree of saturation, but as we're looking at the relative figures, this can't be the whole story. Again, the cause must be in part found in alternative platforms. IPTV (over DSL) and satellite are not likely to be the cause, meaning FTTH is having an impact. 

Digital TV penetration is still growing and currently stands at 76.3 percent, versus 63.9 percent a year ago. At the current rate, it will take another four to five quarters (end-2013) to reach 90 percent. Only then can Ziggo look seriously at switching off the analogue signal to free up the spectrum for extra HD and 3D channels and broadband.

Broadband market

Broadband is probably the most important market, as the broadband connection is increasingly used for more services. Furthermore, broadband ARPU is growing, while the TV ARPU is stagnating. With the addition of 37,000 broadband subscribers in the quarter, Ziggo nearly matched its previous record of Q3 2011, when it added 39,000 users. The same is true for the growth in relative terms: in three months the broadband base grew by 2.2 percent (Q3 2011 record: 2.4%). This is remarkably strong growth in the customer base; apparently there is no threat of saturation. Broadband penetration is now 58.9 percent of the customer base. 

There is also growth in the market for paid digital TV services. Penetration here is at just 32.8 percent, but it's hardly growing. This is likely to do with cancellations of trial subscriptions and the weak economic environment. The new HBO services may be able to provide stronger growth. Telephony and the business market are also supporting some growth, and here Ziggo is also winning market share. 


The financial results show a small decline in the EBITDA margin due to high costs for temporary staff and sales & marketing, but these are directly linked to the growth. Ziggo reported revenue growth of 7.3 percent, higher than in the previous quarter, so no sign of a let-up there. The costs of the IPO (EUR 40 million) led to a drop in net profit. Finally, also notable is the high capex budget for 2012 of EUR 280 million (2011: 242 million), which was announced earlier. This is needed for new systems and upcoming mobile services. However this has not stopped Ziggo from promising a high dividend of EUR 220 million. This is equal to EUR 1.10 per share, or a return of 4.7 percent based on the current share price. 


Ziggo is starting to feel some impact from FTTH, based on the slight acceleration in the loss of customers. The loss of analogue viewers also points to this, as the conversion to digital is leading to the loss of more customers to fibre. What's positive for Ziggo is that there is no need to rush with a switch-off of the analogue TV service. On the broadband market, Ziggo is less bothered by FTTH, as growth is continuing at record levels. There is no question of saturation here. And the DSL market will be slowly drained by both the cable and FTTH providers. 

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