Research Brief

BBned possible Belgacom takeover target

, published: January 2009

Telecom Italia puts BBned, other assets up for sale

Early December 2008, Telecom Italia released its business plan for the 2009-2011 period. It decided to focus on its core activities and raise funds to reduce its debt load. Outside Italy, the company planned to maintain a presence in Brazil and Argentina. The German, Cuban and Dutch assets were effectively put up for sale by the announcement, as was the international wholesale carrier TI Sparkle. Management hopes to raise EUR 3 billion from the divestments.
We focus on the Dutch assets that are currently for sale. They are united under the 100 percent Telecom Italia-owned company BBned and are listed in table 1.

Table 1: The Dutch units of Telecom Italia’s European Broadband division (source: Telecom Italia, Telecompaper )
BBned Network operator deploying ADSL, VDSL and fibre to business customer locations; operates active layer of Reggefiber’s passive FTTH networks.
BBeyond Service provider for business and wholesale customers over BBned’s network.
InterNLnet Service provider for consumer and business customers, offering internet and telephony over ADSL (owned by BBned or KPN), as well as triple-plays over FTTH networks in Amsterdam and Rotterdam.
Alice Service providers focused on the consumer market, offering internet and telephony over ADSL (owned by BBned or KPN), as well as triple-play over FTTH in Amsterdam.
XMS (BBned 49%, Reggefiber 51%) Consumer triple-play service provider over Reggefiber’s FTTH networks.


Asset sales hindered by regulatory uncertainty, cable competition and economic crisis

The Dutch broadband market has consolidated in recent years. KPN bought a string of ISPs, and is currently setting up a joint venture with Reggefiber for building FTTH networks. Infrastructure-based competition is reduced to network operators in the business and wholesale market, as well as a few LLU operators focusing on the consumer market. Currently, the main LLU operators are Tele2 NL, Online (formerly Orange Broadband, now owned by T-Mobile) and BBned.

Today’s financial and economic crisis hinders any sales process. Besides this, heavy cable competition is another inhibitor for takeovers in the Dutch LLU market. Dutch cable companies have near nationwide coverage, unlike any of their foreign peers.

Regulatory uncertainty adds to this. KPN’s building out of its All-IP network, extending fibre to SDF locations, makes competitive infrastructure investments troublesome. It puts altnets at a crossroads: to go along and invest in new infrastructure, or to abandon infrastructure-based competition and simply resell KPN’s wholesale portfolio of services. The former implies moving many DSLAMs from around 1,300 MDF locations to a much larger number of SDF locations (around 24,000 for nationwide coverage). Backhaul needs to be upgraded also. As a result, many Dutch ISPs were put up for sale by their owners and were scooped up by KPN.

In the recent past, several attempts to sell broadband operations have failed, both inside and outside the Netherlands. Currently, Freenet’s DSL customers and Tiscali have a very hard time finding a new owner. The latest rumour concerns TDC’s Swiss subsidiary Sunrise, which could be a target for France Telecom.

Belgacom, Tele2 most likely candidates for BBned offer

A number of candidates could be lining up to buy BBned. In theory, they could be:

  • KPN;
  • Existing LLU competitors: Tele2 NL, T-Mobile/Online;
  • Existing service providers: Scarlet (owned by Belgacom), Solcon (independent) and others;
  • FTTH-builder Reggefiber;
  • Foreign groups seeking a presence in the Dutch market: France Telecom, Telefonica, others;
  • Cable operators;
  • Private equity investors.

Looking at the above candidates more closely, first of all KPN may be ruled out. It seems to have reached its limits of growth by acquisition after the Tiscali NL takeover. Also, Reggefiber seems an unlikely candidate because it is firmly focused on building out the passive network layer of FTTH networks. The XMS service provider (see above) doesn’t seem to be a core activity for Reggefiber.

Cable operators do not seem ready to venture outside their coverage area and choice of network technology. Solcon is probably too small and private equity investors are constrained by today’s tight credit markets. T-Mobile could be a contender, but its strategy isn’t entirely clear: does it want to be a mobile-only operator, like it is in several other markets, or was the Orange Broadband (now Online) takeover the first step toward becoming a full-service operator?

Foreign operators lacking a presence on the Dutch market can never be ruled out, but they may have different priorities at the moment. In the end, two candidates stand out: Tele2 NL (see our research brief RB28037, entitled ‘Tele2 could be strongest contender in the Dutch market’) and Belgacom.
Belgacom has several plus points as a candidate to buy BBned:

  1. Strong balance sheet;
  2. Possible desire to expand internationally, after having retreated to the Belgian market over the past few years;
  3. Recently acquired Scarlet and ICT provider Telindus, both of which have Dutch activities.

First of all, Belgacom’s balance sheet is among the strongest in Europe. The ratio of its net debt to EBITDA as of the end of 2008, based on market estimates, is a very low 0.7. This is the same as Tele2’s and the next strongest is Telenor with 1.3. This opens up possibilities for Belgacom to finance a takeover by taking on extra debt.

Scarlet was valued by Belgacom at EUR 175 million. It currently has 180,000 subscribers, producing revenues of EUR 127 million and EBITDA of EUR 18.8 million in 2007. Over the same period, BBned generated EUR 77 million in revenues and EUR 16 million in EBITDA. BBned ended 2007 with 189,000 subscribers. In the meantime, this dropped to 158,000 subscribers due to the loss of certain wholesale customers. Comparing these figures, BBned could (very roughly) be valued between EUR 100 and 150 million. At the midpoint, this represents a multiple of around 7x EBITDA. This would be a minor outlay for Belgacom, financed either from cash or debt.

Second, Belgacom has been shedding assets over the past few years, marking a retreat to the Belgian home market. Telindus counts the UK, France, Spain, the Netherlands and Luxembourg among its core markets but otherwise there is little in the sense of geographical diversification. Recently, the group ventured outside Belgium, albeit in a very modest way, by taking over Tele2 Luxembourg, operating the number two mobile network, Tango. Further expansion in adjacent markets seems to make sense.

Third, the Scarlet and Telindus acquisitions gave Belgacom a presence on the Dutch market. Scarlet currently has around 36,500 subscribers for both broadband and telephony. The small size of Scarlet logically suggests that Belgacom may feel forced to either ‘fix, sell or close’ the unit. A similar argument goes for Telindus.

BBned is a full-service operator (see above), that only lacks mobile activities. Combining BBned with Scarlet and Telindus would turn Belgacom overnight into a very serious contender to KPN. In the business market, BBeyond and InterNLnet could team with Telindus to go head to head with KPN and Getronics in the broadband (over ADSL as well as FTTH) and ICT markets. Alice would make a fine consumer brand that Belgacom may have to sunset after a certain period, usually 30 or 36 months. After that, Belgacom could launch a new brand name. The lack of a mobile offering could be diverted by launching a MVNO, or by bidding for spectrum in the upcoming 2.6 GHz auction (Q2 2009, possibly delayed to early 2010).



Research Type Analysis
Published 15 Jan 2009
Pages 3
File Type PDF
Size 60kb
Geographic Scope    Belgium, Netherlands
Editions Fixed
Topics M&A, buyouts & divestments, Shareholders / subsidiaries, xDSL, LLU, Fibre
Companies BBned, HanseNet, Tele2, Telecom Italia

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