Internet Traffic Tax or (un)Fair Share Contributions debunked

Dear telco CEO, mr/mrs. .....

Let me see if I get this straight. So, there is Big Tech developing all these wonderful applications and content, ranging from Facebook to Netflix and beyond. Meta, by the way, intends to spend $10b on a new globe-spanning subsea cable. And Netflix spends $17b each year on content.

They place their content and services on servers in the cloud, sometimes in close proximity to end users. Netflix's CDN for instance is a free service for telcos, providing servers in telco PoPs. Consumers and businesses really love these applications and content and generate a lot of traffic, streaming and downloading. Big Tech benefits from this through subscriptions, transactions and advertising.

In others words, the producers and consumers of content and applications cause a lot of internet traffic. In fact, it is probably the large majority of all traffic. This extends to access networks, that you control and that you end up charging for. So, they make sure there is traffic and you get to charge consumers and businesses for it? Without Big Tech, there would hardly be an internet at all.

And now you want Big Tech to contribute to the cost of access networks? Do you have increased costs because of increased traffic? (hardly). Why not raise end-user tariffs? (go ahead).

Explain to me please why Big Tech needs to contribute to your costs, while you are charging users? Explain to me also why you shouldn't contribute to Big Tech's costs for developing content and applications, as well as internet backbones, datacenters, CDNs etc.

Best regards,

Communications Breakdown

KPN Capital Markets Day 2023: strategy update Connect, Activate & Grow spanning 2024-2027

Main takeaways:

• Costs
• Ongoing efficiency enhancements. Drives cost savings and improved customer experience (fully digital) at the same time.
• ESG delivers sustainability and at the same time cost savings.
• Revitalise cost savings program by modernising the operating model, incl. the 'always-on' network (= zero-touch).
• Partnerships
• for B2C (smart home in a wide sense) and B2B
• Household 3.0 replacing (or: extending the scope of) FMC; it could mirror the Proximus+ Super App.
• Financial
• EBITDA margin flat (44%) on rising Glaspoort access fees
• Capex drops below EUR 1b to EUR 900m in 2027
• FCF (def. KPN) and TSR rise above EUR 1b in 2027

General strategy update 2024-2027:

• Connect (loyalty, convergence, relevant services)
• Activate (network, platforms, partners, assets)
• Grow (modernise, simplify, AI-powered automation, future-ready workforce)

Targets

• Financial
• 2023 maintained [see 231025]
• 2024:
• SR growth 3%, adj EBITDA AL EUR 2.48b
• capex 1.2b, FCF 870m
• div 17c (+13%), SBB 200m
• 2024-2027:
• SR CAGR 3%, adj EBITDA AL CAGR 3% (flat margin as result of rising Glaspoort access costs, rising to EUR 115m in 2027)
• capex 1.2b in 2024-2026 (o/w EU% 450-500m for fiber), <1.0b in 2027, FCF CAGR 7% (accelerating on cash tax, interest, capex)
• div CAGR 7%, SBB cumulative max EUR 1.0b, cumulative returns EUR 3.8b (30% of current marketcap)
• to become B2C market leader (in SR terms), to compete fiber roll-out end 2026 (80% coverage, focus on HC)
• RoCE to grow from 13.7% (23H1) to 15.0%
• General
• Policy rermains to fully return FCF to shareholders
• Leverage <2.5x
• Cash tax rises as losses are eaten up. From EUR 110m in 2023 to EUR 300m in 2027 (2024: EUR 50-60m higher than 2023), from when cash tax will be in line with P&L tax.
• Interest will be EUR 35m higher in 2024.
• Capex-to-Sales ratio to move from 21-22% (2023-2026) to 15-16% (from 2027).
• Sources of opex savings: simplification, always-on automation, IT rationalisation, energy reduction (Eneco agreement with Eneco, exploring solar), copper switch-off, digital & personalisation (digital customer interaction, incl. AI), organisation (office footprint), innovation (selective).
• FTTP
• Construction cost 700-1000 EUR/HP
• ARPU impact + 3 EUR/mo
• Uptake: 8% after 1 year, >55% over time
• 42% of new customers take 1 Gb/s (?)
• 80% coverage YE 2026, with copper switch-off at 65%
• 10 Gb/s available at 85% by YE 2026
• Always-on network (no truck-roll at central office or street cabinet required, only shipping CPE) reaches 70% of fiber HH YE 2026
• Copper savings 2023: EUR 25m on opex, EUR 70m on capex.
• Copper switch-off in 3 phases:1. Lines, 2. Enterprises, 3. Areas. Final phase 3 years after roll-out. Hence full savings reaped by 2030.
• Fiber net additions insights: 23Q3 at record DSL conversion (18k of copper net adds out of 24k copper losses: 75%) and record in-flow from third parties (22k of total fiber net adds of 40k).
• Other
• Glaspoort may be consolidated (acquire 1 additional share) once 80% of roll-out is completed during a 3-year window, 5 years after establishment (2021) i.e. 2026-2029.
• Reconsidering leasing mobile sites (alternative is not clear).
• Considers investment partners for edge network.
• Considering legacy real-estate (sell or redevelop).

Operating model modernisation

• simplification, automation, AI, always-on network
• digital customer journey
• full fiber, to add 2m HP (focus on HC) by end 2026 to reach 80% coverage
• dual-vendor strategy (Ericsson, Huawei) in mobile RAN
• win-back fiber customers (when altnet launches before KPN) in 1-2 years back to original market share

ESG

• to be Responsible, Inclusive & Sustainable telco
• to become near-circular by 2025, green energy from North Sea wind park from 2027, energy reduction 55% by 2030 relative to 2010
• cybersecurity
• Mooiste Contact Fonds to bridge digital divide

Business strategy

• B2C:
• Household 3.0 (smart home, security, gaming, OTT services, partners) replaces the FMC strategy: bundle of any connectivity with at least 1 VAS (excl. communication)
• further digitize customer facing processes, improve customer experience, lower indirect costs
• focus on churn more than on customer acquisition
• to double data allowances on all mobile plans for FMC subs (from 3, 12, 20 to 6, 24, 40 GB/mo)
• to relaunch KPN TV+ app from 231109
• B2B: develop ecosystem & distribution channels, converged services for SME (add partners) & LCE (incl Private Campus, Multi Cloud, Data Services Hubs, IoT), Tailored Solutions for ICT/integration
• B2W to launch building blocks

What the financial targets imply:

EUR m	2022	2023E	2024E	2025E	2026E	2027E	2024-2027 guidance/assumption
rev	5316	5481	5645	5814	5989	6168
SR	4898	5050	5202	5358	5518	5684	3% CAGR
non-SR	418	431	443	457	470	485	assumption CAGR 3%
adj EBITDA AL	2404	2410	2480	2554	2631	2710	3% CAGR
margin (%)	45.2%	44.0%	43.9%	43.9%	43.9%	43.9%
capex	1206	1200	1200	1200	1200	900	total 4500
oper FCF (EBITDA - capex)	1198	1210	1280	1354	1431	1810
margin (%)	22.5%	22.1%	22.7%	23.3%	23.9%	29.3%
cash interest	220	220	235	235	235	235	2023: assumption; from 2024: +35m
cash tax	51	110	160	210	260	300	from 110 (2023) to 300 (2027)
net FCF (oper FCF - interest - tax)	927	880	885	909	936	1275
FCF (reported: after WC adj etc)	862	870	870	931	996	1066	7% CAGR
margin (%)	16.2%	15.9%	15.4%	16.0%	16.6%	17.3%
DPS (c)	14.3	15.0	17.0	18.2	19.5	20.8	7% CAGR
# shares (m)	4003	3909	3847	3763	3680	3597
dividend	571	586	654	685	716	749	total 2800
SBB	300	300	200	267	267	267	total max 1000
# shares in SBB (m)		94	63	83	83	83	shareprice 3.20
TSR	871	886	854	951	983	1016	total 3800
net debt max	6010	6025	6200	6386	6578	6775	leverage <2.5x

BT announces Super App from EE

Main points

• Branding:
• EE flagship brand for B2C FMC & mobile
• BT for fixed-only & business
• Plusnet for no-frills B2C fixed
• Plans brand refresh 231020 (4 areas: areas: game, home, learn, work)To rebrand BT TV as EE TV service, with new STB (EE TV Box Pro) & EE TV app & remote control for Apple TV 4K
• Loyalty: extra savings for adding SIMs

• Super App:
• Launches everything app online marketplace (also for non-subs), app & website, based on EE ID (ID-as-a-Service)
• Products & Services:
• device sales (buy, trade-in; incl Consumer Electronics Shop (laptops, cameras smart TVs)
• gaming (with Microsoft)
• home security, insurance
• subscription services (with Apple, NOW, Sky, TNT)
• to add more partners, to add smart home (smart fridges, kettles, coffee machines) 2024
• Broadband:
• Launches home BB prioritisation for gaming or work, based on WiFi Enhancer from Netduma (exclusive), with EE Smart Hub Plus router
• Raises max FTTH speed to 1.6 Gb/s

Conclusions:

• Mirrors Super Apps from e&, Du, Proximus (Proximus+).
• The Super App mirrors the Super Aggregator in fixed (for access to SVOD and TVOD services). In fact, reselling energy can also be included and the concepts could be merged into a single platform, providing access to content, services and products for fixed & mobile. Looks like EE's way forward.
• Based in telco trustworthiness (EE ID) and billing machine, as well as one-stop shop and ease.
• Entering a 'saturated' market: people already take these services from elsewhere.

KPN Capital Markets Day, 7 November 2023: preview

KPN is organizing a Capital Markets Day on November 7. We expect the board to unveil plans for the period up to and including 2026 and to provide a glimpse into the years to come, possibly up to 2030. The fiber optic renovation is nearing completion, which will have a major positive impact on the financials. However, the network is never finished and further evolution is on its way. Partnerships will be central to this. In the meantime, competition is and remains the greatest risk.

Competition in mobile consists of the other two mobile operators and possibly entrants in Private Wireless. In fixed, fiber optic brings new players to the market. Consolidation is obvious, but there are different scenarios. In services, OTT still drives cord cutting, mostly or communications, but or TV/video as well.

Partnerships are likely to be central in areas where KPN is too small or lacks knowledge to develop solutions itself: ultra-rural coverage, cybersecurity, venture capital and developing a network-as-a-service platform. Where KPN lacks scale, such as in ICT customization (tailored solutions and serving verticals such as healthcare and transport), acquisitions are an obvious solution.

KPN's previous Capital Market Days focused on growth and simplification:

• May 2011: Strengthen - simplify – grow
• February 2014: Building on strong fundamentals
• March 2016: Raising the bar
• November 2018: Organic sustainable growth
• November 2020: Accelerate to grow
• November 2023: Building for the future???
  

General strategy

• Netwerk evolution:
  
• Fixed: FTTP and a partnership (e.g. Starlink) to cover the remaining ~30k ultra rural addresses.
  
• Mobile: 5G/3.5 GHz plans, following the 2024 auction, will mostly be about upgrading the 5G network's capacity. Ultra-low latency may form the basis for new services, e.g. in IoT.
• A jump on the AI bandwagon could look quite differently, if SKT is followed, or rather Iliad.
• New tech such as digital twins and virtualisation will serve network control and maintenance, help enable zero-touch and cloud-native networks.
  
• Network are increasingly seen as platforms-of-platforms (or: network-as-a-platform), for traditional (telephony, television) and new (IoT, etc.) services. Network API's are coming to market to allow developers and enterprises to take advantage of network and subscriber data, see e.g. TIM, DT/Ericsson, Nokia/Dish and BT/Google Cloud.
• Services:
• In fixed, most telcos have embraced the Super Aggregator status for access to and billing of media services (streaming video, music, other). In mobile, it's still early days. Proximus is trying to translate the Super Aggregator to a Super App strategy, for all 'daily services' (Proximus+).
• Some telcos are modestly in the business of developing apps themselves (Proximus, Orange, Verizon). The entry-barrier is low, but it remains a challenge to compete with Big Tech and specialised developers. Maintenance is complicated for a roster of apps (for a range of operating systems) that need to be updated regularly.
  
• Cybersecurity and quantum computing are very important areas and could involve partnering with other telcos. After all, it makes no sense for each telco to develop these solutions on their own.
• Branding could use a little more clarity, now that a single-brand strategy has been abandoned, with current brands KPN, Youfone (takeover pending), Solcon, Simyo, XS4ALL (no longer for new subscribers), Cam IT Solutions, Inspark.
• What is so hard devising a proper loyalty program?
• Financial targets:
  
• KPN's fiber renovation is finally nearing completion. Taking around 30 years in all, it must be regarded a once-in-a-century operation. Benefits will need to be updated, in terms of opex (maintenance, energy, support), revenues (ARPU, customer wins) and capex. When the fiber program was relaunched (Capital Markets Day 2018), KPN said it aimed for 80 percent coverage, which excluded the coverage at the time by third parties (mainly Delta Fiber and other cablecos). With KPN increasingly overbuilding competing fiber operators (such as in Oss), the 20% figure will drop to a lower level.
• The fiber impact will be positive for revenues, margins and free cash flow, exacerbated by sunsetting more legacy systems (copper, 2G, 3G, PSTN, ISDN, etc.). Capex will likely drop below EUR 1b per annum (currently EUR 1.26b), net free cash flow (after interest and tax) may rise above EUR 1b per annum (currently EUR 860m). Still, the impact of higher interest rates on the interest bill is not to be overlooked.

Threats and opportunities:

• New entrants
• Mobile: the 2024 3.5 GHz auction will set aside 100 MHz for Private Wireless. Citymesh is a likely candidate to enter the market.
• Fixed:
• Wholesale-only operators (neutral hosts) of the active layer in fiber networks have already entered (Fiber Crew/Jonaz, Fiber Operator, Weserve).
• Delta and ODF could team up to build the Third Digital Infrastucture. This would put pressure on occupancy rates, but with fierce competition price increases would be unlikely. Ultimately, a shake-out would follow.
• Alternatively, Delta and ODF could acquire Ziggo's HFC-network to construct a Second National Fiber Operator. In this scenario, VodafoneZiggo's retail operations would be combined with its mobile network, mirroring Odido (formerly TMNL).
• FWA is increasingly likely to compete with FTTH, especially in ultra rural areas and in places where KPN deploys PON technology (no physical unbundling and instead high wholesale tariffs). Odido would be very well positioned.
• Disintermediation:
• Communications (Meta, Microsoft) and content (Netflix, Amazon, Disney, WBD, etc.) have already largely gone OTT.
• Hyperscalers have claimed large sections of the cloud market.
• Smart TV manufacturers offer an alternative TV-platform.
• There's always the risk of NOT doing something. New opportunities that must not be missed may include the Super App (Proximus+), speed-based pricing in mobile or FWA.
• Outsourcing carries the risk of losing indepth network knowledge and capabilities. Perhaps KPN needs to clarify where it stands.
• Selling real estate, even if this is not core business, is not wise. It exposes the company to hefty annual price increase and gives it a fake sense of independence. Migrating to a different real estate owner may be possible in theory, but the lock-in is such that this is near impossible. Selling real estate only makes sense in case of an immediate need for cash.
• Structural separation is meant to create two businesses that can each improve their growth profiles. It can be implemented in two different ways: NetCo/wholesale versus ServCo/retail, or Fixed/wholesale versus Mobile/retail. The latter is becoming harder for KPN, now that it is integrating fixed and mobile at the core network level.
• APG could, from a value point of view, swap its 50% Glaspoort stake for roughly a 10% stake in the entire fixed-line network. Who knows, what could happen from there.
• Areas where KPN lacks scale or capabilities:
• ICT (Tailored Solutions).
• Verticals: health (KPN Health), possibly transportation.
• KPN Ventures: its portfolio is of limited size. Theoretically it would be better to participate in a larger and similar investment portfolio, such as DTCP.
• Cybersecurity is of the utmost importance and it doesn't seem to make sense for every telco to develop a cybersecurity unit on its own. Perhaps a partnership would be preferable.
• Takeover
• An LBO can be ruled out, theoretically resulting in a share price discount. It was tried by EQT and KKR, but it only led to KPN creating the option to issue preference shares with high voting power, combined with government oversight.
  
• Only a friendly takeover will be realistic.

A scenario for the Dutch boadband market, leading up to the inevitable end-game of two fiber networks

There's a fascinating development unfolding in the Dutch broadband market, characterized by a surplus of fiber infrastructure in the access networks. This situation envisions a strategic collaboration between fiber operators Delta Fiber and Open Dutch Fiber, alongside the HFC-network of VodafoneZiggo.

This proposed scenario serves multiple purposes:

1. It presents an exit opportunity for current investors, contingent upon the interest of potential new investors in this venture.
2. It aligns with the economic dynamics of the market by consolidating the number of high-speed broadband networks to just two.
3. A potential split-up of VodafoneZiggo could offer a means to alleviate its debt burden.
4. With reduced competition, the new owner(s) would be well-positioned to gradually upgrade the Ziggo HFC network to a full-fiber infrastructure over the next few years. During this transition period, VodafoneZiggo Retail (the ServCo, including the mobile network) could offer services not only over the Ziggo HFC network but also through the fiber networks of Delta and ODF.

There are potentially four networks in the Netherlands, one from VodafoneZiggo (HFC/Docsis) and the other fiber-based from KPN (4.2m lines, aiming for 6.5m), Delta Fiber (EQT/Stonepeak, 1.5m lines, aiming for 2m) and Open Dutch Fiber (KKR/DTCP, 900k lines, aiming for 2m).

Underlying dynamics:

• VodafoneZiggo is overleveraged, plans a Docsis 4.0 upgrade in due course.
• KPN will ultimately be nationwide, although rural areas remain uncertain because overbuidl is less likely. The latest overbuild plan is for Oss, where E-Fiber (Open Dutch Fiber) already finished.
• Delta Fiber's view is a hybrid market structure with reciprocal wholesale access deals (network sharing). It avoids overbuilding KPN or Open Dutch Fiber. Castricum was cancelled, since E-Fiber (Open Dutch Fiber) had a network already. It started off in white and grey areas (no Ziggo), but increasingly ventures into Ziggo-territory, where also a KPN overbuild is looming.
• Open Dutch Fiber started off in the largest cities but now does any project with sufficient scale (the latest containing just 4k premises). It avoids overbuilding KPN or Delta.

Concluding:

• Geographic fits still exist between KPN and ODF and between Ziggo and Delta.
• With each new overbuild by KPN, the value for KPN of Delta Fiber or Open Dutch Fiber decreases. If KKR/DTCP want to sell ODF to KPN, they better be quick, because KPN will not be willing to pay for any network doubling (such as Oss). This puts the negotiation powers clearly in the hands of KPN.
• If overbuild goes out of control and a sale to KPN is unsuccessful, then Delta Fiber and Open Dutch Fiber may want to hook up to create a Third Digital Infrastructure. Three national networks, however, is a challenge: low occupancy and low returns, with any of two outcomes: price increases (unlikely, if clearly necessary, in a competitive market) or a shake-out (consolidation).
• Delta/ODF could make an offer for the VodafoneZiggo cable network. This would reduce competition to basically two infrastrcutures, but being open networks. Delta has ample experience in upgrading HFC to FTTP. At the same time, a VodafoneZiggo carve-up may be the only scenario for its parents (Liberty Global, Vodafone Group) to somehow make the debt load more manageable.
• VodafoneZiggo would be split according to examples in the UK (Openrach vs. BT Retail/EE), Italy (NetCo vs. ServCo/mobile) and New Zealand (Chorus vs. Spark), where a split is made between fixed (inlc. wholesale) and mobile (incl. retail and mobile wholesale), rather than between networks and services, as is the case in Denmark (TDC NET vs. Nuuday).
• Finally: in a market that is de facto deregulated, ACM's main powers are in competition law. That may stand in the way of any deal. However, one has to acknowledge that, with a dual legacy of copper and coax, a single network (natural monopoly) is not an option for the Dutch market. Having two full fiber networks would be a luxury.

Amazon Fall Devices Event 2023: Alexa, Echo, eero, Fire TV, Blink, Ring

• All devices contain Alexa, carry Climate Pledge Friendly badge;
• Expands Alexa capabilities
• with conversational GAI (LLM)
• adds Amazon Alexa Emergency Assist (6 $/mo or 60 $/yr)
• adds Alexa Eye Gaze (for control)
• to add Character.ai (chat with famous people)
• plans to add Smart lighting to Echo smart speakers
• expands Fire TV with GAI for voice search
• launches Map View: digital map home floor plan with connected devices pinned to it
• Launches Echo devices
• new Echo Show 8 (smart speaker; $150; incl Echo Show 8 Photos Edition, $160, with PhotosPlus subscription (2 $/mo); with stand, $35)
• Echo Hub (control panel for smart home, 8-inch, wall-mountable, $180; decorative frame $20, counter stand $30)
• new Echo Frames (smart glasses with audio, 7 styles, $270; incl Carrera Smart Glasses, $390)
• Launches eero Max 7 (router, WiFi 7 mesh system, supports 2.4, 5 and 6 GHz bands; wired max 9.4 Gb/s, wireless max 4.3 Gb/s; $600 for 1-pack, $1150 for 2-pack, $1700 for 3-pack)
  
• Launches new Fire TV devices
• Fire TV Stick 4K Max (with Fire TV Ambient Experience (transforms TV into always-smart display, $60), WiFi 6E, 16 GB storage)
• new (gen 2) Fire TV Stick 4K ($50)
• Fire TV Soundbar ($120);
• Launches Blink devices & features
• Blink Outdoor 4 Floodlight Camera (LED floodlight camera, $160)
• Blink Sync Module Pro (extends range)
• Blink Outdoor 4 Battery Extension Pack (extends battery llfe);
• Launches Ring Stick Up Cam Pro (indoor/outdoor camera that offers an aerial view, with radar);
• Launches kids devices
• Echo Pop Kids (smart speaker)
• Fire HD 10 Kids (tablet for 3-7 year-olds, $190)
• Fire HD Kids Pro (tablet for 6-12 year-olds, $190)

A perfect storm is building for VodafoneZiggo - can management steer the company into calmer waters?

VodafoneZiggo is feeling the impact of high inflation and rising interest rates. It is safe to say that the company is over-leveraged, but does this mean that the company is at risk? Too much debt led to rescue operations in many previous occasions, including at KPN (twice!). When a perfect storm happens, even bankruptcy cannot be ruled out, as we have witnessed some 20 year+ years ago at UPC. Since Liberty Global and the Vodafone Group each hold 50% of the shares, it seems a far-fetched scenario for VodafoneZiggo (unless some financial engineering is developed and tax reasons come into play). For now however, the company will depend on autonomous growth to ease the pressure of its balance sheet.

Let's first look at what is happening under the hood:

• The dividend will be roughly halved to around EUR 250 million over 2023E, as opex, tax and interest are rising dramatically. More potential costs are on the horizon and could wipe out the remainder of the dividend: sports rights (Eredivisie, UEFA), mobile (3.5 GHz band auction, network densification) and fixed (a very expensive Docsis 4.0 upgrade). At the same time, competitor KPN is looking to raise its pay-out to over EUR 1 billion annually (TBA at the Capital Market Days towards the end of the year).
• Leverage is up and the cash position is at a historic low of just EUR 21 million (!) at 23Q1 - while no dividend was paid in the quarter. Interest cover is just 0.33. Operating free cash flow on a trailing twelve month basis is coming down from a peak of EUR 1.13 billion in 21Q1 to EUR 890 milllion in 23Q1. Net free cash flow (after interest and tax) is currently just EUR 140 million over twelve months, from a peak of EUR 650 million in 19Q1. There goes the source for paying out a dividend!
• Liberty Global's CFO Charlie Bracken openly admits that VodafoneZiggo is over-leveraged. Net debt over trailing EBITDA currently stands at around 6.8x. He also recently halved his stock holdings in Liberty Global. This could be part of pre-existing plans but the timing is awkward, to say the least.

Here are some options and strengths the company has, but none of them is a walk in the park:

• VodafoneZiggo rolled out gigabit broadband across its footprint and leads the broadband and fixed-line markets, but T-Mobile and Delta Fiber are starting to make inroads.
• Price increases are taking effect, lastly 8.5% in fixed as of July 1st. However, it remains to be seen if this can drive overall revenue growth above 2%.
• Shareholder pay-outs since incorporation (2017) total EUR 7 billion (this includes dividends and joint venture fees, but not interest on parent loans which totals around EUR 100 million per year). As stated above, the dividend pay-out is being reduced dramatically.
• KPN could acquire Open Dutch Fiber, to ease the tension on the broadband market. VodafoneZiggo would welcome this but the regulator will open an antitrust investigation and may block such a move.
• There is really just one big asset available for sale: the mobile tower sites. This could reduce debt by possibly up to EUR 1.5 billion. However, it will raise the opex and lower the EBITDA margin.

Furthermore, interest rates, inflation and other problems have led credit ratings institutes to lower the ratings and/or outlook for Sunrise, Tele Columbus, Altice France and others.

All this limits VodafoneZiggo's room to maneuver and make investments. Sure, the current dividend provides a buffer that can be eaten up, but:

• Additional investments (content, mobile, fixed) are increasingly difficult to finance.
• An IPO looks very difficult. The current enterprise value (equity value + net debt) equals the (adjusted) net debt, at most - based on a multiples comparison with KPN.
• Acquiring Delta Fiber (which could carry an enterprise value of EUR 3 billion, according to a back-of-the-envelop calculation) seems hard. A transaction in stock seems out of the question, assuming the equity carries no value (see bullet above).

All in all, VodafoneZiggo is still a very cash-generative company, with strong positions in broadband and postpaid mobile. The problem is the cash-out, due to rising opex, tax and interest costs. Charlie Bracken stated that the group is "laying the foundations for future growth" for VodafoneZiggo. Given the above, this is hard to see happening in the current competitive and low-growth market, but it cannot be ruled out and may steer the company into calmer waters. Maximising sales while minimising costs is the simple recipe. Elements in this strategy that are missing so far are entering the fixed-line wholesale market (allowing the hollandsnieuwe brand to enter the fixed-line market would test the waters) and launching a cost reduction program.

Netflix 23Q1

Netflix 23Q1 results:

• current AVOD tier ARM (subscr + ads) > Standard tier ARM, to expand features of AVOD tier (currently in 12 countries): 1080p, 2 streams (first in Canada, Spain)
• to expand paid-sharing to US etc 23Q2 (delayed from late Q1), to block devices attempting access without properly paying (already in Chile, Costa Rica, Peru and Canada, New Zealand, Portugal, Spain)
• to close DVD-by-Mail 230929 (last day of shipping)
• forecast 23Q2: paid net adds simialr to 23Q1, slight increase for forex-neutral ARM, rev $8.242b (+3.4%), oper inc $1.565b (margin 19.0%), net inc $1.283b (EPS $2.84)
• targets 2023: rev growth to accelerate in H2, oper margin 18-20%, FCF $3.5b (raised from 3.0b on lower content spend), cash content to content amortization ratio closer to 1.0x, SBB to accelerate
• target 2024: content spend $17b
• long-term financial objectives unchanged: sustain double digit revenue growth, expand operating margin, deliver growing positive free cash flow, gross debt range $10-15b, maintain minimum cash equivalent to roughly 2 months of revenue

Warner Bros Discovery announces Max, merged HBO Max / discovery+ SVOD service

Plans to launch Max SVOD service:

• merged HBO Max & discovery+: HBO Originals, Warner Bros films, Max Originals, DC universe, Wizarding World of Harry Potter, kids content, factual (food, home, reality, lifestyle, docus from HGTV, Food Network, Discovery Channel, TLC, ID etc)
• "unmatched in the breadth, reach, and excellence", "one seamless user experience that invites every member of the family"
• 230523 in US, autumn 2023 in Latam, early 2024 in Europe, mid 2024 in APAC, new markets autumn 2024
• 3 tiers:
• Max Ad-Lite (10 $/mo or 100 $/yr; 2 streams, no downloads, 1080p, 5.1 sound)
• Max Ad Free (16 $/mo or 150 $/yr; same but max 30 downloads, no more 4K UHD)
• Max Ultimate Ad Free (20 $/mo or 200 $/yr; 4 streams, max 100 downloads, 4K UHD, Dolby Atmos)
• current HBO Max subs keep same price, profiles automatically transferred, features (e.g. 4K, number of streams) to continue for 6 months after launch
• discovery+ remains available stand-alone (incl some exclusive content), price unchanged (5 or 7 $/mo)
• improved features: Premium Video Playback (cinematic), Personalization, More Prominent Kids Experience, Simplified Navigation
• 4 key objectives: to drive more engagement, to enhance subscriber retention & reduce churn, to improve performance; to optimized monetization
• content:
• to add >40 new titles/seasons per month
• orders series The Conjuring (movie spin-off), orders series A Knight of the Seven Kingdoms: The Hedge Knight (prequel to Game of Thrones), orders new spin-off series to Big Bang Theory; orders Harry Potter series (remake, decade-long)
• launches campaign (tagline “The One to Watch”)
• currently 50% of churn is involuntary (e.g. credit card expiration)
• currently 7% of D2C subs have both HBO Max & discovery+

Comments:

• Main points already leaked (name, pricing, content strategy); start-up losses will continue for some time; 2023 was to be the year of 'relaunching and building'
• Aims to match Netflix, Disney+, Prime Video in terms of breadth; focuses on families; something for everyone at any time, any mood; leaves competitors (Paramount+, Peacock, Lionsgate, MGM) ever more behind
• Dropping the iconic HBO brand is dubious (esp. in the US); also: focus on remakes, prequels, sequels and spin-offs foregos creativity and may not attract new subs (but it is good for the brand, carries low risk and allows additional monetisation through experiences at theme parks, such as new Harry Potter park in Abu Dhabi); adding discovery+ content is nice but may not attract new subs; the movie library grows at a slow pace (no direct-to-streaming titles), just 12 theatrical releases in 2023
• Maintains pricing of HBO Max tiers but adds a superior tier at the high end; positive for ARPU; 4K no longer available for 16 USD/mo tier
• Other:
• FAST service yet to come; to keep live sports mainly on linear (in US), on Eurosport (Europe), Olympics deal with EBU
• no more day & date, 12 theatrical releases in 2023
• multiple new Lord of the Rings films
• may sell RSNs, music rights (soundtracks) but no bidders
• Moody's maintains Baa3 (lowest investment grade) on expected leverage decline to 4.25x YE 2024 (currently 5.0x)