Orange BE 17Q4 highlights: Luxembourg impairment, underlying high growth

• Impairment Orange LU 17.9m
• MSR -3.3% (+2.9% excl MVNO impact, +6.7% excl MVNO & RLAH impact)
• Adj EBITDA -21% (-1.8% excl Wallon pylon deal; +11% excl Wallon deal & RLAH impact)
• Opex related to BB+TV 13.4m (~x2)
• Rev MVNO-loss impact (Telenet) 2017 on rev -9.1m (17Q4 -15.3m), RLAH impact -36.4m (o/w -8.4m in 17Q4)
• EBITDA impact MVNO-loss -7.5m, impact RLAH -7.3m
• Cable business 2017 EBITDA impact -18.5m
• NB-IoT & LTE-M nationwide
• Launches unlimited mobile data/voice/SMS plan 180212 (a first in BE)
• Targets 2018
• adj EBITDA 280-300m (incl MVNO loss impact -30m on rev [also lost Lycamobile, will lose VOOmobile]
• RLAH impact on rev -26m & on EBITDA -17m
• capex (excl cable) flat
• focus on oper efficiency
• mid-term BB market share target 10%
• div 2017 50c
• started using network data (dropped calls) to identify & target eligible residential customers for a femtocell
• Big Data for targeted network investments, churn mgt, rev assurance/fraud detection
• plans one-stop shop (fixed & mobile) for businesses, coop with Orange Business Services

KPN Q4: FTTH to migrate to PON technology after 2018

Details from the main release

• Outlook 2018
• Adj EBITDA flat, capex 1.1b, FCF up (excl TEF DE div), div 12 c/share; Telefonica DE stake 8.6%
• IFRS 15
• recognition & measurement of revenues
• different timing of revenue recognition for handset transactions via direct & indirect channels, and a higher threshold probability in revenue related disputes
• revenues for handsets sold via direct channels are recognized in the P&L as nonservice revenues at date of the transaction, matching the associated handset costs. Revenues (nonservice) and fees (SAC) for handsets sold via indirect channels are no longer recognized in the P&L, but reported in the balance sheet. The threshold in revenue related disputes (variable consideration) is raised, meaning that revenues are only recognized when highly probable (>75%), up from >50% under IAS 18)
• impact (from 180101): adj rev -130m, adj EBITDA -100m, FCF unchanged, equity (at 170101) +285m
• Q&A
• RLAH more favorable than expected (wholesale costs, VR income, data usage grew multiple (>3x)), effect 2018 comparable (shorter yoy effect but expanded usage)
• Expects Business Market stabilisation in 1-3 yr
• 3.5 GHz band crucial for 5G
• Technology update
• Fiber reduces latency to 6 ms (DSL 14 ms, LTE 20-26 ms)
• FTTH reaches 2.3m HH, new build FTTH only, AON in 2018, thereafter migration to PON (not for existing lines), plans access on 3rd party FTTH
• Stepped up FTTO (after regulation ended)
• FTTS reaches 80%
• Bonded V Plus roll-out from 18Q2 (>400 Mb/s), cabinets suitable for VDSL & FTTH, local loop typically 150 meters
• Hybrid DSL/LTE has 1400 subs (Nijkerk trial), average download 6 to 73 Mb/s (note: DSL is needed for IPTV & fixed IP address, LTE for peaks & streaming)
• LTE-M nationwide by 18Q2
• Plans 4 5G pilots: urban, rural, transport & logistics, automotive ("4G connects people, 5G connects society")
• Plans VoWiFi
• Network integration
• Access
• 1. Combine (hybrid access): FTTC/FTTH & DSL/LTE
• 2. Massify (facilitate massive device comms)IoT over LoRa, LTE-M and 4G M2M
• 3. Verticalise (5G for verticals): eMBB (broadband), mMTC (massive), URLLC (latency)
• Core
• 4. Rationalise (simplification): all-IP
• 5. Virtualize (increase scalability, reduce time-to-market): NFV (generic cloud hardware, faster time-to-market) & SDN (smart routing)
• 6. Decentralise (content closer to consumer): CDN at 161 metro locations (for content caching, core-network offloading, improves experience), edge computing (for 5G, improves latency for automotive, e-health, smart industry)
• Simplification: phase 3 of simplification will follow (savings 1 & 2 relative to 2016: 570m EUR/yr)
• IT simplification: originally for 80k subs, invisible for customers, focus on a single My KPN app, focus on open source, added 150 developers in 2017 (total 30 nationalities), time-to-market (halved to 7 days) to be halved again