Proximus Capital Markets Day, strategy 2023-2025 'bold2025'

Proximus CMD: Strategic plan 2023-2025 bold2025 (press release, presentation)

6 PILLARS:

1. Best gigabit network:
• FTTH coverage 50% by 2025 (>3m HP with >1m HA = 45% of customers vs 55% on copper, 500k exclusive customers by 2025), 95% (6m HP) by 2032
• Target copper-free by 2035, savings on power & maintenance max 120m EUR/annum, avoided renewal max 130m EUR/annum (together 250 EUR/annum), max 230m EUR/annum for upgrade)
• Current copper-to-fiber migration 50% after 6 mo, market share gain 2 pp after 12 months; churn 30% lower, repair cost per customer 40% lower; fiber pricing 5-12 EUR/mo over copper, 30 EUR/mo over copper for 10 Gb/s tier, ARPC uplift 7 EUR/mo before promos (4 after)
• Currently in >90 cities adding 600k lines/annum, current Unit Cost EUR 940, to grow to 950 post inflation & savings
• New tech on fiber: quantum channel (for encryption), slicing (for gaming), digital twin (for monitoring), 25G-PON
• 5G nationwide by 2025 (to apply slicing; 3G phase-out end 2024)
2. Upgrade IT to support digital ecosystems (convergent solutions, shift to e-sales & e-servicing) and save costs (TCO reduction EUR 70m by 2025 in opex & capex)
3. #thinkpossible culture, agile methods
4. Inclusive society, protect environment (truly circular by 2030, net zero value chain by 2040), close the digital divide
5. Best customer experience by 2025: digital-first, Picks (aggregator = asset-light with select exclusives), new Proximus+ service (TBA, target 1.8m active users by 2025) bundling daily services: telecoms, fintech (neobank), mobility (in 1 app), e-health (telemedicine), energy (innovation)
6. Grow Proximus Domestic (fiber, multi-brand (Proximus (premium, family), Scarlet (value), Mobile Vikings (innovators, cord cutters)), FMC, ICT) & International (BICS, TeleSign)

TARGETS:

• Domestic:
• rev growth 2022 2%, 2023 1-3%
• EBITDA 2022 +1%, 2023 -3% on inflation, EBITDA to grow from 2024, EBITDA 2025 to equal 2022
• Group:
• EBITDA 2022 +1%, 2023 -3%, EBITDA 2025 slightly higher than 2022
• new cost (opex) savings plan EUR 220m over 3 yr (o/w 40% from workforce, 30% from IT, 30% from network/energy)
• capex peaks in 2022 and 2023 at EUR 1.3b (fiber capex 20% on balance sheet, 80% off)
• to divest non-strategic assets to raise EUR 400m (incl 143m from CHQ, rest from infra & property, excludes option to sell mobile towers and BICS, TeleSign)
• dividend 2023 EUR 1.20, reduced to rebased level from 2024 and 2025 to EUR 0.60
• to return to FCF growth from 2024
• leverage 1.6x (excl. off-balance), as defined by S&P 2.3x (to 2.6 in 2023, 2.5-3.0x during 2022-2025)
• International:
• rev growth HSD, combined rev EUR 1.8b by 2025
• direct margin CAGR 2022-2025 HSD

Fair Share Contribution (aka Internet Traffic Tax) revisited - Big Telco vs. Big Tech

There are some problems with Big Telco's (ISPs) reasoning claiming that Big Tech (CAPs) should contribute their 'fair share' of broadband investments.

1. Net Neutrality

Applying the Internet Traffic Tax (ITT) to Big Tech only would violate Net Neutrality, meaning: it would create barriers to entry and growth for smaller and new CAPs, as Analysys Mason argues (and goes on to state that CAPs could have reduced incentives to invest in infrastructure, which would increase costs for ISPs, risk reduced quality of internet access, reduced ISP competition and ultimately higher fees for end-users).

By the way: what if the most popular services were not clustered at a handfull Big Tech companies, but instead were widely spread over hundreds or even more companies? What would the ITT then look like?

2. Fair is fair

Co-investment would necessarily lead to Big Tech taking an equity stake in a series of infrastructure joint-ventures with Big Telco.

Unless it would indeed be a tax, from which a European Broadband Fund would be funded, but that would alter the Big Telco proposal entirely.

Conversely, if Big Tech should share in the cost of access networks, then Big Telco should share in the cost of developing services and content.

Indeed, the EU appears to be signalling that the cost of for instance the metaverse and the cloud (incl. subsea cable systems and datacenters) should be considered - areas where Big Tech's investments dwarf those of Big Telco.

3. If it ain't broke, don't fix it

Increased data traffic leads to increased network costs and investments. This is a natural consequence of Big Tech services leading to the creation of the (large, growing and very profitable) Broadband Market in the first place. However, over the past few years Big Telco margins have only expanded, as the cost per bit has been coming down.

Peering and local caching (such as Netflix's free Open Connect CDN) only help towards this. The system, based on good old market forces, works fine. Some, such as DT and SKT, resist Open Connect, leading to more expensive transit (in the case of SKT: to Hong Kong and Tokyo), deteriorating the user experience.

4. Two-sided business model

Big Telco can't be forced to adopt a network vision including peering, local caching, transport (incl. subsea) and hosting (datacenters) and appears to be more interested in creating a two-sided business model based on Sending Party Network Pays (SPNP), as ETNO proposes (and BEREC opposed). Even if the former (peering and caching) provides Big Telco with large savings, as Analysys Mason shows. SPNP carries the risk of giving Big Telco monopoly power in termination, as Euro-IX argues.

Big Telco owns the billing relation with the end-user. If it has insufficient pricing power to raise prices, then this implies that not all Telcos agree with Big Telco's argument. Also, why not switch from unmetered to metered (volume-based) tiers? And remeber: manufacturers of electronic products never contributed to the cost of the electricity grid.