Friday, February 21, 2014

Facebook/WhatsApp - what's next?

It's easy to be negative about Facebook buying WhatsApp: it's expensive, there are little if any revenues to show for, and there is a lot of competition. Not to mention that Facebook, without acquisitions, would arguably have no future.

But it's much more challenging to find the benefits.

First of all, Facebook is 'only' paying $4bn cash + a 7.9% stake. In other words, they are trading roughly 10% of the company for a new line of business.
Second, they take out a competitor, or to be more precise: they are merging with a competitor to keep their audience on board.
Third, no matter how competitive the market is (or rather: despite), WhatsApp has amassed 450 monthly active users - and growing. So, it is one of a very few services to actually put the network effect to work.
And fourth, monetisation will follow. A thin line need to be treaded if users are not te be alienated, but there are no doubt a plethora of possibilities - with so many users and user stats.

Finally, what's next? What could still be missing in the Facebook/Instagram/WhatsApp portfolio?
  • Vimeo: video
  • SoundCould: music
  • Evernote: notes
  • Flipboard: news
  • Foursquare: location

Monday, February 17, 2014

KPN Capital Markets Day: why a CFO is desperately needed

Ultimately, all stakeholders benefit when a company's management is transparant about its reporting and plans. For commercial reasons, there may be secrets from time to time, but an overall lack of transparancy will in term hurt customers, employees and shareholders. The stock market valuation will show a discount to the peer group valuation.

KPN's reporting leaves little to desire, with a deluge of numbers every quarter. And yet, transparency still is the major weak point at the moment and this explains why KPN desperately needs a new CFO. On February 19, KPN will host a Capital Markets Day and one can only wonder why this is scheduled, absent a new CFO.

Unfortunately, only those financial analysts working at financial institutions are invited (so much for transparency ...). But fortunately, the event will be webcast.

KPN had seen several CFOs come and go since CEO Eelco Blok took over in 2011. The position is vacant currently and filled on an interim basis by Steven van Schilfgaarde (in September 2013 he announced that he would leave the company, but 10 days later he was appointed interim CFO).

Here is why the company is in desperate need for a new CFO:
  • First of all, the position is vacant. Succession has been all too rapid since 2011 and the company needs guidance in more than one way.
  • Second, KPN issued no fewer than 4 profit warnings, lowered the dividend on 3 occasions and announced a rights issue. And all this within a time span of less than 3 years. At 13Q4, the Netherlands business was forecast to 'stabilise toward the end of 2014', rather than 'toward 2014', as it was put as recently as at the 13Q3 results, and so invisibility continues.
  • Once more, management appears to be reverse engineering the bottom line (2011: guidance on dividend; 2013: guidance on free cash flow), without giving guidance on the top line (which deteriorated, just when it was supposed to be improving).
  • The dividend is re-installed, pending the E-Plus sale, but it remains unclear whether the dividend is solely dependent on this sale, or whether it can be sustained by the current business and its cash flow.
  • Months after the rights issue, another EUR 5bn was announced to flow into the company as a result of the E-Plus sale. It remains unclear why KPN would need this extra cash.
  • The dividend policy needs to be run as way to distribute excess cash, not as a way of attracting investors. How come the dividend is reinstated at a time when the business deteriorates? Why is the company speculating about receiving dividends from Telefonica Deutschland? KPN appears to be hopeful that the debt level at TD would be raised to enable it to pay a higher dividend.
  • All this probably translates into guidance at the KPN level that is taken with a grain of salt by the market. Hardly anyone probably takes it all too literally at the moment.
KPN needs a very experienced CFO who can issue trustworthy guidance based on the underlying business progress. This should improve the quality of the company's guidance and bring back stability. KPN really needs to stop issuing profit warnings at just about every single quarter. No wonder America Movil insisted on appointing the CFO, should it acquire KPN. And a strong CFO will be good for the company's valuation.

Finally, here are some questions for the Capital Markets Day:
  • Which initiatives are put in place to turn Consumer Mobile around? What is KPN's response to current market trends? Remember, Tele2 is constructing its own LTE network, Ziggo and UPC will merge and launch a nationwide mobile provider and T-Mobile has a new mobile-only strategy.
  • How much will the expected opex and capex savings be ('hundreds of millions')?
  • What is the cost of VDSL2 + vectoring per home passed, including the cost of laying fiber outer rings? And how does that compare to the cost of FTTH (currently apparently around 850 EUR/HP)? And does it warrant a migration in focus from FTTH to VDSL?
  • Can the fiber outer rings be re-used by Reggefiber for its FTTH architecture, should KPN decide to step up FTTH investments in the future?
  • How do Tele2 and Vodafone (potential FTTH unbundlers) feel about KPN slowing down FTTH? (Let me guess: "You will need to ask them").
  • What are the plans for Belgium? When the planned sale of E-Plus was announced, focus was directed to the Netherlands and Belgium. However, silence around Base was rather deafening and one can only wonder why: is something big in the works (remember, selling E-Plus will deliver EUR 5 bn + a 20.5% Telefonica Deutschland stake)? Or is Base really up for sale again, given that Belgium is a notoriously difficult market?
  • What are the current takeover opportunities? In which part of the value chain is KPN interested?
  • Is iBasis a core holding?

Monday, February 10, 2014

Announcements to be expected for the Dutch market

What's up for 2014 in NL?
  • KPN starts to roll out vectored VDSL from February 2014 to 2.1m HP. FTTH to roll out to 250k HP more to a total of almost 2m. There supposedly is a trial of LTE Broadcast and from April FON will be integrated. A new CFO will be appointed. E-Plus will be sold, Reggefiber will be consolidated and America Movil will probably sell its stake.
  • Tele2 is rolling out its LTE network, but will probably launch in 2015. Plans are to unbundle FTTH, not with a time-frame. A new CEO will be appointed.
  • Vodafone is also set to unbundle FTTH and appears to be closer than Tele2. It will appoint a new MD for Vodafone Business.
  • T-Mobile will appoint a new CEO.
  • UPC will launch the Horizon Phone app.
  • Ziggo will probably launch a similar app. It remains to be seen what the next step in mobile will be.
  • NPO will launch NPO Plus, a paid version (better quality, fewer ads) of its catch-up service.
  • NPO, RTL and SBS will launch NLziet, bringing together their respective catch-up services (extended and non-free).

Saturday, February 08, 2014

The case for regulating the new Ziggo

Ziggo and UPC are trying to get their merger approved. What are the chances the regulator will approve this?

Primarily, footprints don't overlap, so nothing in fact will change and hence the merger should be approved. However, Ziggo becomes a near-nationwide player and hence the market does change, in regulator terms.

There may be some issues as a result of the fact that the new Ziggo will operate near-nationwide:
  • A level playing field with KPN is created and as a result 'symmetric' regulation would make sense, i.e. regulation of Ziggo or deregulation of KPN. Relevant markets: mostly broadband, but digital TV and triple play as well. One could assume that so far, Ziggo and UPC were not regulated because they were not nationwide - kind of a trade-off with the regulator.
  • Going nationwide will allow the company to expand, especially on the mobile market and on the business market. But these are new markets for Ziggo and as such no hurdle for approval of the merger.
  • Theoretically, both Ziggo and UPC have the option to compete against each other using KPN's networks and so the merger would reduce the number of potential competitors. Apparently, it is a non-official gentlemen's agreement that stops them from doing so. Also, technology (based around DVB-C and Docsis) prevents them from connecting their services to the KPN network (IP-based). But what really stops them, is the fact that they are vertically integrated and have no intention of becoming resellers or unbundlers. (Any provider globally could be seen as a potential competitor, so this point doesn't seem to make too much sense.)
  • On the wholesale content market, the company will have increased buying power.
Another consideration is synergy benefits. Will they be passed on to customers, or will they be re-invested into the company? Or will they be added to the dividend? The latter is the most likely choice, especially now that KPN is shifting focus from FTTH to VDSL - which could signal a truce and a duopoly.

We'll see what ACM makes of all this.