Monday, December 11, 2017

7 Predictions for 2018 for the Dutch market: consolidation, newcomers and an IPO

1. T-Mobile NL/Tele2 NL a strong #3
This merger seems inevitable. What is more intriguing, is options for creating an even stronger challenger to the KPN/VodafoneZiggo 'duopoly'. Candidates include the M7 Group (Canal Digitaal, Online, Stipte, Fiber NL) and EQT's Dutch assets (Delta, CIF, Caiway).

2. VodafoneZiggo IPO
Greater independence from the 50/50 parent companies would instantly create value. Hundreds of millions of euros are extracted from the company every year.
Alternatively, either Vodafone or Liberty Global could buy out its fellow shareholder, but this seems unlikely. Both are actively trying to get rid of assets in countries where there is no overlap.

3. KPN creating PTT network
KPN will want to be part of a new wave of consolidation. Most multinationals are ruled out, for various reasons (Orange not looking to expand its footprint, Altice not in takeover mood currently, etc). Bloomberg recently suggested Proximus, TDC and Elisa could be partners. In fact, there could be many more in this league (Swisscom, Eir, Telenor).

4. KPN will start losing broadband market share
Leapfrogging is rather predictable. ADSL, Docsis 3.0, VDSL and next .... Docsis 3.1. Once VodafoneZiggo turns on Docsis 3.1, it may herald a new phase of growth. KPN's broadband market share will decline and at some point it may relaunch FTTH and do a number of small takeovers to regain share.

5. Eurofiber to bid in 5G auctions
Eurofiber is actively exploring value-creating innovation. It has an extensive fiber network, connecting anything (including bridges & traffic lights) outside the FTTH segment. A 5G network could be devised as wholesale-only. The company could consider bidding through a consortium with T-Mobile/Tele2.

6. Talpa Netwerk to bid for Eredivisie summaries
John de Mol, having sold part of his assets to ITV, has re-created a wide-ranging media company, Talpa Netwerk (TV, radio, streaming video & music, web, events). It appears as a no-brainer to buy the very valuable Eredivisie summaries for the SBS channels.

7. Subsidisation moving to high-value plans
Operators will start realising that subsidisation (handsets, mobile data, content) may reduce churn but destroys value by offering it to all subscriptions. Vodafone's Passes may be too expensive for the Dutch market, but the concept or providing benefits to high-value plans deserves to be copied.

Monday, September 11, 2017

Vodafone DE's Gigabit Investment Plan

Vodafone DE launches Gigabit-Offensive, or Gigabit Investment Plan: EUR 1.8-2.2b in 4 yr (18/19 - 21/22), for 1/3 of all HH: 13.7m connections.

3 pillars
  • GigaKabel (Cable): 12.6m HH; EUR 200m (excl CPE); accelerates Docsis 3.1 deployment from 4 to 2 yr; target 0.5-1.0 Gb/s.
  • GigaGemeinde (Municipality): rural, 1m HH = 2m pops, FTTH; EUR 200-400m; requires 33% participation; muni to own passive and apply for subsidies; Vodafone active operator (incl CPE).
  • GigaGewerbe (Business): 100k FTTO in 2k parks; EUR 1.4-1.6b; with partners incl. Deutsche Glasfaser for passive; long-term full ownership of passive; requires 40% participation.
  • IRR minimum 20%
  • Pay-back: max 4 yr (FTTO), 6 yr (rural FTTH)
  • Contribution to SR growth: 1-2 pp from mid-term (FY 19/20)
  • EBITDA-margin above-average/materially higher (currently 34.1%)
  • CF impact limited due to coop approach (17/18 limited, then 100-200m EUR/yr)
  • Group capex/rev unchanged (mid-teens mid-term) excl Gigabit Investment Plan (disclosed separately)
  • Limited FTTH.
  • Smart way of reaping subsidies and sharing cost with partners.
  • Focus on (ultimately) vertically integrated model. Not a word about open access.
  • Attractive financials.
  • Deutsche Glasfaser takeover target eventually (others not clear).
  • Cost per connection/household
    • Docsis 3.1: EUR 15.87 (excl CPE)
    • Rural FTTH: EUR 300 ad mid-point for part of the investment
    • FTTO: EUR 15,000

Wednesday, June 14, 2017

The arbitrariness of RLAH regulation

There is a certain level of arbitrariness to the RLAH (roam-like-at-home) regulation, taking effect 170615, looking at it from this perspective:

  • Pricing of mobile services is extremely complex, containing all sorts of elements.
  • Operators try to balance pricing with their own return, competitiveness, differentiation and fairness (giving the customer a sense of the-user-pays and usage-based or volume-based pricing).
The result is a high degree of opaqueness.

Now, the EC decided to act on the apparent unfairness of the cost of roaming, singling out one of many elements constituting the monthly bill. (Why not act against extortionist SMS pricing?) Operators will not worry. The have many levers to pull, not least raising fixed-line prices in case of integrated (fixed/mobile) operators.

Tuesday, June 13, 2017

Autonomous car & driving: impacts

The autonomous car & autonomous driving will have far-reaching impact, assuming full autonomy (level 5):
  • No more traffic congestion.
  • Fewer accidents, albeit with liability issues.
  • Less need for new infrastructure (including the hyperloop)? Maybe not, assuming more traffic participants (elderly, kids).
  • More cars, hence more traffic & energy consumption.
  • Less need for public transportation.
  • Less need for professional drivers.
  • More inclination towards sharing? Possibly not, as the car will evolve into an office or living room and hence becomes more personal.
  • Higher productivity (travel time becomes effective working hours).
  • Urbansisation slow-down, as living in rural areas becomes more feasible.

Wednesday, April 12, 2017

Combining Telenet/Base and VodafoneZiggo could bring the Vodafone brand to Belgium

Liberty Global has recently made some public statements about its strategy. The integration of the Dutch activities was not discussed. It must be the worry of the VodafoneZiggo joint venture. However, a scenario is conceivable in which Liberty Global pulls in the JV. That could lead to a merger with Telenet / Base, with a stock market listing to boot.

Content and network

With regard to content, Liberty Global gives preference to a large portfolio, supplemented with local content for the purpose of differentiation. Besides FTA (free-to-air) the emphasis is on sports, production and OTT. In addition, Liberty Global, believes (given a world of abundant content), in the concept of 'attention economics'. Focus is on the consumer's attention. It is important to capture it with good content, and a good interface. As for networks, the company is working on DOCSIS 3.1 and the assumption is that a connection speed of 500-750 Mb/s justifies an increase of 10 to 15 €/month. Other technologies have the attention, including 5G (for backhaul, not for the possible replacement of the local loop.


The company's structure is also getting ample attention. Latin America is split off into the LiLAC stock, while the Netherlands is a deconsolidated joint venture and Belgium has its own listing. In some countries there is a merger with a mobile operator (Belgium, Netherlands), in others an MVNO is created. The UK and Ireland merged into Virgin Media and Switzerland and Austria combined into UPC Central Europe. Combination of the Netherlands and Belgium in a new entity on paper also has benefits. There will be more scale, there may be savings in overhead and there is some synergy in the fields of content and networks. It could lead to the creation of a pan-Benelux operator.

This scenario offers some interesting additional features:
  • The brand portfolio can be streamlined. In both countries, the situation is sub-optimal. Belgium has the brands Telenet and Base, the Netherlands has Ziggo and Vodafone. It could be streamlined in one clean sweep.
  • In agreement with Vodafone, the Vodafone brand could be launched in Belgium. If not as the main brand, then as a mobile brand.
  • The Telenet stock market listing can be maintained and VodafoneZiggo might be gobbled up. The Benelux activity as a whole would have a listing, which could offer the parent companies an exit strategy, over time. Or either of them could take full control.

Friday, March 24, 2017

Breaking down Amazon's revenues (2)

Here are the absolute numbers for Amazon's 8 revenue lines.
Note: indicative.
Note: from 14Q1 to 16Q4 Prime grew from ~$600m to ~$1.8b.

revenue contribution (%)03-31-201430-06-201431-03-201530-06-201531-3-201530-6-201530-9-201531-12-201531-3-201630-6-201630-9-201631-12-2016
media: Amazon retail4,3063,7704,0135,3233,9123,4253,7995,2293,9883,5923,8905,216
electronics & other gen merch: Amazon retail10,25210,33310,67815,80711,56011,92312,75818,69114,40515,13915,88122,079
media: 3rd party sellers7356857649968357588831,2011,0299601,0981,459
electronics & other gen merch: 3rd party sellers1,7491,8782,0332,9582,4672,6392,9664,2943,7154,0484,4826,174
Content subscr, Other (ads, cc, other)207213213320234235249303329344372516
Shipping rev8498891,0481,7011,2991,3991,4942,3281,8202,0002,1543,003

Thursday, March 23, 2017

Breaking down Amazon's revenues

Amazon supplies different revenue breakdowns:

On a quarterly basis:

  • Products & Services
  • North America & International & AWS
  • Media & Electronics & Other & AWS
  • Shipping revenues (separately)
On an annual basis:
  • Retail products, Retail 3rd party, Retail subscriptions, AWS & Other
  • US, Germany, UK, Japan & RoW
Note: you have to be very careful about what is included in all these items, specifically Shipping, Prime and AWS.

This is what we found for 14Q1 and 16Q4:

Disregarding geographic distribution, this is our estimate for 8 different revenue contributors, based on very few assumptions. We have estimates on a quarterly basis, going back to 14Q1. Our main findings for the period 14Q1 - 16Q4 on revenue contributions:
  • Retail media (12%): falling
  • Retail electronics (50%): almost flat 
  • 3rd Party media (3%): almost flat
  • 3rd Party electronics (14%): rising
  • AWS (8%): rising
  • Prime (4%): flat to rising
  • Shipping (7%): rising
  • Content subscriptions & other (1%): flat to rising
Note that a stable contribution still implies that growth is in line with Amazon's overall 20+% growth.