Ericsson Mobility Report #20

Ericsson Mobility Report, focus on 5G, traffic, FWA, IoT

• 5G will become the fastest adopted mobile generation (>580m subs YE 2021E, 3.5b in 2026)
• Global mobile data traffic (excl FWA) 49 EB/mo (end 2020; +46% yoy, +13% qoq), 66 EB/mo in 21Q1, 237 EB/mo in 2026E; average usage to grow from 10 to 35 GB/mo/smartphone by YE 2026
• <90% of operators having launched 5G offer FWA (4G & 5G), 72% of all operators; FWA traffic x7 to 64 EB/mo in 2026 (20% of global mobile data traffic), total FWA connections 180m in 2026E
• IoT connections 330m YE 2021 (+80%)
• 4 feature articles: T-Mobile multiband strategy for 5G, business 5G built on Wireless WAN, AI for customer experience in 5G, in-building 5G

Verizon Investor Day: C-Band auction results

Investor Day

• Acquired 140-200 MHz in each market (total 406; average 161 MHz) of C-band spectrum) for 5G Ultra Wideband in FCC auction 107 (3.7-4.2 GHz), $52.9b
• Plans deployment
• on existing & new sites (7-8k for C-band + 14k for mmWave in 2021), capex 2021-23 $10b
• C-band covered pops: 100m in 12 mo, 175m by 2023, 250m by 2024
• FWA
• coverage15m HH YE 2021, 30m YE 2023, 50m YE 2025
• 5G Home Internet (max 1 Gb/s, typical 300 Mb/s, up 50 Mb/s) currently in 18 markets
• 5G Business Internet in >20 markets YE 2021 (currently in Chicago, Houston, LA)
• MEC
• addressable market $30b by 2025: $10b US public/private, $12b US enterprise, $10b global
• Public MEC with AWS (for developers), Private MEC with Micosoft (for Businesses)
• Financial targets
• revenue growth 2% in 2021, 3% in 2022-23, 4% from 2024
• higher interest 2021-23 $4b
• lower cash taxes 2021-23 $5b
• net debt/EBITDA increases to 2.8 YE 2021 (return to target range 1.75-2.00 in 4-5 yr)
• Other
• LT urban trafiic 50% over mmWave
• FTTS to grow to >50% in 3 yr
• Ongoing Verizon Business transformation, target EBITDA margin 25%
• "One Fiber monetization and scaling 5G opportunities"

T-Mobile US Analyst Day

T-Mobile US Analyst Day

• FCC auction 107 (C-band: 3.7-4.2 GHz)
• Round 1: 201208 - 210115
• Round 2 (assignment): 210127 - 210217
• Winners announcement 210224
• T-Mobile US
• Spent $9.3b
• Average 40 MHz in top markets (225m pops)
• Best suited for dense urban
• Total midband spectrum 292 MHz (AT&T 172, Verizon 244)
• Key Themes
1. Maintain 5G Leadership
• Ultra Capacity 5G (midband (2.5 & C-band) & mmWave), build best network, current coverage 125m pops, target 200m YE 2021, completion end 2023 (90% pops coverage)
• Extended Range 5G (low-band: 600 MHz) coverage 300m pops YE 2021, 97% YE 2022
• current 5G coverage 287m pops & 1.6m miles^2 (AT&T 0.7m, Verizon 0.4m)
• currently 85k macro sites, to add thousands + 50k small cells
2. Expand addressable markets
• expand market share in smaller/rural markets (50m HH) from 10 to 20% in 5 yr, with hundreds of new stores o/w 200 in 2021)
• improve service support, improve self-service
• to increase B2B market (50m lines) share from 10 to 20% in 5 yr
• to launch in-home Home Broadband plan March 2021, target 7-8m Home Broadband subs in 5 yr
3. Unlock merger synergies
• $1.3b in 2020, target $2.7-3.0b in 2021, to grow to $7.5b per yr (originally $6b) from decomissioning macro sites (35k YE 2022 for $3b synergies) + avoiding cost synergies ($2b) + SGA savings ($2.5b)
• synergies to NPV $70b (up from 43)
4. Better financial results
• SR 2023 $61-62b (up from 60), $70b by 2026
• core adj EBITDA 2023 $28-29b (up from 26), $36b by 2026
• capex 2023 $9-10b, 2026 $9.5b
• FCF 2023 $13-14b (up from 10-11), $18b by 2026 (down from 9-12)
• shareholder returns 2023-26 cumulative up to $60b
• Other
• current consumer market (310m subs) share 30%
• currently 7500 T-Mobile branded stores (postpaid) + 500 Metro branded stores (prepaid), plans store-in-store at Best Buy (1000) & Walmart (2200)
• current B2B market ($27b in 2020, CAGR 8% to $40b in 2025; 50m lines in 2020, CAGR 4% to 60m in 2025)
• current home BB market $90b

T-Mobile US launches WFX: latest Un-Carrier move - unlimited mobile & FWA over 4G & 5G, covering half the country

T-Mobile US 5G Event: launches T-Mobile WFX business solutions for work-from-home (WFH) or anywhere (WFX) workforce

1. Enterprise Unlimited Plans (4G & 5G)
2. Home Office Internet
• FWA, 4G & 5G, no cap, >25 Mb/s
• dedicated router, prioritises work, with filtering (gaming, gambling, porn, Netflix etc)
• starts with 60m HH covered, target 90m by 2025
• from 90 $/line/mo
3. Collaborate
• cloud-based suite of solutions, AI-powered
• voice & video conferencing; AI-assistant for taking notes, Microsoft 365 integrated, also G Suite, Salesforce, Slack
• incl Enterprise Unlimited from 37 $/line/mo incl 10 GB hotspot data over 4G & 1 hr of GoGo in-flight Wi-Fi per flight for companies taking at least 11 lines
• possible throttling after 50 GB
• based on Dialpad tech

T-Ventures invests in Dialpad 10s of millions of $

T-Mobile US's 5G history:

• Launch 190625, mmWave in 6 cities
• Launch 191206, 600 MHz band near-nationwide
• Launch 2000, 5G Ultra Capacity for Home Internet in 2.5 GHz band and mmWave
• Launch 5G Core for SA 5G 200804
• Covers 100m pops YE 2020
• Target 200m covered pops YE 2021 (2.5 GHz & 600 MHz)

The case for FWA in markets with full-grown fixed-line networks

Fixed-wireless access (FWA) over 5G in the 3.5 or 26 GHz bands could be a fixed-line killer, based on:

1. The technology works. FWA-over-5G is active in many countries. Where fixed-line networks are not mature, it is the strongest 5G business case.
2. In most mature fixed-line markets, mobile networks are mature as well. Therefore, the access networks are ready for 5G, even if they may need some densification for the 26 GHz band.
3. Backhaul is a potential problem. FWA generates a disproportionate amount of mobile data traffic (see Ericsson's recent Mobility Report).
4. There's always at least one serious market challenger annex mobile operator. It could offer 2 SIMs with a discount for unlimited usage, one for mobile and one for FWA.

KPN CMD 2018: no revenue growth; EBITDA and FCF growth from savings

General

• Strategy
• organic sustainable growth (note: growth refers to EBITDA, FCF, not to rev)
• based on innovative operating model and commercial approach
• based on premium, vlaue, focus, lean
• value over volume (esp. in LE segment)
• not competing for market share
• consumer: grow the converged base
• business: stabilise service rev & EBITDA (mid 2020) (note: adj e2e EBITDA, i.e. incl Networks portion (not reported after 2016))
• lean operating model
• to accelerate strategy for 2019-'21
• new technology
• fiber, 4G/5G, virtualisation/cloud
• faster, higher customer satisfaction, lower costs
• enables service switch-off (from all-IP) and copper network switch-off (from FTTH)
• targets lean, faster & more agile company, more flexible, faster time-to-market, faster innovation
• 3 prios
• best smart converged infra (add 1m FTTH HP by 2021)
• focus on profitable growth (add 300k converged HH, convergence to 70% of postpaid; stabilise adjusted e2e EBITDA on business market)
• accelerate simplification and digitalisation
• Financial targets
• progressive dividend
• based on sustainable FCF growth
• based on organic EBITDA growth and stable capex
• plans cost savings 350m by 2021 (not run-rate, i.e. run-rate 350m is reached mid 2021; opex only, this time; net of restructuring costs and incidentals)
• opex savings large part from restructuring; effect on FCF: cash out after 6 months (pay out severance), accreditive after 12 months)
• maintains 2018 guidance
• capex
• remains 1.1b EUR/yr (excl. spectrum)
• shift to access networks (FTTH, 5G), from 33% to over 50%
• IT/TI lower, CPE lower
• invest in future-prof technology
• growing FCF (for progressive dividend and deleveraging)
• mid term target leverage below 2.5 (incl. spectrum)<2 .5="" font="" incl.="" spectrum="">
• service revenues to stabilise
• Other
• 100 developers in Amsterdam (eliminate 5 Indian developers for 1 in Amsterdam)
• sustainability: green energy (2011), CO2 neutral (2015), 25% energy redux (2020), circular (2025)
• T-Mobile/Tele2 merger: no substantial change expected; solid players are good for the market
• open cable: no short-time effect due to long-running existing contracts with wholesale customers
• Main risks
• execution
• declining revenues
• cord cutting (FT, TV): no
• engineering capacity for FTTH roll-out: no

Networks

• Best networks, enable innovative tech, accelerate (simplification, digitalisation)
• FTTP
• currently 2.35m FTTH HP (30%), FTTC coverage 50%, FTTS 80%, accelerate FTTO
• target +1m to 3.4m FTTH HP (over 40%) by YE 2021
• regional approach, no nationwide coverage (complement with copper and FWA)
• trusted relationships with 8 or 9 construction companies for complete service package
• speeding up from end 2019
• improvements
• roll-out 650 EUR/home (cheaper labour and equipment, optimised engineering), to be reduced further
• design in 20 hr (down from 2 yr)
• raises utilisation 8 pp
• pay-back time 50% shorter (result of lower capex, higher utilisation, higher ARPU, lower churn)
• Copper
• to finalise copper upgrade 2019 (2500 cabinets for 500k HH on FTTC)
• plans to switch off copper from 2019, customers to be migrated to FTTP (first in 6 areas)
• Gigabit
• to add Gfast (FTTB, 1 Gb/s)
• total reach 1 Gb/s 45% YE 2021 (40% from FTTH, 5% from Gfast), 200 Mb/s 70%
• Hybrid
• for rural
• to add 200k additional subs with DSL/LTE hybrid (50 Mb/s)
• 5G
• plans 5G-ready network (i.e. software upgradeable)
• massive MIMO
• "4G connects people, 5G connects society"
• 5G mostly for B2B
• 5G field labs (agro in Drenthe, urban in Amsterdam, automotive in Helmond, harbour in Rotterdam)
• government decision on 3.5 GHz band expected 181218
• Other
• single core network, from 5 currently (rationalise, centralise, virtualise (NFV, SDN))
• decentralised CDN at 160 metro core locations (offload 70% of core traffic, low latency)
• all-IP 100% by YE 2021; enables legacy switch-off (PSTN (450k users), ISDN (160k users), SDH, 3G)
• plans 28 GWh power savings 2019-'21
• target 50% virtualisation YE 2021 (currently 5%)
• reduce 20 to 2 IT stacks (1 for consumer, 1 for business)

Consumer

• strategy: best access, grow converged base, value
• targets
• add 300k converged HH by YE 2021, 70% of postpad base converged in 2021
• to raise SIMs/HH 10%
• FTTH raises NPS 15%, ARPU by EUR6, BB share 9pp, lowers churn 34%
• we are the best, so we don't need exclusive content

Business

• targets: stabilise service revenues, stabilise EBITDA (adj, e2e) by mid 2020
• grow in profitable segments; compete for profitable tenders (in LE segment) only
• total customers: 350k SoHo, 225k SME, 2k LE
• to reduce portfolio 50% by 2021
• to raise connectivity at business parks: 100 Mb/s to 70% (currently 52%)
• KPN EEN (platform for SME and LE)
• target penetration to 100% in SME (currently 35%)
• raises NPS 10 points
• time-to-market x2
• low churn (5%)
• cost to serve -25%
• 75% fewer IT systems
• simplified organisation
• revenue growth SoHo positive, bottoming at SME, still declining in LE

Finance

• targets 2019-'21: organic EBITDA growth, capex stable (1.1b), FCF growth, progressive dividend
• past FCF growth from low cash tax (continues), decreased interest (continues; 55% lower o/w 30% result of lower debt, 25% result of lower interest rates), capex (now fixed)
• now EBITDA growth from opex savings & stabilising rev
• targets "cable-like margin"
• opex redux to continue "for a decade"
• portfolio: rationalise, simplify
• e2e digitalisation front and back-end
• all-IP and virtualisation (incl. CPE)
• IT landscape rationalisation
• organisational effectiveness
• execution strategy ESSA (eliminate simplify standardise automate)
• to provide guidance on FCF, restructuring costs, div with Q4 results (each year)