Telecom boom in Belgium – Investir

The announcement of the arrival of the fourth consumer mobile operator on our territory further weakened the prices of Belgian telecommunications companies. And at the European level, hope for consolidation may come too late…

Long fantasized, the arrival of a fourth player in the Belgian telecommunications market finally materialized during the auction of frequency bands available for 5G operation. A total of five operators purchased these frequencies for a total of 1.2 billion euros: Proximus, Telenet, Orange, Network Research Belgium (NRB) and Citymesh Mobile.

Long fantasized, the arrival of a fourth player in the Belgian telecommunications market finally materialized during the auction of frequency bands available for 5G operation. A total of five operators purchased these frequencies for a total of 1.2 billion euros: Proximus, Telenet, Orange, Network Research Belgium (NRB) and Citymesh Mobile. NRB, the Walloon IT group, relies exclusively on these frequencies to complete its offer of telecommunications solutions for businesses and administrations. Thus, it purchased spectrum in just one frequency band for almost 11 million euros. Another player less known to the general public, Citymesh Mobile is a joint venture owned 51% by Citymesh and 49% by Romanian operator Digi. Both partners have much bigger ambitions, having invested a total of nearly 200 million to acquire auctioned 5G spectrum in five available frequency bands and reserved spectrum (including 2G, 3G and 4G). In short, everything you need to start a new mobile operator. The joint venture also aims to establish 4,000 telecom sites to cover the entire country. The Flemish company Citymesh, part of the Cegeka group, will bring its experience in the business market. Digi, for its part, specializes more in the consumer market, be it a cable TV operator in Romania or a virtual operator in Spain and Italy. Digi has also acquired 5G frequencies in Portugal. The two partners do not intend to wait until the development of their network is complete to launch. Next year, they plan to launch a commercial offer, temporarily leasing the network capacity to other operators. This push into the Belgian market is a cause for concern as Digi has a low-cost model and a reputation as a value manufacturer. The impact could be even greater, as mobile phone subscriptions in Belgium remain more expensive than in all neighboring countries (France, Luxembourg, Germany, Netherlands, UK). According to the latest report by BIPT, the competent federal regulator of the electronic communications market, the price difference reaches 51%. Despite these favorable tariffs, the situation of Belgian telecommunications operators is not brilliant. Revenues and results have been under pressure for many years. In the case of Proximus, the cash flows generated by operations are no longer sufficient to fund dividends. Schematically, the group must finance part of its coupons (and any external growth investments) in credit. The stock market is still worse (see the chart “Evolution of the price of Belgian telecommunications” above). Over 10 years, Orange in Belgium shows the least bad performance with a loss of 27%. And this despite a takeover bid from its parent company Orange in 2021. Overall, the French giant managed to convince just under half of its minority shareholders to sell their shares at a price of €22 per share. . A price level that Orange Belgium has not reached since the closing of the offer in early May 2021. Proximus hit an all-time low of 13.42 euros in late June, a far cry from the 24.50 euros it hit on March 22, 2004, when it was listed on the stock exchange. Telenet, for its part, shows a decline of 36.5% over 10 years, mainly after a real decline (-65%) over the past five years. Ambitions announced during the takeover of mobile operator Base in 2016 never materialized. Thus, its turnover stagnated between 2017 and 2021. However, the worst could be yet to come. Even before the arrival of Digi, Proximus announced a 77% drop in free cash flow to 33 million in the first quarter due to a drop in results (see the “2021 Indicators” table below) and an increase in its investments. in 5G and fiber optics. Inflation and wage indexation can also play into this. The operator raised prices by about 5-6%, but the health index, which is used to calculate wage indexation, should reach 7.6% in 2022, according to the Federal Bureau of Planning. Even if the group does not touch its dividend this year, having promised to maintain it at 1.20 euros gross per share during the period 2020-2022, it seems that the coupon is already compromised for 2023. The operator has announced an investment of an additional €4 billion in fiber with the support of public investors. As in the case of previous network upgrades, these investments should, above all, allow Proximus to maintain its position in the market without growth. Telenet (which has reached an agreement with electricity and gas distribution network operator Fluvius) and Orange Belgium (which is in the process of acquiring Walloon cable operator Voo) are also under pressure to accelerate fiber deployment. Telenet has already found a source of funding by selling its relay antennas for 745 million in June, but apparently it will now have to pay rent to use the network. In this context, the disbelief of analysts seems quite understandable. Out of 17 opinions, Proximus accumulates, for example, seven recommendations to reduce/sell, nine to keep and only one to buy (from UBS). Orange Belgium, for its part, has 12 views to keep and one to buy from analysts at ING. In comparison, Telenet is almost known with 10 positive recommendations (buy/reinforce), seven neutral opinions and one sell recommendation. However, more and more analysts are throwing in the towel in the face of mixed results. A year ago, 15 still had a positive rating, but Deutsche Bank (which until then had the highest target), Barclays or Morgan Stanley, in particular, lowered their rating. Elsewhere in Europe, the environment for telecommunications this year appears to be better, with growth ranging from 13% to 23% for the main European operators (Deutsche Telekom, Orange, Vodafone, Telefonica) since January 1. This recovery in a sector that has been in decline since 2015 – with the exception of Deutsche Telekom, which is benefiting from the good behavior of its American subsidiary – is explained above all by the hope of consolidation. The observation has already been made dozens of times. The United States, China and India each have three major operators. But in Europe, there are more or less direct competition from more than a hundred players. Nick Reid, CEO of Vodafone, called for a wave of consolidation late last year. The dual axis is to limit the number of players in the market to three, with a fourth often synonymous with strong competition and more expensive networks, and to facilitate the emergence of large pan-European players. However, competition authorities repeatedly rejected consolidation projects until 2018, when Tele2 and T-Mobile in the Netherlands were given the go-ahead to merge, reducing the number of mobile operators to three. However, Tele 2 had a very limited market share (around 5%). Today, all eyes are on Spain with the proposed merger announced at the beginning of March between Orange and MásMóvil, two major players in both the fixed and mobile markets, whose merger will create a new local leader. Orange Spain CEO Jean-Francois Fallagher has consistently insisted that “the merger with MásMóvil is necessary to continue investing in fiber and 5G”. For Kester Mann, an analyst at CCS Insight, “if the deal gets the green light, it could open the door to many more mergers in markets like Italy, Portugal and the UK.” On a pan-European level, Patrick Drahi (Altice) may also try to take over BT Group, of which he already owns 18%. All predictions regarding the verdict of the Spanish and European competition authorities are currently open. But even in the case of a green light, the structural impact may well be disappointing. In the Netherlands, after the merger of T-Mboile and Tele2, the monthly income per mobile phone subscriber stagnated at the level of 17 euros. And more broadly, after Iliad/Free in France, Poland and Italy, Digi is the second low-cost player to break into Europe. It has significant influence in Spain, where it offers fiber optic and mobile communications at discounted prices. This competition from a virtual operator without its own network has caused Orange Spain’s gross operating profit to fall by 24% in two years, while Digi now has 4 million customers in Spain, far outnumbering the Romanian expat community. Another threat (especially for fixed services) is satellite operators such as Starlink or Kuiper (Amazon). The main beneficiaries of the consolidation may be the shareholders of the acquired companies. The most frequently mentioned targets are BT Group, KPN and Vodafone.

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