The announcement of the arrival on our territory of a fourth consumer mobile operator further weakened the prices of Belgian telecom companies. And at the European level, the hope of consolidation could come too late…
Long fantasized, the arrival of a fourth player on the Belgian telecoms market finally materialized during the auction of the frequency bands available for the operation of 5G. In total, five operators acquired 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 on the Belgian telecoms market finally materialized during the auction of the frequency bands available for the operation of 5G. In total, five operators acquired 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 solely on these frequencies to complete its offer of telecommunications solutions for businesses and administrations. It thus only acquired spectrum on a single frequency band, for nearly 11 million euros. Another player less known to the general public, Citymesh Mobile is a joint venture owned 51% by Citymesh and 49% by the Romanian operator Digi. The two partners have much larger ambitions, having invested a total of nearly 200 million for the acquisition of 5G spectrum auctioned on the five available frequency bands and reserved spectrum (including for 2G, 3G and 4G) . In short, everything you need to launch a new mobile operator in its own right. The joint venture also tends to develop 4,000 telecommunications sites to cover the whole country. The Flemish company Citymesh, which is part of the Cegeka group, will bring its experience of the business market. Digi, for its part, is more specialized in the consumer market, whether as a cable 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 for the complete development of their network to launch. They plan to roll out a commercial offer next year by temporarily renting network capacity to other operators. This irruption on the Belgian market is worrying, Digi having a low cost model and a reputation as a price breaker. The impact could be all the greater as mobile subscriptions in Belgium remain more expensive than in all of the neighboring countries (France, Luxembourg, Germany, Netherlands, United Kingdom). The price differences reach up to 51% according to the latest report from BIPT, the competent federal regulator for the electronic communications market. Despite these favorable tariffs, the situation of Belgian telecom operators is not brilliant. Revenues and results have been under pressure for many years. In the case of Proximus, the cash flows generated by the activity are no longer sufficient to finance the dividend. Schematically, the group must finance part of its coupons (and any external growth investment) on credit. On the stock market, it is even worse (see the graph “Evolution of the price of Belgian telecoms”). In 10 years, Orange Belgium signs the least bad performance with a loss of 27%. And this, despite the takeover offer from its parent company Orange in 2021. In total, the French giant had only succeeded in convincing less than half of the minority shareholders to tender their shares to its takeover bid at a price of 22 euros. per share. A price level that Orange Belgium has not found since the closing of the offer at the beginning of May 2021. Proximus reached a historic low at the end of June at 13.42 euros, far from the price of 24.50 euros set on March 22, 2004 when it was listed on the stock exchange. Telenet, for its part, shows a 36.5% drop in 10 years, mainly following a real drop (-65%) over the past five years. The ambitions announced during the takeover of the mobile operator Base in 2016 never materialized. Its turnover thus stagnated between 2017 and 2021. However, the worst could well be to come. Even before Digi’s arrival, Proximus announced in the first quarter a 77% drop in its free cash flow, to 33 million under the effect of a drop in its results (see table “Performance 2021”) and an increase in its investments in 5G and fiber optics. Inflation and wage indexation could also play tricks on it. The operator has raised its prices by around 5 to 6%, but the health index, which is used to calculate wage indexation, should reach 7.6% in 2022 according to the Federal Planning Bureau. Even if the group should not touch its dividend this year, having promised to maintain it at 1.20 euros gross per share over the period 2020-2022, the coupon already appears to be compromised for 2023. The operator announced an investment of an additional 4 billion euros in fiber, with the support of public investors. As with previous network modernizations, these investments should above all allow Proximus to maintain its market positions without generating growth. Telenet (which has reached an agreement with the electricity and gas distribution network operator Fluvius) and Orange Belgium (which is in the process of acquiring the Walloon cable operator Voo) are also under pressure to accelerate the deployment of the fiber. Telenet has already found a source of financing with the sale of its relay antennas for 745 million in June but will obviously now have to pay rent to use the network. In this context, the mistrust of analysts seems quite understandable. Out of 17 opinions, Proximus accumulates, for example, seven advice to reduce/sell, nine to keep and only one to buy (from UBS). Orange Belgium, for its part, has 12 opinions to retain and one advice to buy from ING analysts. Comparatively, Telenet is almost acclaimed with 10 positive recommendations (buy/reinforce), seven neutral opinions and one advice to sell. However, more and more analysts are throwing in the towel in the face of mixed results. A year ago, 15 still had a positive opinion, but Deutsche Bank (which had the highest target until then), Barclays or Morgan Stanley, in particular, lowered their rating. Elsewhere in Europe, the environment for telecoms seems better this year with increases ranging from 13% to 23% since January 1 for the main European operators (Deutsche Telekom, Orange, Vodafone, Telefonica). This recovery in a sector that has been falling since 2015 – with the exception of Deutsche Telekom, which is benefiting from the good behavior of its American subsidiary – is above all explained by the hope of consolidation. This has already been said dozens of times. The United States, China and India each have three major operators. But in Europe, more than a hundred players are in more or less direct competition. Nick Read, CEO of Vodafone, thus called for a wave of consolidation at the end of last year. The dual axis is to limit the number of players per market to three, a fourth often being synonymous with a strong intensification of competition and more expensive networks, and to promote the emergence of major pan-European players. Competition authorities, however, repeatedly refused consolidation projects until 2018 when Tele2 and T-Mobile in the Netherlands were authorized to merge, reducing the name of mobile operators to three. However, Tele 2 only had a very limited market share (around 5%). Today, all eyes are on Spain with the merger proposal announced in early March between Orange and MásMóvil, two major players in both fixed and mobile, whose merger would create a new local leader. The CEO of Orange Spain, Jean-François Fallacher, constantly insists that “the merger with MásMóvil is necessary to continue investments in fiber and 5G”. For Kester Mann, analyst at CCS Insight, “if the transaction receives the green light, it could open the doors to a multitude of other mergers in markets such as Italy, Portugal and the United Kingdom”. At the pan-European level, Patrick Drahi (Altice) could also try to get his hands on BT Group, of which he already owns 18%. At present, all predictions are open regarding the verdict of the Spanish and European competition authorities. But even in the event of a green light, the structural impact could well disappoint. In the Netherlands, KPN has seen its monthly revenue per mobile subscriber stagnate at 17 euros since the T-Mboile-Tele2 merger. And more broadly, after Iliad/Free in France, Poland and Italy, Digi is the second low-cost player to break into Europe. With a significant impact in Spain where it offers fiber and mobile offers at discounted prices. This competition from a virtual operator without its own network has caused Orange Spain’s gross operating surplus to plunge by 24% in two years, while Digi now has 4 million customers in Spain, far exceeding the Romanian expatriate community. . The other threat (especially for fixed services) are satellite operators such as Starlink or Kuiper (Amazon). The main beneficiaries of a consolidation movement could well be the shareholders of the acquired companies. The targets most often cited are BT Group, KPN and Vodafone.