Telenor completes Nordic sweep with DNA acquisition

Norwegian telco Telenor has completed its reach across the Nordics, taking the first steps to acquire Finnish operator DNA.

Telenor has now officially entered into agreements with DNA’s two largest shareholders Finda Telecoms and PHP, who hold stakes of 28.3% and 25.8% respectively. Following approval at the Finda Telecoms and PHP AGMs, and regulatory approval, a mandatory public tender offer will be triggered for the remaining outstanding shares in DNA by Telenor. The current 54% will cost Telenor €1.5 billion.

The transaction is expected to be completed in Q3 2019, with the remaining shares being purchased for the same amount, valuing the entire DNA business at roughly €2.8 billion.

“I am very pleased to announce today’s transaction and our entry into Finland, the fastest growing mobile market in Europe,” said Telenor Group CEO Sigve Brekke.

“DNA is an exciting addition to Telenor Group, and a natural complement to our existing operations in the Nordic region. Not only are we strengthening our footprint in the Nordic region, we are also gaining a solid position across fixed and mobile in the Finnish market and making room for further value creation.”

DNA has been crafting itself a useful position in the Finnish market, with both fixed and mobile offerings. Having been founded in 2000, and restructured through various mergers in 2007, DNA has grown to become Finland’s third largest telco with a mobile market share of 28%. With Finland proving to be one of the fastest growing markets in Europe, this could be a useful acquisition from Telenor.

Having grown its mobile service revenues by at least 9.3% year-on-year for the last three years, Telenor expects to use its own expertise to grow revenues further through a larger product portfolio, though the enterprise market is also a target. On the business side of things, Telenor’s international footprint will certainly help, with operations across the Nordics.

The transaction will also offer Telenor more ammunition as it battles its Nordic competitor Telia,

Although Telenor still does have assets across various Asian markets, Pakistan and Thailand for example, it has been narrowing its focus on the Nordic markets recently. Exiting from India, although this was partly forced due to the success of Reliance Jio, while offloading its Eastern European business units will give the team more resources to dominate the Nordic region, though it will have to deal with Telia.

Should the transaction be approved by all the relevant parties, Telenor will have a presence in all the Nordic markets, pinning it head to head with long-time rival Telia. Aside from the Swedish market where Telia dominates, the pair are largely on level pegging, though the DNA business will add momentum.

Alongside considerable growth over the last three years, Finnish consumers have the biggest data appetites across the bloc. According to data from the OECD, the average Finnish mobile data subscription is a massive 15 GB per month which dwarfs the likes of the UK and France, where the average contract is 2.6 and 3.6 GB per month.

Three UK readies assault on broadband market

While its latest financials might not look mind-blowing, Three UK is steading the ship as it casts its eye towards the promised land of convergence and 5G.

Convergence is not really much of a buzzword anymore, such is the accepted nature of the model across the telco industry, though Three is seemingly readying itself for a broader push into broadband segment. The first job is to rebrand Relish, which will happen next month, and the next box to tick will be 5G.

“We are well set up for some transformational shifts in 2019 for our customers and our employees,” said Three UK CEO Dave Dyson. “It will be a year when our customers will start to see the real benefits of the next generation of 5G “mobile” technology, a technology that will not only replace 4G, but will also replace the need for wired broadband services.”

With the new ‘Three Broadband’ branding and a 5G network launching in H2, the Three marketers will have plenty to talk about when attempting to add to the 800,000 broadband customers it already has. In terms of the current state of play, Three said 10% of its current customer base is already ‘converged’ but 5G offers an opportunity to accelerate growth in the broadband business.

The team feels it has an advantage over rivals with its 5G holdings, offering superfast broadband connectivity which is not reliant on fibre. Whether UK consumers are swayed by the Fixed Wireless Access promise remains to be seen.

Looking at the position of the business, it would be fair to describe the last twelve months as healthy without being particularly good. This might not sound the most positive, but the raw materials are certainly in place for Three to make some very strong strides forward.

Total revenues over the last 12 months rose 1% to £2.4 billion, while total network connections reached 11.3 million. 99% of new customers were brought in through Three’s own sales channels, churn is down to 1.1% and net promoter score has reached a new high of +15. Three might not have torn up many trees last year, but the foundations of the business are very healthy.

Looking forward, the team is in the testing stages for its fully-virtualized 5G-ready cloud core network, while there are now 21 data centres live on the network. The business has also signed an agreement with SSE to improve mobile backhaul and 3G spectrum is being continuously re-farmed for 4G. All these initiatives will incrementally improve the customer experience.

“Three is fully embracing a business transformation to take maximum advantage of the opportunities digital businesses enjoy,” said Dyson. “2018 was the year when we set the foundations in place for us to jump up to the next level and become the UK’s best-loved brand by our people and customers, meeting all our customers’ connectivity needs.”

This kind of feels like a ‘calm before the storm’ scenario. Once the broadband rebrand is finished and 5G launched, we feel there will be some very aggressive moves from Three, staying true to its data-orientated roots but heavily integrated convergence messages on-top.

Orange Bank is on a roll

Cutting through the noise at Mobile World Congress is a tough job but Orange’s play for the financial industry is certainly a good attempt.

After a successful venture in the French market, Orange Bank CEO Paul De Leusse gave us a brief run-down of future plans for the business. Spain is on the horizon, as is Poland, while the African markets are going to be given some more love.

“The aim of Orange is to build banks in every country we operate as a telco,” said Leusse. “We want a bank which benefits from the telco and brings benefit to the telco.”

It’s a bold ambition for the business, though there certainly is strong progress being made. At the end of 2018, Orange Bank had 248,000 customers, only 40,000 of which were Orange employees, while the synergies between the telco and the bank are very apparent. 150 of the telcos branches now have banking sales people, each of which can open more than 12 accounts a month. Compared to a traditional banking representative opening three or four a month, the numbers are encouraging.

Looking at where the telco benefits the financial business, the facts are somewhat surprising. Using telco data, Leusse claims he can take out the 30% of customers who represent 80% of the credit risk, while the insight on risk is more reliable than the data from the Romanian credit bureau. And of course, the benefits head the other direction as well.

Those customers who have both a banking and telco relationship with Orange are 15% more satisfied, while churn has been decreased. The Polish business has seen a 18% churn reduction, while Orange Money customers in Africa are 40% less likely to. Orange is a massive believer in the convergence business model, but this is taking the idea to another level.

Interestingly enough, fortunes could be greater on the road, with the Spaniards the next to get the banking dream.

Leusse pointed out the in Spain there is no need for the sales staff to be certified by the financial regulator, perhaps suggesting there will be a larger retail footprint. The Spanish market is digitally more advanced than the French, with customers more readily embracing the new normality of the internet.

According to research quoted by Leusse, 77% of Spaniards suggest they would happily do without a banker, while the number is only 51% in France. 66% of Spanish customers would also be open to being advised by Djingo, the telcos digital assistant, while this number is only 50% in France. Launching a bank in Spain could be just as a promising opportunity as France, maybe even bigger.

T-Mobile US ditches streaming for aggregator TV play

After T-Mobile acquired Layer123 back in 2017, the US has been holding its breath for another Uncarrier move to disrupt the content world, but its not going to be as glitzy as some would have hoped.

Speaking on the latest earnings call, the management team indicated there will be a foray into the content world, but it appears to be leaning more onto the idea of aggregation than creation and ownership.

“It’s subscription palooza out there,” said COO Mike Sievert. “Every single media brand is, either has or is developing an OTT solution and most of these companies don’t have a way to bring these products to market. They’re learning about that. They don’t have distributed networks like us. They don’t have access to the phones like we have.

“And we think we can play a role for our customers as I’ve been saying in the past at bringing these worlds of media and the rest of your digital and social and mobile life together. Helping you choose the subscriptions that makes sense, building for those things, search and discovery of content. We think there’s a big role for our brand to play in helping you.”

The T-Mobile US management team might be antagonistic, aggressive and disruptive, but ultimately you have to remember they are very talented and resourceful businessmen. A content aggregation play leans on the strengths of a telco, allowing the business to add value to a booming industry instead of disrupting themselves culturally trying to steal business.

Content streaming platforms have been an immense successful not only because of our desire to consume content in a completely different way, but also due to the companies who are leading the disruption. The likes of Netflix, Hulu and Amazon are agile, creative and risk-welcoming organizations. Such a disruption worked because the culture of these businesses enabled it. Telcos are not part of the same breed.

However, this is not a bad thing. The basic telco business model is connecting one party to another and this can be of benefit to the content segment. Telcos own an incredibly valuable relationship with the consumer as most people have an exclusive relationship with a communications provider (not considering the broadband/mobile split) and a single device for personal use. The telcos own the channel to the consumer.

Sitting on top of the content world, providing a single window and, potentially, innovative billing services and products could be immensely valuable to the OTTs, as well as securing diversification for the spreadsheets internally. The content aggregation model is one which is functional and operational, perfectly suited to the methodical and risk-adverse telcos.

Specifics of this Uncarrier move are still yet to emerge, but the T-Mobile US management team are promising to do something with the Layer123 acquisition sooner rather than later. It might not just look like what most had imagined initially.

AT&T just misplaced 267k DirecTV Now subs, but it’s OK

The AT&T earnings call was somewhat of a mixed bag of results, with gains on mobile but it somewhat irresponsibly managed to misplace 267,000 DirecTV Now subscribers; its ok says CEO.

Digging down into the numbers always tends to lead to many twists and turns, but the big one is DirecTV Now, the telcos attempt to blend into differentiation and get ahead of the cord cutting generation. This has not exactly been a rip-roaring success for the business so far but losing 267,000 subscribers in three months is a headline which will take some beating.

So where did they go? According to the business, they were basically just allowed to leave. With $10 a month promotional subscriptions biting down hard on profitability, the powers-that-be seemingly decided to cut the losses. The company scaled back promotions and the number of customers on entry-level plans declined significantly, however on a more positive note, the number of premium subscriptions remained stable.

Unfortunately for AT&T, stable will not cut the grade anymore. Having made the questionable decision to acquire DirecTV for $67 billion in mid-2015, some would have hoped the outcome would be more than ‘stable’ three years later. With another whopper of an acquisition taking place during this three-year period, AT&T will be hoping to scale up success before too long if it is to reduce the debt weighing down the spreadsheets.

“Our top priority for 2018 and 2019 is reducing our debt and I couldn’t be more pleased with how we closed the year,” said CEO Randall Stephenson. “In 2018, we generated record free cash flow while investing at near-record levels.”

The other acquisition, WarnerMedia, seems to be having a better time of it than DirecTV. Total WarnerMedia revenues were $9.2 billion, up 5.9% year over year, primarily driven by higher Warner Bros revenues, consolidation of Otter Media and higher affiliate subscription revenues at Turner. What remains to be seen is whether this can continue. WarnerMedia is a media company which is awaiting the full integration and transformation wonders from AT&T. What impact this risk-adverse, lethargic and traditional business will have on the media giant is unknown in the long-run.

Elsewhere in the business, things were a little more positive. The team added 134,000 valuable post-paid subscriptions in the wireless business, though this remained below expectations, with the total now up to 153 million. Total revenues were up15.2% to $47.99 billion though this was also below analysts’ estimates of $48.5 billion. A bit more positive, than DirecTV’s car crash, but still not good enough according to Wall Street as share price declined 4.5%.

Vodafone blames accounting change for €800mn revenue decline

Vodafone has unveiled its quarterly results for the period ending December 31, and while a year-on-year decline of €800 million might worry some, it’s not as bad as you think.

The team claims it has performed pretty much in-line with expectations and the same period of 2017, however a shift over to the IFRS15 accounting standard, the sale of the Qatar business and FX headwinds caused the decline. In other words, it’s all the fault of the bean counters.

“We have executed at pace this quarter and have improved the consistency of our commercial performance,” said Group CEO Nick Read. “Lower mobile contract churn across our markets and improved customer trends in Italy and Spain are encouraging, however these have not yet translated into our financial results, with a similar revenue trend in Europe to Q2.

“We enjoyed good growth across our emerging markets with the exception of South Africa, which was impacted by our pricing transformation initiatives and a challenging macroeconomic environment. Overall, this performance underpins our confidence in our full year guidance.”

Addressing the elephant in the room, the €800 million decline. While suggesting a change in accounting standards is a primary cause might sound flimsy, it certainly will have contributed. IFRS15 dictates a business cannot recognise all revenues up-front; if a contract has been signed, revenue can only be recognised in the financials when it is collected. For example, if your customer has agreed terms to pay at the end of the contract, once conditions have been fully satisfied, this revenue cannot be reported until that point. In other words, Vodafone cannot claim it has the money until customers have actually paid it.

While this is a perfectly reasonable explanation of why revenues might have declined, it is also important to recognise Vodafone is under pressure in numerous markets. The team have claimed success across the European markets, with improving customer and financial trends in Italy, retail growth in Germany and reduced churn in Spain, but year-on-year revenues were down 1.1%. Again, there will be multiple factors contributing to this decline, but it would be foolish to suggest everything is rosy at Vodafone.

A couple of weeks back, RBC Capital Markets released an investment note suggesting Vodafone is not only in a slightly precarious position because of competition pressures (in Europe, Africa and India), but upcoming auctions as well. Depending on how aggressively spectrum prices continue to inflate, Vodafone could fit itself footing a bill between €4.5 billion and €12 billion.

Looking at the performance in the markets, if you ignore the difficult one’s things are going great. European service revenues declined 2% to €7.496 billion (using a consistent accounting standard), with the Spanish, Italian and UK markets all reporting drops. Germany and the ‘other’ European markets reported year-on-year increases of 1.1% and 4.1% respectively. In Italy, the team has faced the uncomfortable entry of the disruptive Iliad, while the impact of handset financing was the cause in the UK. In Spain, the team restructured various offerings to make the brand more competitive. In theory, all of these markets should stabilise over the coming months.

Across Africa, Vodacom revenues grew by 1.5%, though growth was dampened by the South African market. Here, service revenue declined by 0.9% down to the pricing transformation strategy. The aim here was to reduce exposure to out-of-bundle revenues and improve the performance of more generous promotional summer offers. Over the period, South Africa added 86,000 contract customers, primarily from the business unit.

The other tricky market is India, but we’ll have to wait for a while to see the lay of the land there. Vodafone Idea will report its third quarter results in February, though as the integration of these two businesses is a work-in-progress any results will have to be taken with a pinch of salt. Reliance Jio is running the show in India as it stands, but the Vodafone Idea merger will have to be given time to create a competitive offering.

Overall, these are results which we should have expected. Vodafone is reacting to pressure in various markets, but it is not in the most comfortable position. In the vast majority of its markets, Vodafone would be considered more of a challenger than a leader. There are certainly dominant positions in some of the African markets, but it Europe it is fighting for attention.

The business is not nose-diving, but it certainly isn’t thriving. However, there are proactive measures taking place across the world to cultivate success. The fixed broadband offering in the UK should make an effective convergence business, Vodafone Idea could challenge the momentum of Reliance Jio, while more competitive tariffs in markets such as Spain and Italy should put it is a better position moving forward.

Vodafone is making some interesting, and encouraging, decisions but it is starting to fight bloody battles on a lot of fronts.

Liberty LATAM bails out of convergence ambitions

Liberty Latin America has terminated its conversations regarding a potential acquisition of Millicom International.

Details are relatively thin on the ground, though the pair has been in discussions over a possible acquisition which would have made Liberty LATAM the largest convergence player in the Americas. What this means for the Liberty business, which has targeted growth in Latin America in recent years, remains to be seen.

“The Company remains focused on its growth strategy to deliver value for shareholders and provide market leading products and services to its customers,” Liberty said in a statement.

The acquisition talks only emerged in the last couple of weeks, though it would have been a complete takeover from Liberty Latin America. While the Liberty business is certainly in a stable position in the region, competitors have bought into the convergence buzz in recent years, with Telefonica and America Movil offering what would be considered in today’s terms as a more complete connectivity offering.

Operating in 21 countries across Latin America and the Caribbean, Liberty offers consumer and B2B cable and fixed internet services, as well as operating a subsea cable network. On the other side of the coin, Millicom commands mobile operations in eight markets, in most of which it is a market share leader. Theoretically, there was a very handy dovetail between the pair.

Latin America is certainly a market which can offer significant rewards, albeit there are notable risks as well, but it seems the convergence dream was a short-lived dalliance for Liberty LATAM. At least for the moment.

Nerves jangle as Aussies delay TPG/Vodafone merger decision

The Australian regulator has pushed back the deadline for its decision on whether Vodafone Australia and TPG can move forward with the proposed £8.2 billion merger.

While this far from a definite sign the merger will be blocked by the watchdog, the longer the evaluation process goes on for, the stronger the feelings of apprehension will get. If the Aussies were happy with the plans to create a convergence player, they would have said so, but perhaps the regulator is just making sure it effectively does its due diligence.

The tie up between the pair is supposed to be an effort to capitalise on convergence bounties and reinvigorate the competitive edge of the business. That said, last month the Australian Competition and Consumer Commission (ACCC) weighed into the equation raising concerns a merger would de-incentivise the market to offer low-cost services.

According to Reuters, the ACCC has extended its own self-imposed deadline to evaluate the merger by two weeks to April 11. If the watchdog cannot build a case to deny the merger by that point it probably never will be able to, but you have to wonder whether the additional time is being used to validate its position of opposition.

All regulators are supposed to take a balanced and impartial position when assessing these transactions, though its negative opinion last month suggests the agency is looking for a reason to deny as opposed to evaluating what information is on the table. Giving itself an extra couple of weeks will only compound this theory in the mind of sceptics.

To be even handed though, the consolidation argument is perfectly logical and completely absurd depending on who you are. There are benefits and negatives on both sides of the equation, irrelevant as to how passionately supporters and detractors preach to you. For all the arguments and evidence which are presented, a bucket-full of salt will probably be required.

Orange steps further into the convergence game

Orange has announced a new partnership with Groupama, adding another branch to the convergence strategy with a home telesurveillance service.

Everyone in the industry is talking about convergence as a means to improve revenues, but few have created quite a splash in the deep-end as the cannon-balling French telco. This latest partnership with Groupama will see the creation of Protectline, a joint platform for the operation and management of home telesurveillance services.

“The upcoming launch of our home telesurveillance service is an important part of Orange’s multi-service operator strategy,” said Stéphane Richard, CEO of Orange. “To deliver the best product possible, we have again chosen to work with Groupama to pool our skills and resources, following on from our Orange Bank partnership.”

With Orange owning 51% of the new venture, it’s a very clever way for the telco to diversify revenue streams. Groupama is already a well-established player in this segment, but Orange has something which every business wants; a humongous subscriber base to potentially sell added-value services into. This is where this partnership is a stroke of genius and an excellent foundation for future convergence growth.

Orange has built a successful business and large customer base through doing what it does very well. Until recently it has focused exclusively on markets which it has a pedigree in; connectivity. Recently it has explored banking, cyber-security, entertainment and smart home services, though each has relevant-industry partners under-pinning the venture, as well as a direct tie back to the core business.

Protectline is another example of how the Orange business is embracing convergence in a low-risk, high-reward manner. Groupama has the expertise while Orange has the sales and marketing capabilities. Each is supplemented the other, leaning on the skills which are brought to the table. Its sounds incredibly simple, because it is, but it is effective. Of course, you have to wonder why there aren’t more in the industry doing this and the answer is relatively simple.

When splitting the risk, you have to split the spoils. If Protectline becomes a roaring success, Orange can only collect 51% of the riches. This might not sound attractive to other telcos, some of which have chosen to go solo on diversification to varying success; just have a look at BT’s attempt to rock Sky’s dominance in the premium TV segment.

Sky is another which has proven to be successful in the convergence and diversification game, branching out from the core TV services to offer broadband and mobile connectivity offerings. However, similar to the Orange example, the risk has been somewhat removed as the broadband offering runs over Openreach infrastructure and the Sky Mobile is a MVNO. The high-risk elements of these diversification ambitions, the CAPEX heavy infrastructure, has been removed from the equation. Sky focuses on what it does best, maintaining a relationship with its customers.

The buzz around convergence has been dying down a bit recently, as while it is an effective strategy few has realised the bonanza which was initially promised. Orange is one of those few who are reaping the considerable benefit, but only because it is not going alone.

The question which remains is whether Orange can nail the customer experience element. This would have been the big hurdle for the banking product, though it seems to have passed with flying colours. Groupama can take the operational risk away from the telco, but customer experience is slightly different in every vertical; Orange will have to prove its worth by being engaging and intuitive if this is to be a success.

Orange has realised where its strengths are and by offering this massive subscriber base as leverage is any future partnerships, it is proving the low-risk convergence game can be a very profitable one.

Investment bank thinks Vodafone could be in trouble

RBC Capital Markets has released an investor note warning Vodafone might be in a spot of bother following years of restructuring, M&A, as well as the risk associated with up-coming spectrum auctions.

RBC Capital Markets, the investment bank arm of Royal Bank of Canada, has suggested Vodafone might be in a suspect position, with very little financial headroom despite synergies and cost cutting strategies over the last few years. The telco might be offering investors a strong dividend right now, though RBC believes this position is ‘unsustainable’ when you look at the bigger picture.

“Vodafone’s frenetic portfolio restructuring has left the company more European and converged, but also vulnerable,” RBC stated in the note. “Its underlying markets remain ‘challenging’ and it has very little financial headroom despite synergies and cost cutting. Vodafone has options with its towers but faces a threat from 5G spectrum. The dividend is unsustainable even before we consider a macro downturn. Downgrade to Underperform with 125p PT (was 260p).”

The last couple of years have been an interesting time for Vodafone, as while former CEO Vittorio Colao certainly shook up the business during his tenure he left at a time where Vodafone is sitting on a knife’s edge. There are certainly some success stories across the group, though the potential for disaster is just as prominent.

On the positive side, the UK business is returning to the position of strength under UK CEO Nick Jeffrey. You don’t have to look too far into the past to discover Vodafone used to be the number one player in the UK, though time and sloppy management eroded this position. The last couple of years have seen a turnaround in the mobile business, while the introduction of a fixed line offering certainly creates the opportunity to grow revenues through the much-desired convergence play.

As RBC notes, with no legacy business to protect and a strong partnership with CityFibre, the fixed line potential is certainly noteworthy. Digitisation strategies also seem to be paying off, while its tower business also gives it at opportunity to raise more funds through a divestment if necessary. This is a strategic asset Vodafone would not want to get rid of completely, though a minority sale could raise between €3 billion and €5.5 billion, offering suitable security should it be needed. With the Liberty Global deal set to complete in a couple of months’ time, there is potential for further convergence wins in Eastern Europe also.

Of course, there are substantial risks as well. Competition in the Italian, Spanish and German markets are ramping up, with new entrants such as Iliad and United-Drillisch causing all sorts of problems, while national expansion of Euskaltel in Spain will not be welcomed. These are markets where Vodafone has a notable presence and disruption is rife.

And then you have the spectrum auctions. Vodafone might have already participated in some, but there are still many on the horizon. In Germany, the pre-conditions set on established players look to be commercially unreasonable, and that is even before the auction has taken place. The prices being discussed at each auction are increasing each time and RBC estimates the remaining licences could cost Vodafone between €4.5 billion and €12 billion. Some might suggest the Italian auction was inaccurately inflated, though the premiums paid in Australia and Sweden also confirm the auctions are going to be expensive business moving forward.

Finally, you have India. Vodafone currently owns 45% of the newly created Vodafone Idea telco, the teams answer to the Reliance Jio disruption, though what this is actually worth is unknown for the moment. None of the strategies used to tackle Jio have actually worked yet and it is unknown whether Vodafone Idea will be able to slow the momentum behind the upstart. This market could be great for Vodafone, or it could be a disaster; no-one knows for sure.

As it stands, there are certainly possibilities for the telco moving forward, but the risks and dangers in certain markets are huge. Vodafone has shown itself to be a pretty sound business in recent years with the digitisation and convergence shifts, but RBC doesn’t feel it is in a particularly strong position.