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Transcript of Building the Gigabit Society - sipotra.it · SCMN and KPN seem expensive, TDC and TI seem cheap...
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SWED PORT ESP SWITZ DEN NORW ITA AVG DE FRA* UK NETH BELG
2016A 2021E
Building the Gigabit Society One year later…
European Telco research analysts
Justin Funnell
+44 207 888 0268
Jakob Bluestone
Paul Sidney
Henrik Herbst
European Telco specialist sales
Jan-Willem Brand
18/09/2017
The growing threat from challenger fibre networks (CS forecasts for homes passed by challenger FTTH)
* ex co-investment
Source: Company data, Credit Suisse estimates
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
The pressure on telcos to invest in FTTH has increased
– FTTH demand continues to gradually grow
– Now a strong government policy consensus in EU to
encourage FTTH/P
– Growing private investment in challenger networks
– Public investment has also intensified
Growing risk of crowding out
– Which all means a growing threat from over-build
– 4G is adopting 5G technologies, leading to gigabit
LTE. The higher speeds plus unlimited data plans
means increased faster risk of mobile substituting
DSL
– Cable continuing to develop faster speeds
Telcos continue to respond, but many have yet to fully
adjust
– DT and BT are in the process of repositioning
– KPN, Prox and SCMN then risk eventually becoming
the ‘hind-most’
Stock valuations pricing in more of the CAPEX risk now
– But risk from overbuild is more of an issue
One year later
Source: Credit Suisse estimates
18/09/2017
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
TEF TI TDC KPN Ora TNOR DT BT Telia SCMN Prox
2019E FCF yield FTTH-adj 2019E FCF yield
Equity FCF yield adjusting for potential FTTH CAPEX
EV/EBITDA vs risk from FTTH overbuild
* potential Challenger FTTH build in 2021E vs incumbent FTTH build in 2016
2 European telecoms research
18/09/2017
Source: Credit Suisse Equity Research
Telco investment
in high speed
broadband
Challengers
building
FTTH Cable
1Gbps via
Docsis3.1
5G mm-wave
1Gbps
Rising
demand for
speed
Falling
Cost to
Build FTTH
Increasing public investment
In broadband
Private investment in infrastructure
Regulation
to target 100Mbps+ (?)
Factors driving incumbents to build FTTH are strengthening
Public investment is increasing in laggard markets e.g. IT, DE, UK – Increasing the risk of crowding-out
Private investment is also responding – e.g. Enel in IT, Vodafone in DE
5G is happening already, with 4.5G adopting higher rate MiMo and applying to 2.6 & 3.5Ghz
3 European telecoms research
Premises passed by FTTH relative to households – end of 2016 and 2017e (see Note on methodology)
Current fibre coverage by EU market – 2016A and 2017E
18/09/2017
0%
20%
40%
60%
80%
100%
120%
Spain Portugal Sweden Denmark Norway Switz WEaverage
Neths France Italy Ireland Germany UK Belgium
2016 2017E
Source: Company data, Credit Suisse estimates Note on methodology: we source fibre data from regulators and telcos. We compare these
publicly- sourced figures to total homes in the country rather than total premises (including businesses as well) as official figures for total premises
are less readily available and also can be inconsistent by market . We estimate total premises to be 125-140% of homes (depending on EU country)
which means a ubiquitous fibre build of all premises would equal 125-140% of homes passed on our definition.
4 European telecoms research
Western Europe 52% covered by 2021E – likely to be well ahead of the USA
Average WE market 61% covered by 2021E (i.e. simple average)
UK, Germany and Belgium still behind, though will offer high speed VDSL
Neths and Switz overtaken by France, Italy and Ireland
CS forecast of fibre coverage by 2021E
Source: Company data, Credit Suisse estimates
18/09/2017
Premises passed by FTTH relative to households – by 2021E
0%
20%
40%
60%
80%
100%
120%
140%
160%
Spain Portugal Sweden Norway France Denmark WEaverage
Switz Italy Ireland Neths Germany UK Belgium
2016 2021E
5 European telecoms research
NGN coverage by incumbent telco at end 2016
18/09/2017
Source: Company data, Credit Suisse Research
Premises passed by Incumbent NGN relative to households – at end 2016
0%
20%
40%
60%
80%
100%
120%
TEF PT TDC TNOR Telia KPN SCMN Orange TI Eircom Proximus DT BT
FTTH Coax
6 European telecoms research
The dispersion in stock valuation compresses once FCF is adjusted for contingent
FTTH CAPEX costs
Although some outliers remain – e.g. TEF, SCMN, PROX
FTTH CAPEX risk is more priced-in than a year ago
Source: Credit Suisse estimates
18/09/2017
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
TEF TI TDC KPN Ora TNOR DT BT Telia SCMN Prox
2019E FCF yield FTTH-adj 2019E FCF yield
7 European telecoms research
Supporting information
Source: Company data, Credit Suisse estimates *Note: we already assume DT builds FTTH as fast as possible from 2019E
18/09/2017
Telco
Group
CAPEX
2016
Domestic
CAPEX
2016
Group
CAPEX
2017
Domestic
CAPEX
2017E
Group
CAPEX
2019E
Domestic
CAPEX
2019E
Assumed
extra
CAPEX
Group
CAPEX
2019E -
FTTH adj
Domestic
CAPEX
2019E -
FTTH adj
BT 3,457 3,096 3,402 3,044 3,358 3,003 300 3,658 3,303
DT* 10,968 4,031 11,536 4,250 12,407 4,750 0 12,407 4,750
KPN 1,193 1,193 1,131 1,131 1,008 1,008 200 1,208 1,208
Ora 6,957 3,422 7,200 3,688 7,000 3,579 250 7,250 3,829
Prox 949 949 1,000 1,000 1,000 1,000 150 1,150 1,150
SCMN 2,420 1,746 2,400 1,806 2,400 1,806 250 2,650 2,056
TDC 4,196 3,602 4,161 3,539 3,883 3,276 333 4,216 3,609
TI 4,875 3,709 4,819 3,600 4,291 3,200 500 4,791 3,700
Telefonica 8,703 1,839 8,123 1,648 7,978 1,624 0 7,978 1,624
Telia 15,016 7,119 13,833 7,064 12,911 5,993 0 12,911 5,993
Telenor 22,702 4,771 20,576 5,095 18,564 4,676 0 18,564 4,676
How CAPEX might change if telcos decide to increase investment in FTTH
(figures all in local currency)
8 European telecoms research
Overbuild is however still a growing problem
Source: Company data, Credit Suisse estimates * excluding co-investment in France
18/09/2017
0%
20%
40%
60%
80%
100%
120%
SWED PORT ESP SWITZ DEN NORW ITA AVG DE FRA* UK NETH BELG
2016A 2021E
Overbuild* to expand by 10pp to 25% by 2021
Italy likely to see the biggest increasing in competition from over-build
Competition from overbuild likely to remain intense in Sweden, Portugal and Spain
0%
5%
10%
15%
20%
25%
30%
ITA PORT ESP SWITZ SWED AVG FRA DE UK DEN NETH BELG NORW
% of homes passed by Challenger FTTH
Increase in Challenger FTTH homes passed
2021E vs 2016
9 European telecoms research
Pricing the risk to the telcos from overbuild
Source: Company data, Credit Suisse estimates
18/09/2017
The difference between prospective fibre overbuild and current incumbent NGN coverage represents a ‘fibre
gap’ which the telco has to adjust to, either by losing market share or building FTTH or a mix of both
We then adjust for the % of group revenues coming from domestic fixed line and then compare to valuation
Market
Stock Fibre
overbuild
(2021E)
Incumbent
NGN
coverage
(2016)
year 5 fibre
gap
% of group
from
domestic
fixed line
expsoure to
fibre
overbuild risk
EV/EBITDA
Belgium PROX 3% 2% 1% 43% 0.2% 6.29
Denmark TDC 39% 63% -24% 49% -11.8% 6.22
France Orange 14% 24% -10% 27% -2.7% 6.54
Germany DT 15% 1% 14% 13% 1.8% 6.91
Ireland 33% 3% 29% -
Italy TI 36% 5% 32% 55% 17.5% 5.16
Netherlands KPN 7% 29% -22% 42% -9.2% 7.33
Norway TNOR 37% 48% -11% 9% -1.0% 6.60
Portugal 98% 72% 25% -
Spain TEF 76% 93% -17% 15% -2.5% 6.73
Sweden TELIA 102% 33% 69% 21% 14.5% 5.96
Switzerland SCMN 54% 37% 16% 47% 7.7% 7.60
UK BT 8% 1% 7% 70% 4.8% 6.29
10 European telecoms research
Most telcos are on the trend-line. SCMN and KPN seem expensive, TDC and TI seem cheap
However, the risk isn’t linear as fibre over-build is a double-whammy (y=x2), increasing
competition and the need to build. So TI isn’t so undervalued if OpenFibre does build. But e.g.
TDC does look undervalued, whilst SCMN looks expensive (in our view)
Pricing the risk from overbuild
Source: Credit Suisse estimates * difference between Challenger FTTH coverage of homes by 2021E vs incumbent FTTH coverage in 2016
18/09/2017
PROX TDC ORA
DT
TI
KPN
TNOR TEF
TELIA
SCMN
BT
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0%
Potential fibre gap*
EV
/EB
ITD
A 2
01
7E
11 European telecoms research
On this basis, the lower NGN coverage today, the bigger the problem
Fibre laggards obviously come out more expensive on this view
Pricing the risk – if telcos have to build out the same FTTH
Source: Credit Suisse estimates * note FTTH-adj EV adds on to current EV the cost of increasing incumbent’s NGN (FTTH and coax) coverage to
75% of homes in the domestic market by end 2021E assuming eu750 per home passed
18/09/2017
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
KPN DT BT SCMN PROX ORA TEF TNOR TI TELIA TDC
EV/EBITDA FTTH-adj* EV/EBITDA
EV/EBITDA vs FTTH-adjusted* EV/EBITDA
12 European telecoms research
TEF stands out with by far the most FTTH coverage and F-M adoption.
Most telcos still have a lot of work to do (F-M adoption and NGN build <50%)
Best incumbent defence is to invest in fibre and F-M
Source: Company data, Credit Suisse estimates * note includes coax and FTTH, excludes FTTc
18/09/2017
PROX
TDC
ORA
DT
TI
KPN
TNOR
TEF
TELIA
SCMN
BT
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100% 120%
% o
f con
sum
er fi
xed
cust
omer
s
on F
-M b
undl
e
Incumbent NGN* build (% of hp) end 2016
13 European telecoms research
Valuation can also reflect non-domestic factors (e.g. TMUS in DT’s case)
But many of the domestic plays are still not pricing in relative risk fully
e.g. SCMN and KPN look fully valued, TDC looks undervalued
TEF Spain looks undervalued on this basis (though we are still cautious Tef Latam)
Development of Domestic business vs stock valuation
Source: Company data, Credit Suisse estimates
18/09/2017
PROX TDC ORA
DT
TI
KPN TNOR
TEF
TELIA
SCMN
BT
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%
EV
/EB
ITD
A 2
017E
FTTH build (%hp) + F-M adoption (% of consumer subs)
R2 = 0.11
Valuation vs development of domestic business measured in FTTH build and uptake of F-M bundles
(blue line = actual correlation, red line = theoretical correlation)
14 European telecoms research
List of recommendations
Source: Credit Suisse Research
18/09/2017 15 European telecoms research
List of recommendations
Source: Credit Suisse Research
18/09/2017 16 European telecoms research
18/09/2017
Building the Gigabit Society: The factors driving FTTH build – an update one year later
17 European telecoms research
18/09/2017
Source: Credit Suisse Equity Research
Telco investment
in high speed
broadband
Challengers
building
FTTH Cable
1Gbps via
Docsis3.1
5G mm-wave
1Gbps
Rising
demand for
speed
Falling
Cost to
Build FTTH
Increasing public investment
In broadband
Private investment in infrastructure
Regulation
to target 100Mbps+ (?)
Factors driving incumbents to build FTTH are strengthening
Public investment is increasing in laggard markets e.g. IT, DE, UK – Increasing the risk of crowding-out
Private investment is also responding – e.g. Enel in IT, Vodafone in DE
5G is happening already, with 4.5G adopting massive MiMo
18 European telecoms research
Subscriptions to high speed broadband lines continues to rise steadily – 7 markets at 50%+ now
1. Increasing demand for high speed broadband
18/09/2017
% of broadband subs on 30Mbps+ bband packages (inc cable)
Source: Company data, Credit Suisse Research
19 European telecoms research
FTTH demand slowly accelerating
18/09/2017
FTTH net adds in W.Europe
Source: Regulator data, Credit Suisse Europe research
FTTH subs as % of households
Source: Company data, Credit Suisse estimates
Running at 800-1000k per qtr in 2016
Sweden approaching 50% of homes
using FTTH
0%
10%
20%
30%
40%
50%
60%
70%
2012 2013 2014 2015 2016 2017E
Average take-up rate - FTTH subs vs FTTH homes passed
0%
10%
20%
30%
40%
50%
2012 2013 2014 2015 2016
Belgium Denmark France Germany Ireland
Italy Netherlands Norway Portugal Spain
Sweden Switzerland UK
20 European telecoms research
Source: Company data, Credit Suisse research
18/09/2017
2. Falling cost to build FTTH
Source : atpableplough
Mole ploughing in action
Micro-trenching in action
Source : TalkTalk
Sharing of physical infrastructure
Source : BT.co.uk
21 European telecoms research
18/09/2017
Civil engineering has traditionally been 70-80% of the cost of new-build
Planning controls make a big difference – Horizontal
Digging or aerial?
Digging: Ducts vs micro-trenches
– Verticals
External (Romania, Spain) or internal (Italy, Germany)
Self-install? Enabling ‘self-digging’ has helped take-up rates in Norway
– Without any planning and access restrictions, FTTH build would be much cheaper
EU has regulated to lower build costs – EU Directive 2014/61/EU on lowering broadband build costs
Encourages sharing of existing and new infrastructure, including telcos and utilities (“obligation to meet reasonable requests for
access to deploy high speed broadband”)
Right to negotiated co-ordination of civil works
Faster granting of build permits.
Easier access in new buildings
– These are incremental improvements to build costs
But planning is ultimately a national and local issue and currently varies significantly
– e.g. Germany to examine a loosening of restrictions on micro-trenching and building regulations
– e.g. Ofcom to allow OR cost recovery on clearing ducts and poles (£100/hp)
Planning
22 European telecoms research
18/09/2017
Analysys Mason calculated £1500-4000 FTTH cost per home passed with mole-trenching in
rural areas
– £1000-3000 if use BT PIA offer as well
– They concluded funding FTTH in rural areas could be challenging
But if the demand is there, customers become willing to improve economics by committing to
the project and paying an upfront fee
– Swedish consumers paying SEK20,000 for fibre to be connected
– Gigaclear charging £100 connection fee + £125 installation fee
Rising demand improves build cost economics
Self-build PIA +
geotype 6b 7b 6b 7b
Cost per home passed (£) 1570 2400 1055 1710
Cost per home connected (£) 2840 3970 1910 2820
Payback periods >10 yrs >10 yrs >10 yrs >10 yrs
IRR <<10% <<10% <10% <10%
Source: Analysis Mason, 2012
Cost per home passed in rural areas (geotypes 6 and 7)
“Sourcing adequate amounts of capital for NGA infrastructure in
final third [i.e. rural] areas could prove to be challenging” Analysys Mason, 2012
Source : Gigaclear
23 European telecoms research
Enel expecting to fund OpenFibre’s FTTH
build of 19m homes in Italy 60% with non-
recourse project finance debt
– eu500m of which has already been
arranged (Unicredit, BNP, SocGen)
– Remaining eu3.0bn to be arranged in
2018 once Infratel-B is signed and having
hit initial build milestones
Mostly from commercial project finance
bank arrangers
EIB funding may also be available
– We expect Enel to build Infratel A&B with
just 60% of available maximum Italy
government subsidy
– Enel funding the c. 75% overbuild of TI
with just eu500m of equity
3. Private investment in fibre continuing to rise
Source: Company data, Credit Suisse Equity research
18/09/2017
0
1000
2000
3000
4000
5000
6000
7000
8000
Exp
ecte
d fu
ndin
g of
Ope
n F
ibre
(eu'
m)
Equity from Enel Expected project finance debt Expected Public subsidies
Expected funding of Open Fibre
24 European telecoms research
Vodafone also showing initial interest in co-investment in UK with Openreach
Vodafone to invest eu2bn in fibre in Germany
Source: Vodafone
18/09/2017 25 European telecoms research
80-90% of non-dense awards going to
challengers, investing private funds alongside
the public subsidy available
– SFR (Altice)
– Covage (Cube Infrastructure & Partners
Group)
– Axione (Caisse des Depots, FIDEPP,
Bouygues)
– Altitude (Jean-Paul Riviere)
Government expects non-dense to be 1/3 by
subsidy. Including local authority funding,
around 50% of cost is privately funded on
our estimate
France local authorities tend to favour
challengers to Orange and Orange expects
to win only 20% in total in these regions
Challengers building most of non-dense France
Source: Arcep
18/09/2017
Non-dense awards in France to date
26 European telecoms research
EU ‘Juncker’ plan to invest eu315bn in
infrastructure, part funded by the EC
Eu27bn funding signed so far
– Includes loans to incumbents, including TI,
DT, Ora, OTE
– And loans to challengers, including IP Only,
Ewetel, Fastweb, Iliad , Jazztel, Hyperoptic,
Axione, several local French fibre co’s
National governments continue to fund
broadband targets
4. Rising public investment in fibre
Source: EIB, Credit Suisse Equity Research
18/09/2017
EIB loans to telecom sector (eu’m)
Source: Telegeography
Source: telecompaper
27 European telecoms research
18/09/2017
More EU countries are developing national bband plans
Source: Government of Ireland
Cluster Description Cities Popul-
ation
No of
buildings
Pops Target Expected
investment
cost**
Coverage
today
Government support
A Top cities 15 15% 0.57 9.4 100Mbps eu1bn 30Mbps FTTc access to debt and tax relief
B Conditions don’t guarantee acceptable returns 1120 45% 4.50 28.2 100Mbps eu6.1bn 30Mbps FTTc access to debt, tax relief and some limited grants
C Marginal areas of market failure* 2650 25% 3.50 15.7 100Mbps eu4.2bn ADSL access to debt, tax relief and bigger grants
D Areas of widespread market failure*. Especially in the south of Italy 4300 15% 2.30 9.4 100Mbps eu1bn ADSL eu12.3m of public subsidy required
* market failure means failure of market to build 100Mbps by 2020
** based on Italian government broadband plan
Italy national broadband plan
Ireland national broadband plan German digital alliance
Source: BNetzA
Source: Credit Suisse Research
28 European telecoms research
18/09/2017
Local municipalities have been funding FTTH for many years in some markets – Sweden, Norway, Denmark, some German cities
– Sweden is a notable success: the first country in Europe to develop a broadband policy (1999) and
now has the widest FTTH network roll-out and highest level of take-up
Public funding is now expanding elsewhere in Europe, particularly where NGA
development is slow and build costs appear to be high
Rising public investment
Source: Government data, Credit Suisse Equity Research, *Tenders currently being awarded
FTTH
coverage
(end 2015)
Public
construction
Netwoork
construction
subsidy
Public
finance
Vouchers Tax credits Note
Sweden 83% ✔ ✔ Public utility projects
Spain 82% All privately funded and built
Portugal 65% All privately funded and built
Norway 58% ✔ Public utility projects
Denmark 55% ✔ Public utility projects
Neths 33% All privately funded and built
Switz 28% ✔ JV between Swisscom (60%) and local utilities (40%)
Italy 25% ✔ ✔ ✔ Public utility (Metroweb) and now public funding for private build
France* 20% ✔ ✔ ✔ Public support for local projects in non-dense
Ireland 10% ✔ Public funding for private build
Germany 5% ✔ City networks
UK 1% Public funding focused on 10Mbps currently
Belgium 0%
Summary of public investment initiatives
29 European telecoms research
Infratel plans to over-build TI across 30% of
homes in Italy
State threatened to sue TI when TI lost the
Infratel bid to OpenFibre and planned its own
FTTx build in the same area.
This planned overbuild by OpenFibre has
lowered TI’s local loop value by eu10bn
Latest proposed European Council (i.e.
Member States) draft of new Framework
would protect public investment in fibre across
the EU in the same way.
Germany considering larger public investment
in fibre. Funding of FTTx in ‘non-dense’ France
remains a long-term threat to Orange. UK
govt. also starting to subsidise fibre (£400m).
Growing threat of crowding out
18/09/2017
Source: telecompaper, July 2017
Source: Consilium, Sept 17
30 European telecoms research
Impact of overbuild in Norway
18/09/2017
Telenor got c. 40% overbuilt by
utility fibre (Lyse).
Lyse developed a strong
customer proposition (altibox)
Has achieved 60% take-up
as a result
Source: Company data, Credit Suisse research
Norway market & incumbent line loss
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
Market line loss, y/y TNOR retail line loss, y/y
TNOR retail+wholesale line loss, y/y
0%
10%
20%
30%
40%
50%
60%
70%
2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E
Norway FTTH homes passed
% homes passed - incumbent (FTTH + cable)
% homes passed - challengers
% homes passed - incumbent (FTTH)
-2.0% -2.2% -2.4% -2.5% -2.5% -2.5% -2.5%-3.2%
-4.0%-4.8%
-5.4%
-9.0%
-12.3%
-14.0%-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
Q416 Q117 Q217
Telenor suffers worse line loss in sector
(retail line loss y/y)
31 European telecoms research
TI lacks regulated access to Infratel
or Enel OpenFibre networks
Government also blocking overbuild
of Infratel by TI VDSL
OF building 30k hp / week and to
accelerate to 49k/ week
Vod and Wind signed as resellers
of OF – Wholesale price <eu10/m (?)
Potential impact in Italy
Source: Company data, Credit Suisse estimates
18/09/2017
0
5,000
10,000
15,000
20,000
25,000
30,000
2013A 2014A 2015A 2016A 2017A 2018A 2019A 2020A 2021A 2022A 2023A 2024A 2025A 2026A
Total lines TI total lines
TI retail lines TI wholesale lines
Other networks (inc OF)
TI lines fall from 2019 despite growing market
CS forecasts for OF/Infratel build and wholesale subs
FTTx plans for different Italian telco groups
32 European telecoms research
Potential impact in Italy
Source: Company data, Credit Suisse estimates
18/09/2017
Variation of valuation of TI fixed line local network (eu’m) depending on long-term growth outlook
Scenario analysis: forecasts for TI fixed line assuming OpenFibre builds out
33 European telecoms research
18/09/2017
5. EU regulation to change to encourage fibre
Source: Credit Suisse Equity Research
SMP? No
Yes
Unregulated
>30Mbps?
Yes
No Cost-based
access
regulation
3 tests
-competitive
constraint
-Equivalence -economic
replicability
Yes
Access obligation
But not cost
based
Current regime - simplified
34 European telecoms research
EC proposing to impose on all networks
an obligation to grant access to wiring
and cables inside buildings or up to the
first concentration point. – This is to facilitate competition from new
networks
– This could be a new potential threat to cable
(e.g. MDUs)
– New network elements (e.g. FTTH) are excluded
from this obligation
Hawkish Member States (Neths, Belgium, UK) have
given up arguing for UMP and are now arguing for
more liberal use of this symmetric regulation of non-
replicable assets
– To potentially include more of the network
– And thereby allow regulation of cable as well as
incumbent
Some debate about extent of symmetric regulation
18/09/2017
Source: Europa, Sept 2016
Extract from proposed draft Telecoms Directives
35 European telecoms research
18/09/2017
Trialogue process is about to start
– Likely to conclude in mid 2018
The new EU proposals will be subject to
revision and create uncertainty near term – But ultimately the EC, Member States and
Parliament are likely to find agreement about
stimulating investment in high speed broadband
Member States are also likely to continue
to pursue their own fibre strategies in the
mean time
New Framework gives a lot more options
to regulate and is likely in our view to lead
to increasing regulatory divergence, with
hawks regulating more, and doves less
Hawks: Neths, UK, Belgium
Doves: Germany, Spain, Nordics
Regulatory debate likely to continue to mid 2018
Source: Credit Suisse Equity Research
BEREC European
Commission
European
Parliament
Rapporteurs
Oettinger – DG DigEc
Vestager – DG Comp
Ansip Vice Pres
European
Council
President
Co-decision making process
28 Member States
28 NRAs
36 European telecoms research
18/09/2017
Wholesale regulation of netco and alternatives is key
Source: Credit Suisse equity research
FTTH economics is highly dependent on pricing E.g. for a market entrant the FTTH network will need to be able to command
eu20/m wholesale price to offer sufficient potential returns to be funded
Lowering <100Mbps services to eu10/m cost-based pricing would undermine this
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
0 5 10 15 20 25 30
FTTH ROE at different Netco wholesale prices *
ROE
Netco wholesale access price per month (eu)
ULL BSA VULA Sub-ULL * i.e. assuming eu1000 cost per hp, 50% take-up, 60% leverage, maintenance cost of 3% pa
37 European telecoms research
18/09/2017
The good news – EU to protect 30Mbps+ pricing flexibility...
Source: Credit Suisse Equity Research
30Mbps
2020 100Mbps
2025
10
20
30
ULL
VULA
BSA
Higher returns for investment
in 30Mbps+ (e.g. FTTc)
were sanctioned by Neelie Kroes
Typic
al w
hole
sale
price
fro
m in
cum
bent te
lco in
euro
per
month
38 European telecoms research
18/09/2017
…as lowering <100Mbps prices would impact >100Mbps
30Mbps
2020 100Mbps
2025
10
20
30
wholesale price (ex VAT)
retail price (ex VAT)
wholesale price
Price
in e
uro
per m
onth
Regulating sub-100mbps NGA on a cost basis would lower sub-100Mbps pricing. This would lower
what networks can charge for 100Mbps+ and undermine FTTH investment incentives
Lower
<100Mbps retail
prices would
undermine retail
prices for
>100Mbps
Old retail price
New retail price
New wholesale price*
Old wholesale price s
*unregulated wholesale
price for >100Mbps
Source: Credit Suisse Equity Research
39 European telecoms research
CableLabs has announced full duplex Docsis.
Capable of up to 10Gbps symmetric on 1.2Ghz network
LBTY and Vodafone investing in 1Gbps now, investing in D3.1
6. Cable upgrading to 1Gbps+
Source: Cablelabs, Vodafone
18/09/2017 40 European telecoms research
5G remains in development – Technical standard (5G NR) still being
developed
Likely to be a form of OFDMA
Gains in speed coming from more array
antenna, beam-forming and more spectrum
5G networks to be rolled out from 2020 and
beyond
But: these technologies are already
being adopted in 4G – 32x MiMo being introduced
– 3 or 4 carrier aggregation
– 2.6GHz, 3.5Ghz, WiFi bands (LTE-U)
Phone modems continuing to improve – Cat18 devices have max 1.2Gbps speed
Up to 8 MiMo layers
Operators heading towards “gigabit
LTE” – Real-world speeds of 100Mbps
– Much faster than DSL and faster than basic
VDSL
7. 5G to increase wireless speeds
18/09/2017
Source: Light Reading, August 2017
Source: 5G Americas White Paper (Ryvasy Research), August 2017
5G still some way from mass-market
41 European telecoms research
European MNOs are starting to adopt
unlimited data plans – Result of increased 4.5G network capacity
– Popular with customers
Mobile starting to exceed DSL
speeds
Increasing risk of DSL substitution
Unlimited data plans are closing the price gap vs DSL
18/09/2017
11 markets in W.Europe now have at least one unlimited data plan on offer
Source: Company data, Credit Suisse Research
Source: Akamai, State of the Internet Report Q1 17, CS Research
42 European telecoms research
Most MNOs can handle 10-20GB of average usage per sub before hitting congestion and
having to increase network investment substantially
Average DSL usage is 100GB+, but with a significant % well below this average
Also, there is excess outside the busy cell areas
So there is mobile capacity for a significant portion of DSL subs to migrate over to mobile-only
Most MNOs have the capacity to offer unlimited data
Source: Credit Suisse estimates Unlim ited mobile data plans - Popular, but how sustainable?. *assuming same usage patterns as assumed
for Finland, including 2.5bps/Hz on DL, 7% of daily traffic in Busy Hour (BH), UL=20% DL traffic, 50% of BH traffic in 15% of cells, 70% maximum
average sector load in BH, 75% reach on spectrum above 2.1Ghz
18/09/2017
0
10
20
30
40
50
60
DNA Telia Elisa TMUS VZW AT&T Sprint T-MoDE
Vod DE O2DE Vod UK EE O2 3UK SCMN Sunrise Salt Orange SFR Bouy Iliad KPN Vod-ZigT-M NL Tele2 TIM Vod IT Wind-Tre
Max usage (GB) per month inc high band
Maximum monthly data usage (GB) per subscriber * - using current network and spectrum
43 European telecoms research
ADSL is still the majority of FBB lines in several markets
Source: Company data, Credit Suisse estimates
18/09/2017
0%
20%
40%
60%
80%
100%
High speed broadband DSL
% of fixed broadband (FBB) lines that are still ADSL
44 European telecoms research
Impacted by mix of fibre and mobile substitution
DT, BT and TI quite exposed if this trend spreads
ADSL is declining in most markets
Source: Regulator data, Company data, Credit Suisse research
18/09/2017
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
Q3 16 Q4 16 Q1 17
Growth (decline) in market ADSL lines y/y
45 European telecoms research
Market line growth has stalled despite
recovering European economy
A slight correlation with mobile speed
premium vs fixed
This impact will probably increase as
mobile speeds increase and more MNOs
adopt unlimited plans
A mobile speed premium brings slightly worse FMS
Source: Credit Suisse Research. Note: Red dot = market where unlimited mobile data is the market
norm, Orange is where unlimited mobile data plans have been recently introduced
18/09/2017
y/y line growth
Mild correlation between Mobile speed premium and FBB growth
Mobile
speed p
rem
ium
vs
Fix
ed (
Mbps)
Growth in FBB lines y/y y/y growth in FBB lines
Source: Company data, Credit Suisse estimates
46 European telecoms research
18/09/2017
In the Telcos defence….Vectoring and pair bonding present a viable interim solution from a technological point of view
Source: ispreview
47 European telecoms research
18/09/2017
DT strategy at CMD 2012
Source: DT investor presentation , 2012
48 European telecoms research
18/09/2017
Modular build is best for speed of delivery and risk/reward Gradually deepening fibre allows the network to grow with demand
30Mbps 100Mbps 1Gbps
Euros 2016 demand
Fibre to the…. …Central office
…Street cabinet
…Last Node*
…Home
2030 demand
Cost to build
* last point of loop aggregation in the network e.g. the “distribution point” in BT’s case
To get the average home above 100Mbps the telco has to increasingly build fibre beyond the cabinet (on average)
500Mbps
Source: Credit Suisse research
49 European telecoms research
18/09/2017
Leaves a big opportunity for others to cherry-pick the market
– UK: VirginMedia, Hyperoptic, Gigaclear, CityFibre, … and Vodafone?
– Germany: Deutsche Glasfaser, Inexio, Ewetel, Vodafone….
– Italy: Enel is now overbuilding TI extensively
– Neths: CIF and utility overbuild small but growing
– Switz: Utilities continuing to build without Swisscom co-investment
Demand for FTTH is likely to reach a tipping point i.e. be non-linear
– There is a risk to the telco of mis-judging how quickly demand grows
– e.g. Telenor – now having to build FTTH to catch-up with utilities
National government support can change quite quickly
– Risk that politicians in FTTc/Gfast markets decide one day that they are getting ‘left behind’
– e.g. Italy – Renzi’s strong support for Enel’s fibre build
– UK has shifted from debate about network separation to getting fibre built
– German government position has also pivoted towards FTTH during 2017 (Minister Dobrindt)
– Neths, Belgium and Switzerland next?
This is leading to FTTc telcos having to shift to FTTH faster
– e.g. For BT : building FTT-distribution point sooner
– e.g. For DT : building fibre in the areas not addressed by vectoring
– E.g. For TI: building more FTTH and building FTTc in more low dense areas
This suggests ongoing pressure on CAPEX for the telcos that backed FTTc
– including BT, DT, TI, KPN
But: This has left a risk of the telco ‘leaving it too late’
50 European telecoms research
18/09/2017
Building the Gigabit Society: EU fibre development
51 European telecoms research
W.Europe average 32% of homes passed by FTTH (end 2017)*
Growing divergence in build. Belgium, UK and Germany falling further
behind. Neths losing its early lead.
FTTH development by market
Source: Company data, Credit Suisse estimates* note: net of overbuild by competing FTTH networks and co-investment.
18/09/2017
0%
20%
40%
60%
80%
100%
120%
Spain Portugal Sweden Denmark Norway Switz WEaverage
Neths France Italy Ireland Germany UK Belgium
2016 2017E
FTTH premises passed relative to households in country
52 European telecoms research
One third of W.Europe is now passed by FTTH (end 17E)
18/09/2017
Premises passed by FTTH relative to households – 2012 to
2017E (maximum is c. 125% - see note)
Source: Company data, Credit Suisse estimates, Note: we compare fibre network coverage of premises (homes and business) relative to homes.
Total premises = typically in EU c. 125-140% of homes but varies by market
Premises passed by FTTH relative to
households – WE Average
0%
10%
20%
30%
40%
50%
2012 2013 2014 2015 2016 2017E
Weighted average Simple average
Growing +5pp per annum.
Simple average is higher – the average WE market is 44% covered, +6pp pa
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017E
Belgium Denmark France
Germany Ireland Italy
Netherlands Norway Portugal
Spain Sweden Switzerland
UK Weighted average
53 European telecoms research
Average incumbent FTTH coverage of 22% at end 2017E. +3pp in 12m – Simple average is higher – average market is 37% covered by incumbent FTTH*
Spain and Portugal at 100% of homes (max is c. 130% due to B2B)
Pace of build still varies significantly by market, driven by cost
FTTH* homes passed by incumbents
Source: Company data, Credit Suisse estimates, * note includes coax of TDC and Telenor
18/09/2017
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017E
Belgium Denmark France Germany Ireland
Italy Netherlands Norway Portugal Spain
Sweden Switzerland UK
Incumbent FTTH homes passed % WE average
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017E
Average - weighted Average - simple
54 European telecoms research
Gigabit coverage by incumbent telco at end 2016
18/09/2017
Source: Company data, Credit Suisse research Note: we compare fibre network coverage of premises (homes and business) relative to homes. Total
premises = typically in EU c. 125% of homes but varies by market
Premises passed by Incumbent Gigabit networks (FTTH + coax)
relative to households – at end 2016
0%
20%
40%
60%
80%
100%
120%
TEF PT TDC TNOR Telia KPN SCMN Orange TI Eircom Proximus DT BT
FTTH Coax
55 European telecoms research
FTTH built by challengers, as % of total households
18/09/2017
Premises passed by Challenger FTTH networks relative to households – end 2016
Source: Company data, Credit Suisse research Note: challenger FTTH figure includes active FTTH network built by challenger, so e.g. excludes co-
investment by challengers in semi-dense in France
0%
20%
40%
60%
80%
100%
120%
Sweden Spain Portugal Denmark Norway Switz Italy Germany Neths France UK Ireland Belgium
56 European telecoms research
Incumbent vs challenger NGN coverage
Source: Company data, Credit Suisse estimates note: NGN coverage includes incumbent-owned coax in case of Denmark and Norway
18/09/2017
Premises passed by Incumbent and Challenger NGN
networks relative to households – end 2016
Belgium
Denmark
France Germany
Ireland
Italy
Netherlands
Norway
Portugal Spain
Sweden
Switzerland
UK
0%
20%
40%
60%
80%
100%
120%
0% 20% 40% 60% 80% 100% 120%
Hom
es p
asse
d by
Cha
lleng
er F
TT
H
Homes passed by Incumbent FTTH
Less FTTH overbuild
More FTTH overbuild
Belgium
Germany
Ireland
Italy
UK
0.0%
5.0%
10.0%
15.0%
20.0%
0.0% 5.0% 10.0% 15.0% 20.0%
Less developed WE markets –
end 2016
57 European telecoms research
Western Europe 52% covered by 2021E – likely to be well ahead of the USA
Average WE market 61% covered by 2021E (simple average)
UK, Germany and Belgium still behind, though will also offer high speed VDSL
Neths overtaken by France, Italy and Ireland
Fibre coverage by 2021E
Source: Company data, Credit Suisse estimates * Note: maximum is c. 125-140% due to fibre to business premises
18/09/2017
Premises passed by FTTH relative to households*
0%
20%
40%
60%
80%
100%
120%
140%
160%
Spain Portugal Sweden Norway France Denmark WEaverage
Switz Italy Ireland Neths Germany UK Belgium
2016 2021E
58 European telecoms research
CS forecasts for fibre coverage in EU by end 2021E
18/09/2017
Source: Company data, Credit Suisse estimates
Premises passed by FTTH relative to households – 2012 to 2021E
0%
20%
40%
60%
80%
100%
120%
140%
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
Belgium Denmark France Germany Ireland
Italy Netherlands Norway Portugal Spain
Sweden Switzerland UK
% of HH FTTH Homes Passed
59 European telecoms research
18/09/2017
NGN coverage by incumbent telco – 2016 vs 2021E
Premises passed by Incumbent NGN relative to households – 2016 and 2021E
Source: Company data, Credit Suisse estimates
0%
20%
40%
60%
80%
100%
120%
140%
PT TEF TNOR TDC Orange KPN Telia SCMN Eircom TI PROX BT DT
2016 2021E
60 European telecoms research
We forecast weighted average 31% coverage by 2021E – Build continuing at 3pp, with Spain/Portugal slowing but DE/UK/IT accelerating
DE/UK reduce the weighted average. The simple average is a lot higher –
average market is 49% covered by incumbent by 2021E
Incumbent telco FTTH* build – forecasts to 2021E
Source: Company data, Credit Suisse estimates *note: Norway and Denmark include coax owned by incumbent
18/09/2017
0%
20%
40%
60%
80%
100%
120%
140%
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
Belgium Denmark France Germany Ireland
Italy Netherlands Norway Portugal Spain
Sweden Switzerland UK
0%
20%
40%
60%
80%
100%
120%
2012 2014 2016 2018E 2020E
Average - weighted Average - simple
Incumbent FTTH homes passed % WE average
61 European telecoms research
We forecast incumbents and challengers to build at the same pace
Challengers building as fast as incumbents
Source: Company data, Credit Suisse estimates
18/09/2017
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
% homes passed by FTTH - incumbent % homes passed by FTTH - incumbent total (before adj for overbuild)
FTTH premises passed vs homes in the market
62 European telecoms research
Weighted average coverage of 18% at end 2017E – vs 22% for incumbents
Growing at same +3pp pace as incumbents
Simple average is higher. Average market is 30% covered end 2017E
Challenger FTTH coverage
Source: Company data, Credit Suisse estimates Note: France excludes co-investment in semi-dense area
18/09/2017
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017E
Belgium Denmark France Germany Ireland
Italy Netherlands Norway Portugal Spain
Sweden Switzerland UK
Challenger FTTH homes passed % WE average
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017E
Average - weighted Average - simple
63 European telecoms research
We forecast 25% coverage by challengers by 2021E
– Simple average is higher. Average market is 35% covered by 2021E
Wide variation will continue – driven by passive access and subsidy
Source: Company data, Credit Suisse estimates *note France excludes co-investment in semi-dense regions
18/09/2017
FTTH built by challengers – 2016 vs 2021E
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
Belgium Denmark France Germany Ireland
Italy Netherlands Norway Portugal Spain
Sweden Switzerland UK
0%
20%
40%
60%
80%
100%
120%
2012 2014 2016 2018E 2020E
Challenger FTTH homes passed % WE average
64 European telecoms research
Incumbent vs challengers – our forecasts for 2021E
Source: Company data, Credit Suisse estimates Note: France excludes co-investment
18/09/2017
Belgium
Denmark
France Germany
Ireland
Italy
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
UK
0%
20%
40%
60%
80%
100%
120%
140%
0% 20% 40% 60% 80% 100% 120% 140%
Hom
es p
asse
d by
FT
TH
- c
halle
nger
s (e
nd 2
021E
)
Homes passed by FTTH - incumbent (end 2021E)
Less overbuilt by challengers
More overbuilt by challengers
65 European telecoms research
Made worse if incumbent is also slow to build FTTH (Telenor)
Incumbent cost of building fibre < cost of not building fibre
Overbuild by challengers correlates with incumbent line loss
Source: Company data, Credit Suisse research
18/09/2017
Proximus
TDC
Orange
DT
TI
KPN
Telenor
Telefonica
Telia
Swisscom
BT
R² = 0.5358
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
0% 20% 40% 60% 80% 100% 120%
Incu
mbe
nt li
ne lo
ss y
/y Q
2 17
(
reta
il an
d w
hole
sale
)
% of homes passed by Challenger FTTH end 2016
66 European telecoms research
Markets where FTTH challengers are a bigger threat
Source: Company data, Credit Suisse estimates
18/09/2017
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
Switzerland
% of homes passed - incumbent % of homes passed - challengers
0%
20%
40%
60%
80%
100%
120%
2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E
Norway
% homes passed - incumbent (FTTH + cable)
% homes passed - challengers
% homes passed - incumbent (FTTH)
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
Italy
% of homes passed by incumbent (inc Flash Fibre(
% of homes passed by challengers (ex Flash Fibre)
% of homes passed by challengers (inc Flash Fibre)
0%
20%
40%
60%
80%
100%
120%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
Sweden
% of homes passed - incumbent % of homes passed - challengers
67 European telecoms research
Vodafone has signed a contingent
wholesale deal with TEF – Vod believes its investment in cable and FTTH
was instrumental in TEF improving its wholesale
offer.
– This stalls Vod FTTH coverage at 3.5m hp (inc
network sharing with Ora)
But Orange is still building – Already covers 10m homes (including c. 1m
shared with Vod)
– And could cover 14m of homes by 2021E (2/3
of households)
– Would likely drive price down given sunk-cost
economics
– Overbuild using PT ducts has impacted Meo
and NOS for the same reason
– This overbuild is likely to depress FTTH retail
pricing and may threaten more-for-more on
Fusion at some stage
Spain….Orange remains a threat
Source: Company data, Credit Suisse estimates
18/09/2017
0%
20%
40%
60%
80%
100%
120%
140%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
Spain – If Orange builds out to 14m
% of homes passed - incumbent % of homes passed - challengers
68 European telecoms research
France….it’s complicated
Source: Company data, Credit Suisse estimates
18/09/2017
0%
20%
40%
60%
80%
100%
120%
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
France
% of homes passed - incumbent % of homes passed - challenger
0
5,000
10,000
15,000
20,000
25,000
30,000
2016 2017E 2018E 2019E 2020E 2021E
FTTH homes passed with co-investment obligation
By Orange By Others
France is governed by symmetric
regulation in semi-dense (48%) and
non-dense areas (27%)
Orange is likely to continue to do
most of the FTTH build
Challengers can pay eu500 to
unbundle a line from Orange and
also pay eu5/m
Orange has the same symmetric
right to unbundle on challenger fibre
in semi-dense and non-dense areas
Orange also collects fees for use of
its passive network
See ORAN.PA: Orange - A closer look at
the non-dense areas
69 European telecoms research
Markets less exposed to FTTH challengers currently
18/09/2017
0%
20%
40%
60%
80%
100%
120%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
Neths
% homes passed - incumbent % homes passed - challengers
0%
20%
40%
60%
80%
100%
120%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
Belgium
% of homes passed - incumbent % of homes passed - challengers
Source: Company data, Credit Suisse estimates
The incumbents in these markets have an opportunity to protect long-term competitive position
Equally, FTTH challengers also have a significant investment opportunity in these markets
0%
20%
40%
60%
80%
100%
120%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
UK
Incumbent FTTH coverage Challenger FTTH coverage
0%
20%
40%
60%
80%
100%
120%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
Germany
% of homes passed - incumbent % of homes passed - challengers
70 European telecoms research
Threat from Challenger FTTH looks small
currently
However:
– Virgin Media is also expanding
coverage with coax/FTTH by c 10pp
(Project Lightning)
– Vodafone has publicly stated a
potential interest in building FTTH over
Openreach
Vod’s Demand for exclusivity
seems in accordance with draft EU
regulation
Would be funded potentially by
Group asset disposals
In this scenario BT could go from 50% to
75% overbuilt by NGN (coax +
challenger FTTH) by 2021E, assuming
Challenger FTTH focused on non-cable
areas
UK…threat bigger than it first looks
Source: Company data, Credit Suisse estimates
18/09/2017
0%
20%
40%
60%
80%
100%
120%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
UK (assume no build by Vod)
Incumbent FTTH coverage Challenger FTTH coverage Cable coverage
0%
20%
40%
60%
80%
100%
120%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
Scenario: potential over-build of BT (inc coax and FTTH) including Project Lightning and Vod building 5% of hp
Scenario: potential over-build of BT Incumbent FTTH coverage
71 European telecoms research
Exposure of European telco stocks to FTTH over-build risk varies
significantly based on extent on overbuild, amount of build by incumbent and
diversification of Group beyond domestic wireline
Scenario analysis: Risk to forecasts from FTTH overbuild
Source: Company data, Credit Suisse estimates * based on CS forecasts for Challenger FTTH build-out and assuming that FTTH take-up rate grows
by 3pp over 2016-2021E and that Challenger and Incumbent take 50% each of FTTH customers where they over-build each other with FTTH
18/09/2017
-18% -16% -14% -12% -10% -8% -6% -4% -2% 0%
Telia
TI
Swisscom
TDC
BT
KPN
Telefonica
Orange
Proximus
Telenor
DT
Scenario: decline in Group EBITDA 2021E vs 2016 if Fibre take-up rate grows 3pp per annum over 2016- 2021E*
72 European telecoms research
18/09/2017
Building the Gigabit Society: EU fibre demand
73 European telecoms research
partly a base effect, but also reflects growing fibre construction
Europe is leading OECD on growth in fibre subscriptions
Source: OECD
18/09/2017 74 European telecoms research
Fibre adoption continues to vary significantly across Europe
Source: OECD
18/09/2017 75 European telecoms research
Price of 400GB of usage per month on 100Mbps+ service, PPP adjusted (Dec-16)
NGN broadband more affordable in Europe than Americas
Source: OECD, Credit Suisse Research Note: reflects FTTH or cable broadband pricing, depending on local market conditions
18/09/2017 76 European telecoms research
FTTH - % of homes passed and take-up rates
Source: Company data, Credit Suisse Research
18/09/2017
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Spain Sweden Portugal Denmark Norway Switz Neths France Italy Germany UK Ireland
FTTH Homes Passed, 2016 (% of HH) FTTH subs as % of FTTH homes passed
FTTH homes passed and penetration
77 European telecoms research
Take-up rate at 32% end 2016 – Grew 3pp in 2016
– We forecast an acceleration in 2017
c. 60% in most advanced
markets – Norway and Sweden
FTTH take-up rate slowly growing
Source: Company data, Credit Suisse estimates
18/09/2017
0%
10%
20%
30%
40%
50%
60%
70%
2012 2013 2014 2015 2016 2017E
Take-up rate by market – FTTH subs vs FTTH homes passed
Denmark France Germany Italy
Netherlands Norway Portugal Spain
Sweden Switzerland UK total
0%
10%
20%
30%
40%
50%
60%
70%
2012 2013 2014 2015 2016 2017E
Average take-up rate - FTTH subs vs FTTH homes passed
0% 10% 20% 30% 40% 50% 60% 70%
SWITZ
DE
UK
ESP
FRA
Average
DEN
PORT
ITA
NETH
SWED
NORW
Take-up rate by market – end 2016 (net of overbuild)
78 European telecoms research
Sweden – most netcos promote
wholesale access. Reasonable
competition between resellers (including
Telia, Com Hem, Telenor, Bredband2
and Bahnhof).
Norway - Altibox good service
– Lyse has helped create common and
coordinated approach among the
netcos
Denmark- Waoo! A weaker platform
– lack of coordination between netcos
Switz – lack of competition in reseller
market so far
– Means Swisscom has less incentive
to sell
– Could change with SALT
Penetration partly reflects age of network, competition among resellers and also quality of service platform
Source: Company data, Credit Suisse estimates
18/09/2017
DEN
FRA
DE
ITA
NETH
NOR
PORT ESP
SWED
SWITZ
UK
R² = 0.234
0%
10%
20%
30%
40%
50%
60%
70%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Tak
e up
rat
e (F
TT
H s
ubs
vs F
FT
H h
p)
% of current FTTH network built in the last 5 years
Age of FTTH network explains only part of the variation in take-up rate
79 European telecoms research
FTTH take-up not particularly correlated with GDP
Source: Company data, Credit Suisse estimates
18/09/2017
DK FR
DE
IE
IT NL
NO
PT
ES
SE
CH GB
R² = 0.0667
0%
10%
20%
30%
40%
50%
60%
70%
0 10000 20000 30000 40000 50000 60000 70000 80000 90000
Take-u
p r
ate
, 2016
(Subs a
s %
Hom
es P
assed)
GDP Per Capita, 2016 (USD)
Take-Up Rate vs GDP Per Capita
80 European telecoms research
FTTH take-up steadily growing
FTTH now 10% of fixed broadband subs
in W.Europe
– 55% in Sweden
– 38% in Norway
Cable share slightly rising (DE helps)
– Cable flat in most markets where fibre
roll-out is extensive
DSL share falling inexorably
FTTH subscriber market share
Source: Regulator data, Credit Suisse research
18/09/2017
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Fix
ed b
road
band
mar
ket s
hare
xDSL Cable Fibre (FTTH) Others (FWA)
W.Europe
0%
10%
20%
30%
40%
50%
60%
70%
80%
Fix
ed b
road
band
mar
ket s
hare
xDSL Cable Fibre (FTTH) Other
Sweden
0%
10%
20%
30%
40%
50%
60%
70%
80%
Fix
ed b
road
band
mar
ket s
hare
xDSL Cable Fibre (FTTH) Others (eg FWA)
Norway
81 European telecoms research
FTTH subscriber market share in other fibre markets
18/09/2017
Source: Regulator data, Credit Suisse research
Denmark
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Fix
ed b
roa
db
an
d m
ark
et
sha
re
xDSL Cable Fibre (FTTH) Others (FWA)
Spain
0%
10%
20%
30%
40%
50%
60%
70%
80%
xDSL Cable Fibre (FTTH) Others (FWA)
Portugal
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
xDSL Fibre (FTTH) Other (incl cable)
France
82 European telecoms research
18/09/2017
Building the Gigabit Society: Country by country
83 European telecoms research
Belgium
18/09/2017
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
PROX retail PROX total BEL
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Belgium total broadband lines ('000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
xDSL Cable Other (FWA)
Line loss, y/y Fixed broadband market share by technology
Fixed broadband lines (‘000) Little FTTH in Belgium currently
Cable and DSL market share relatively
stable
Proximus plans to build 50% by 2032
This would leave Belgium well behind most
European markets
Proximus and Telenet offer high speed
broadband but the slow FTTH build leaves
the risk of riding pressure from government
policy and overbuild by challengers
Source: Company data, regulator data, Credit Suisse research
84 European telecoms research
18/09/2017
Proximus announced its intention to pass 40% of
Belgian homes within 10 years and 50% within 15
years
– Announcement made in December 2016
– CAPEX guidance increased to ~€1bn/year
Proximus announcement reflected growing political
and competitive pressure to invest in FTTH
– Belgian FTTH build so far has been very limited
– Belgian cable coverage is close to 90%
Proximus will likely (in our view) have to speed this
build plan at some point (lowering FCF further)
Proximus – likely to need to speed up FTTH build Proximus announced intention to pass 50% of homes in 15 years
Source: Proximus fibre presentation December 2016
Source: Company data, Credit Suisse estimates
Belgian FTTH build so far has been minimal
0
10
20
30
40
50
60
70
80
90
100
% c
over
age
of h
ouse
hold
s
Belgian cable coverage at around 90%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Sweden Spain Portugal Norway Denmark Neths Switz Italy France Ireland Germany UK Belgium
Source: Source: OECD (2010), Indicators of broadband coverage, OECD, Paris
85 European telecoms research
Denmark
18/09/2017
-9.0%
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
TDC retail TDC total DEN
0
500
1,000
1,500
2,000
2,500
3,000
Denmark total broadband lines ('000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
xDSL Cable Fibre (FTTH) Others (FWA)
Line loss, y/y Fixed broadband market share by technology
Fixed broadband lines (‘000) Total lines and total broadband lines
slightly falling on mobile substitution
Fibre lines now 20%
Cable has still taken some share
DSL in steady decline
Source: Company data, regulator data, Credit Suisse research
86 European telecoms research
Denmark has seen extensive FTTH
build-out by utilities, particularly in rural
areas
In 2010 most of the utilities formed a
consortium (Waoo). However, Waoo
has been partly dissolved and is now
only 9 utilities (down from ~15 at peak)
The biggest independent utility (SE)
bought #2 cable operator Stofa in 2012
and is buying Boxer (DTT) – could move
into cable wholesale outside its
footprint. SE is the natural consolidator
of utility fibre (successful penetration in
own footprint, strong balance sheet) but
many of the utilities appear unwilling to
exit
Denmark
18/09/2017
TDC’s main avenue for offering
high-speed broadband is via its
cable network covering ~50% of
homes in Denmark
TDC also bought DONG’s FTTH
business in Copenhagen (~200k
homes) and has a wholesale
agreement with Ewii (~100k) on
Fyn. But for regulatory reasons it
is constrained from consolidating
more of the utility fibre
87 European telecoms research
Denmark FTTH market
Source: Company data, regulator data, Credit Suisse research
18/09/2017
Over 50% of homes passed by FTTH
(2016A)
Mainly by utilities and a bit by TDC
Waoo main utility consortium (~25% h-
hold coverage) with several indep.
utilities too (SE/Stofa, Ewii…)
TDC cable coverage ~50% with TDC
FTTC/FTTH in a further ~20%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2012 2013 2014 2015 2016
FTTH homes passed ('000)
TDC (ex cable) Waoo! (ex SE) SE/Stofa (combined) Other (Ewii etc)
0
100
200
300
400
500
600
2012 2013 2014 2015 2016
FTTH subs ('000)
TDC (ex cable) Waoo! (ex SE) SE/Stofa (combined) Other (Ewii etc)
0%
10%
20%
30%
40%
50%
60%
70%
2012 2013 2014 2015 2016
FTTH % buildout and FTTH subs (% of homes)
% homes passed by FTTH % penetration of FTTH homes passed
88 European telecoms research
CS forecasts for Denmark’s FTTH market
Source: Company data, regulator data, Credit Suisse estimates
18/09/2017
We forecast
c.1.8m FTTH homes passed by 2021E
Waoo coverage rising from 25% of
homes to nearly 30%
Only coverage expansion by TDC
We expect FTTH subs to grow from
500k to 800k, ie from 33% of subs to
46%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
FTTH homes passed ('000)
TDC (ex cable) Waoo! (ex SE) SE/Stofa (combined) Other (Ewii etc)
0
100
200
300
400
500
600
700
800
900
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
FTTH subs ('000)
TDC (ex cable) Waoo! (ex SE) SE/Stofa (combined) Other (Ewii etc)
0%
10%
20%
30%
40%
50%
60%
70%
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
FTTH % built out & FTTH subs (% take-up penetration of hp)
% homes passed by FTTH % penetration of FTTH homes passed
89 European telecoms research
Denmark has seen a lot of utility fibre – but with mixed success
SE/Stofa (in SE DK) has been v successful with 50-60% market share in footprint
But some of the other utilities (residual of Waoo) have lacked ability to retail
#2 (Ewii) even decided to become a wholesaler to TDC
We see overall FTTH competition as fairly mature & stable
However, if SE/Stofa could become more of a threat
– It is moving into more wholesale with acquisition of Boxer
– It could become a regional consolidator (cash-rich, successful within footprint)
TDC – stable, but with downside risk from SE/Stofa
18/09/2017 90 European telecoms research
18/09/2017
0%
10%
20%
30%
40%
50%
60%
70%
80%
xDSL Cable Fibre (FTTH) Others (FWA)
Fixed broadband market share by technology Fibre lines only growing slowly
Finland market continues to see strong F-M
substitution
Mobile networks are dense with a high
allocation of spectrum. MNOs offer
unlimited data
We have calculated capacity to carry
50GB/sub/m.
So we expect mobile substitution to
dominate the market for the next 3-5 years
Finland
0
10
20
30
40
50
60
DNA Telia Elisa TMUS VZW AT&T Sprint T-MoDE
Vod DE O2DE Vod UK EE O2 3UK SCMN Sunrise Salt Orange SFR Bouy Iliad KPN Vod-ZigT-M NL Tele2 TIM Vod IT Wind-Tre
Max usage (GB) per month inc high band
Hypothetical mobile data capacity per sub per month (GB)
Source: Regulator data, Credit Suisse estimates
91 European telecoms research
France
18/09/2017
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
ORA retail ORA total FRA
0
5,000
10,000
15,000
20,000
25,000
30,000
France total broadband lines ('000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
xDSL Fibre (FTTH) Other (incl cable)
Line loss, y/y
Fixed broadband market share by technology
Fixed broadband lines (‘000) Broadband market continuing to grow
at steady rate despite high penetration
Slight increase in voice line loss
Cable and fibre both taking share
DSL loss of share offset by market
growth currently
Source: Company data, regulator data, Credit Suisse research
92 European telecoms research
Fibre in France is mostly rolled out through a
co-financing/co-investment shared-cost
model with different regulation in Very Dense
Areas and Medium/Non-Dense Areas
Orange has been responsible for most of the
deployment so far with 8m homes passed.
~50% of fibre has been in VDAs despite
these only accounting for ~20% of premises
Iliad has stepped up its participation
materially recently with access to FTTH in 5m
homes (Q2 17; 2015A 2.5m)
Most FTTH deployment has been in cable
areas so SFR’s participation has been more
limited. It has rolled out fibre to 1m homes
but will roll out more as deployment shifts to
non-cable areas
France
18/09/2017
Bouygues only has 2.2m homes to
which it can offer FTTH
Non-dense areas’ subsidies are
being tendered by end-18 and have
mostly gone to independent fibre
companies (Axione, Altitude,
Covage)
These will run open networks,
hosting the major players
SFR has said it could over-build
some of these independent fibre
networks
Long term we believe the
independent fibre companies could
be consolidated by the big operators
93 European telecoms research
France FTTH market
Source: Company data, regulator data, Credit Suisse research
18/09/2017
26% of premises passed by FTTH (2016A),
net of co-financing
Orange has been network operator in most
cases, followed by SFR
Iliad can offer FTTH to 5m homes – mostly
via co-financing. ByTel can offer to 2m
entirely through co-financing
Of 8m homes passed, 4m in VDAs, 3m in
MDAs and 1m in NDAs
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2012 2013 2014 2015 2016
FTTH premises passed ('000)
Orange SFR (FTTH-only) Iliad Bouygues
0
200
400
600
800
1,000
1,200
1,400
1,600
2012 2013 2014 2015 2016
FTTH subs ('000)
Orange SFR (FTTH-only) Iliad Bouygues
0%
5%
10%
15%
20%
25%
30%
2012 2013 2014 2015 2016
FTTH % built out & FTTH subs (% take-up penetration of hp)
% premises passed by FTTH (net of overbuild) % penetration of FTTH homes passed
94 European telecoms research
CS forecasts for France’s FTTH market
Source: Company data, regulator data, Credit Suisse estimates
18/09/2017
We forecast
c.18m FTTH premises passed by
2021E (60% of total)
We expect Iliad to participate in all
Orange’s FTTH and SFR to participate
in non-cable areas.
We expect FTTH subs to rise from 2m
(2016A; 8% of subs) to 12m (35%)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
FTTH premises passed ('000)
Orange SFR (FTTH-only) Iliad Bouygues
0
1,000
2,000
3,000
4,000
5,000
6,000
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
FTTH subs ('000)
Orange SFR (FTTH-only) Iliad Bouygues
0%
10%
20%
30%
40%
50%
60%
70%
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
FTTH % built out & FTTH subs (% take-up penetration of hp)
% premises passed by FTTH (net of overbuild) % penetration of FTTH homes passed
95 European telecoms research
For fibre regulation France is split into – Very dense areas (“Zones Très denses”; 6m
homes)
– Medium dense areas (“Zones Appel à
Manifestation d'Intention d'Investissement” or
“Zones AMII”; 14m homes)
– Non-dense areas (“Zones s réseaux d'initiative
publique “ or “Zones RIP”. Also known as
“Private Initiative Networks” or “PINs”; 9m
homes)
– Deeply rural areas (“4m homes”)
– (Out of these nearly 3m are unoccupied)
There is a different regulatory model for
the very dense areas (co-investment)
and the medium-/non-dense areas (co-
financing)
In the non-dense area the government is
focused on broadband access rather
than high-speed broadband
Orange – Overview of French fibre
18/09/2017
FTTH deployment so far – Very dense: ~4m homes out of 6m
– Medium dense: ~3m out of 14m
– Non-dense: ~1m out of 9m
– Rural: virtually no fibre build so far
However non-dense areas have
become more important recently – Subsidy tenders due to complete by
end-18
– Orange has only rolled out ~20% of
FTTH in these areas (200k out of 1m
homes)
– Orange has only won a few of the
tenders & expects to win ~25% of
tenders
96 European telecoms research
In the very dense areas – Each operator rolls out their own horizontal
– The vertical infrastructure is shared
Each operator pays its proportion of the deployment cost (50% if 2 operators, 33% if 3, etc)
The service operators (usually SFR/ByTel/ILD) pay the network operator (usually Ora) a monthly
maintenance fee of ~€2/m
Co-investment can take place on deployment or at a later stage (with cost growing ~10% pa)
Recent regulation requires Orange to facilitate vertical & horizontal connection (“adduction”)
– Orange has done most of the rollout as most of rollout has been in cable areas
– Iliad opted for P2P instead of GPON meaning it has a dedicated line (& higher rollout costs)
– Bouygues lacks horizontal infrastructure so has struggled to get coverage
Orange – very dense areas overview
18/09/2017
FTTH deployment in very dense areas
Source: Company data
97 European telecoms research
In the medium dense areas – All operators are responsible for own deployment to optical node though some WS available
– One operator (currently 80% Ora, 20% SFR) deploys fibre network from optical node to home
– The service providers then make co-financing investments in 5% increments & pays €5/m for co-financed
lines
E.g. a 5% investment gives access to 5k homes in a 100k deployment
– There is also a rental model available (~€15-20)
– So far rollout has been relatively slow in these areas
– SFR has said it wants to do more than 20% of the deployment
Orange – medium dense areas overview
18/09/2017
FTTH deployment in less dense areas
Source: Company data. 1 = from optical network node to shared access; 2 = shared access to connecting point; 3 = connecting point to end point
98 European telecoms research
In the non-dense areas – The regulation is the same as in the medium dense areas
– The main difference is the presence of subsidies (medium dense areas are designated to be able to
attract sufficient private investments; non-dense areas are seen to require subsidies)
– Covage/Altitude/Axione Infrastructure (=mostly PE-backed) appear to be main winners
– We expect Orange to be responsible for 25% of the network deployment long term
Orange – non-dense areas overview
18/09/2017 99 European telecoms research
Orange stands to lose retail share, ULL
revs and will need to pay wholesale
access fees
However, we estimate these will be
nearly offset by – Market / penetration growth
– fibre ARPU uplift (+€8/m)
– Co-finance receipts in footprint areas (€5/m)
– Passive access fees (~€2/m) in all NDAs
– Savings from copper switch-off (~€40m)
Returns attractive – Invest ~€500 upfront (-)
– WS access offset by passive access fees (0)
– fibre ARPU uplift (+€8/m) (+)
– Savings from copper switch-off (+)
– = ~20% ROCE if ARPU uplift maintained
Orange – non-dense area financial impact overview
18/09/2017 100 European telecoms research
French fibre is quite complex…
But ultimately fibre is a pay-to-play business model – and the other operators are
not matching Orange’s investments
So Orange should take share over time – Bouygues appears to be the main laggard
– SFR is losing share too (FTTH winning vs cable)
– Iliad is the operator that is closest to matching Ora’s FTTH-reach
Orange – pay-to-play = strong BB adds at Orange
18/09/2017 101 European telecoms research
Orange’s capex has risen and been a recent investor concern ahead of CMD – We expect Ora to stick to capex guidance (CSe ’17 €7.2bn, ’18 €7.4bn, ’19 €7.0bn)
Orange’s fixed line trends have clearly improved as Ora invested in FTTH – Fixed revs -5% in early-13, now flat
– Broadband revenues flat in early-13, now +5%
We expect Orange fixed trends will remain robust with more FTTH
Unlike some peers Ora FTTH spend is (mostly) in consensus – and should fall in
18 months
Orange – investment clearly driving better fixed revs
18/09/2017 102 European telecoms research
Germany
18/09/2017
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
xDSL Cable FTTB/FTTH Other
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Germany total broadband lines ('000)
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
DT retail DT total GER
Line loss, y/y Fixed broadband market share by technology
Fixed broadband lines (‘000) Broadband line growth has accelerated,
leading to total line growth
Cable taking market share, but at a
slowing rate
DSL decline in share offset by market
growth currently
Source: Company data, regulator data, Credit Suisse research
103 European telecoms research
Germany continues to fund 50Mbps speeds
in white spaces (20% of HH) – Eu3.1bn in public funding so far; expected to meet
around half the costs
– Maximum funding of eu15m per project
– Technology neutral
– Approved by EC
– Awarded to DT and challengers
– Aims to cover white spaces by end 2018
German Minister of Infrastructure Dobrindt
announced in March 2017 a Gigabit
Germany plan – To attract eu100bn in public and private funding to turn
Germany into a gigabit society by 2025
– ‘Government ready to invest eu3bn pa
– Government has requested BNA to consider how to
change regulation to create incentives to invest
– Politicians concerned Germany is ‘falling behind’
– Ministry currently busy with diesel emissions issue and
election. More decisions likely in 2018.
DT starting to form JVs with city networks
Germany
Source: Germany, Credit Suisse research
18/09/2017
Government has requested BNA to
consider how to change regulation
to create incentives to invest in
FTTH. Possible scenarios include
– Ex post retail-minus regulation of
FTTH rather than ex ante
– Geographic SMP analysis
Deregulation in competitive areas
BNA likely to adapt approach under
current German telecoms law rather
than wait for revision to EU
Framework
104 European telecoms research
German FTTH market
Source: Company data, Credit Suisse research
18/09/2017
Germany <10% of homes passed by
FTTH end 2016
Mainly by city networks
D.Glasfaser and Inexio funded by
private equity
DT focusing on FTTc/vectoring
currently. Likely to increase FTTH
investment in 2018+ (in our view)
0
500
1,000
1,500
2,000
2,500
2012A 2013A 2014A 2015A 2016A
FTTH homes passed (000)
M-Net Deutsche Telekom NetCologne wilhelm.tel Deutsche Glasfaser EWETel
0
100
200
300
400
500
600
700
2012A 2013A 2014A 2015A 2016A
FTTH subs (000)
NetCologne M-Net Deutsche Glasfaser wilhelm.tel Deutsche Telekom EWETel
105 European telecoms research
We forecast
c.10m FTTH homes passed by 2021E
DT to pass 3.6m homes, and still
accelerating at this point
City networks to cover 4m+
DGF / Inexio etc to cover 1m+
Vodafone to cover 1.3m
Significant scope for consolidation
c.3.6m FTTH subs by 2021E – Still c.10% of broadband lines
– but growing 46% y/y in 2021E
CS forecasts for German FTTH market
Source: Company data, Credit Suisse estimates
18/09/2017
0%
20%
40%
60%
80%
100%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
% of homes passed by FTTH and FTTH subs as % of homes passed
% homes passed by FTTH % penetration of FTTH homes passed
0
2,000
4,000
6,000
8,000
10,000
12,000
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
FTTH homes passed (000)
Deutsche Telekom Deutsche Glasfaser NetCologne M-Net
wilhelm.tel EWETel Vodafone Other
0
1,000
2,000
3,000
4,000
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
FTTH subs (000)
Deutsche Telekom Deutsche Glasfaser NetCologne M-Net
wilhelm.tel EWETel Vodafone Other
106 European telecoms research
Italy
18/09/2017
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
TI retail TI total ITA
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Italy total broadband lines ('000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
DSL Other techologies
Line loss, y/y Fixed broadband market share by technology
Fixed broadband lines (‘000)
Strong acceleration in broadband line
growth, following investment in VDSL
– only 60% of homes of FBB
Has led to a return to line growth in
the market
Source: Company data, regulator data, Credit Suisse research
107 European telecoms research
Enel OpenFibre has transformed outlook for FTTH in
Italy
– Acquired Metroweb for eu814m in 2016
Included 1.2m homes passed
– 1.45m FTTH homes passed at end 2016
– Planning to pass 9.5m of 15.5m homes in A&B areas
Reported to be building 20-30k/week
– Has also won Infratel I and II
Targeting 9.3m homes with FTTx
– Total plan = 18.8m hholds = 73%
Telecom Italia announced plan to pass 95% of homes
with FTTx by 2018E
– But Vivendi now appears to be scaling back this plan
in parts of C&D area
– Also formed a JV (Flash Fibre) with Fastweb to build
FTTH past 3m homes in 29 cities by 2020, investing
eu1.2bn. Targets homes already covered with FTTc.
– Vivendi CEO not ruling out sale of TI Fixed network
Italy
Source: Enel, Telecom Italia, Fastweb
18/09/2017
TI’s new FTTx plan – Q1 2017
(% homes passed)
Enel’s financial targets for OpenFibre – June 17
108 European telecoms research
c. 3.5m homes passed end 2016 – c. 40% penetration of homes passed
Metroweb was the leader in FTTH – Acquired by Open Fibre
Fastweb leads in FTTH subs – Having targeted FTTH for 17 yrs
Enel own-build was small pre 2017
Fastweb remains in a strong position,
having access to Flash Fibre and OF
Italy fibre market
Source: Company data, regulator data, Credit Suisse research
18/09/2017 109 European telecoms research
We forecast
17m FTTH homes passed by 2021 with c.
25% overlap between TI and OF
Open Fibre to cover 9m homes by 2021 – Halfway to targeted 18m
TI to cover 6.2m inc Flash Fibre
Fastweb to remain a leader in FTTH subs due
to brand and multi-platform access
3.5m+ subs on Open Fibre network by
2021E won from TI and from market growth
CS forecasts for Italy fibre market
Source: Company data, regulator data, Credit Suisse estimates
18/09/2017 110 European telecoms research
Netherlands
18/09/2017
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
KPN retail KPN total NETH
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Neths total broadband lines ('000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
xDSL Cable Fibre (FTTH) Others (FWA)
Line loss, y/y Fixed broadband market share by technology
Fixed broadband lines (‘000) FBB lines growing slowly
Total lines in the market have also
returned to growth despite unlimited
data plans from TMoNL/Tele2
Cable has lost slight market share
Fibre now15% of lines and growing,
though at a slower rate in 2016
Source: Company data, regulator data, Credit Suisse research
111 European telecoms research
18/09/2017
KPN-owned network operator
Reggefiber the dominant provider
(>85%) offering FTTH access ~16
different service providers
Service providers on Reggefiber’s
network comprise almost 90% of the
overall FTTH subscribers in Netherlands
Netherlands The main challenger to Reggefiber is
CIF, an infrastructure fund that entered
the FTTH market in 2011 with its own
proprietary FTTH network
CIF currently owns ~12% of the overall
Dutch FTTH market and its service
providers have up to 10% of the overall
Neths FTTH subscriber base
112 European telecoms research
18/09/2017
Neths ~33% of homes passed by FTTH
end 2016
Mainly by wholly-owned KPN network
operator Reggefiber
c. 40% penetration of homes passed
KPN covered 78% of Neths with
FTTH/FTTc at end 2016, will continue to
grow using vectoring/pair bonding as FTTH
build slows
Netherlands FTTH market
0
200
400
600
800
1000
1200
2012A 2013A 2014A 2015A 2016A
FTTH Subs (000)
Reggefiber Network (KPN) Other (incl CIF)
0
500
1,000
1,500
2,000
2,500
3,000
2012A 2013A 2014A 2015A 2016A
FTTH Homes passed (000)
Reggefiber Network (KPN) Other (incl CIF)
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2012A 2013A 2014A 2015A 2016A
% of homes passed by FTTH and FTTH subs as % of homes passed
% homes passed by FTTH % penetration of FTTH homes passed
Source: Company data, regulator data, Credit Suisse research
113 European telecoms research
18/09/2017
We forecast
c.3.8m FTTH homes passed by 2021E
KPN (Reggefiber) to pass ~3.2m
assuming a re-acceleration in investment
in FTTH by Reggefiber in response to
demand and political pressure
c.1.7m FTTH subs by 2021E
CS forecasts for Netherlands FTTH market
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
FTTH Homes passed (000)
Reggefiber Network (KPN) Other (incl CIF)
0
200
400
600
800
1000
1200
1400
1600
1800
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
FTTH Subs (000)
Reggefiber Network (KPN) Other (incl CIF)
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
% of homes passed by FTTH and FTTH subs as % of homes passed
% homes passed by FTTH % penetration of FTTH homes passed
Source: Company data, regulator data, Credit Suisse estimates
114 European telecoms research
18/09/2017
KPN – Main fibre risk is govt policy not competition Relatively straightforward market with KPN-owned network operator Reggefiber the main provider (>80%) of FTTH access to 16 different service providers − Service providers on Reggefiber’s network comprise ~90% of the
overall FTTH subscribers in Netherlands
− But CIF remains subscale compared to KPN
In our view, the biggest risk is that KPN’s 2015 decision to slow Reggefiber’s FTTH build in order to focus on cheaper VDSL expansion may cause it to face further regulatory & political pressure to increase FTTH coverage
Source: KPN capital Markets Day presentation, March
2016
KPN has focused more on speed than technology since end 2015
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
FTTH Homes passed (000)
Reggefiber Network (KPN) Other (incl CIF)
Source: Company data, Credit Suisse estimates
850
900
950
1,000
1,050
1,100
1,150
1,200
2017E 2018E 2019E 2020E
CS KPN CAPEX estimates Consensus KPN CAPEX estimates (pre-Q217)
Source: CS estimates, KPN pre-Q217 consensus compiled by KPN
KPN CAPEX forecasts – CS & Consensus forecast CAPEX falling
115 European telecoms research
Norway
18/09/2017
-16.0%
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
TNOR retail TNOR total NOR
0
500
1,000
1,500
2,000
2,500
Norway total broadband lines ('000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
xDSL Cable Fibre (FTTH) Others (FWA)
Line loss, y/y Fixed broadband market share by technology
Fixed broadband lines (‘000) FBB lines growing
Heavy voice line loss
Cable broadband market share now
slightly declining
Fibre 40% of lines – the leading
infrastructure now and growing
steadily
Source: Company data, regulator data, Credit Suisse research
116 European telecoms research
Most FTTH deployment has been by
utilities, lead by Lyse and ~30 utilities in
the Altibox partnership
We estimate the utilities cover >2x as
many homes (~700-800k; ~32% of
homes) as Telenor (~300k; ~13%).
These are continuing to expand, albeit
slowly
Telenor has historically relied on its
cable network which passes 800k
homes (32%)
Telenor has in last couple years ramped
up FTTH deployment and we expect
this to ramp up further. Telenor targets
800k homes passed by FTTH in 2020
(400k MDU and 400 SDU)
Norway
18/09/2017
Source: Altixbox via Googlemaps
Altibox deployments in Norway
Altibox deployments in Southern Norway (zoom)
117 European telecoms research
Norway FTTH market
Source: Company data, regulator data, Credit Suisse estimates
18/09/2017
~50% of Norway’s households passed
by FTTH (2016)
Most of this is by utilities which have
gradually built out over the past decade
Telenor has accelerated FTTH build
since ~2015
Utilities have had very high uptake
(~60%) and account for nearly two-
thirds of FTTH subs
0
200
400
600
800
1,000
1,200
1,400
2012A 2013A 2014A 2015A 2016E
FTTH homes passed ('000)
Telenor Altibox Other
0
100
200
300
400
500
600
700
800
2012A 2013A 2014A 2015A 2016E
FTTH subs ('000)
Telenor Altibox NextGenTel Other
0%
10%
20%
30%
40%
50%
60%
70%
2012A 2013A 2014A 2015A 2016E
FTTH build out & FTTH subs (% of homes)
% homes passed by FTTH % penetration of FTTH homes passed
118 European telecoms research
CS forecasts for Norway FTTH market
Source: Company data, regulator data, Credit Suisse estimates
18/09/2017
We forecast
1.8m homes passed by 2021 (>70%)
Telenor to pass 900k subs with rollout
slowing after 2020E (800k target in
2020)
Altibox rollout to continue slowly
We expect FTTH penetration to rise at
Telenor from 23% (2016) to 40%
(2021), and remain high at Altibox
(60%)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E
FTTH homes passed ('000)
Telenor Altibox Other
0
200
400
600
800
1,000
1,200
1,400
2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E
FTTH subs ('000)
Telenor Altibox NextGenTel Other
0%
10%
20%
30%
40%
50%
60%
70%
80%
2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E
FTTH build out & FTTH subs (% of homes)
% homes passed by FTTH % penetration of FTTH homes passed
119 European telecoms research
Telenor has suffered from some of Europe’s most successful 3rd party fibre
Altibox (led by Lyse) successfully retailed FTTH – and got 50-60% uptake
Recently Telenor has started to deploy more FTTH
Telenor is having to overbuild as it does not have access to utilities’ fibre – Expensive but necessary
As a result utility-FTTH net adds have slowed, as BB Telenor adds have stabilised
Overall utility fibre impact is well developed and, at margin, TNOR pressure easing
Telenor – utility fibre well-developed as Telenor fighting back
18/09/2017 120 European telecoms research
Portugal
18/09/2017
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
PT retail PT total POR
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Portugal total broadband lines ('000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
xDSL Cable Fibre (FTTH) Others (FWA)
Line loss, y/y Fixed broadband market share by technology
Fixed broadband lines (‘000) Total FBB market growing fast
Total lines growing too
But PT losing significant lines due to
competitive fibre offers
Fibre now one third of lines and about
to overtake cable, which has been
steadily losing market share
Source: Company data, regulator data, Credit Suisse research
121 European telecoms research
0%
10%
20%
30%
40%
50%
60%
70%
80%
2012A 2013A 2014A 2015A 2016A
% of homes passed with fibre and % penetration
% of homes passed by FTTH (net of overbuild) % penetration of FTTH homes passed
PT passed 3m homes with fibre at the end of 2016,
including a 900k joint footprint with Vodafone (PT and
Vod built 450k homes each which is shared)
NOS passes c.500k homes with fibre in addition to its
c.3.2m cable footprint.
Operators have not been aggregating demand prior to
building fibre, and uptake is below 40% (net of
overbuild, ie market fibre subscribers over net homes
passed by fibre)
Portugal fibre market
Source: Company data, regulator data, Credit Suisse research
18/09/2017
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2012A 2013A 2014A 2015A 2016A
Premises passed by fibre (000)
PT Vodafone NOS
0
100
200
300
400
500
600
2012A 2013A 2014A 2015A 2016A
FTTH subscribers
PT Vodafone NOS
122 European telecoms research
0%
20%
40%
60%
80%
100%
120%
140%
160%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
% of homes passed with fibre and % penetration
% of homes passed by FTTH (net of overbuild) % penetration of FTTH homes passed
PT (Altice) targets 5,300 premises passed
by fibre in 2020 bringing total penetration to
140% of households
We forecast Vodafone to continue to invest
in fibre
We forecast penetration of FTTH homes
passed to continue to rise to 47% in 2021
with 67% of broadband subs taking fibre
CS forecasts for Portugal FTTH market
Source: Company data, regulator data, Credit Suisse estimates
18/09/2017
0
1,000
2,000
3,000
4,000
5,000
6,000
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
Premises passed by fibre (000)
PT Vodafone NOS
0
200
400
600
800
1,000
1,200
1,400
1,600
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
FTTH subscribers
PT Vodafone NOS
123 European telecoms research
Spain
18/09/2017
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
TEF retail TEF total SPA
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Spain total broadband lines ('000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
xDSL Cable Fibre (FTTH) Others (FWA)
Line loss, y/y Fixed broadband market share by technology
Fixed broadband lines (‘000) Total FBB market growing steadily
Total lines also growing, with F-M
bundling defending fixed voice
Fibre lines growing strongly, reaching
35% of FBB lines from 25% a year
before
Fibre likely to over take DSL in 2017
Cable has been defending share
Source: Company data, regulator data, Credit Suisse research
124 European telecoms research
Tef covers 17.1m premises at end 2016
and 18.4m at June 2017
Orange and Vodafone largely use Tef
ducts and therefore largely overlap with
Tef network currently
Vod has focused more on Ono up to
now, so has fewer FTTH subs
Orange is more reliant on FTTH and has
sold it more successfully so far
Spain fibre market
Source: Company data, regulator data, Credit Suisse research
18/09/2017 125 European telecoms research
Tef plans to push towards 100% coverage,
though whether of homes (18.5m) or
premises (25m) isn’t clear
Vodafone build likely to slow as relies on
fibre wholesale + Ono
Orange likely to keep building for now
We assume mas.movil remains small and
faces ULL decommissioning
We forecast c13m. FTTH subs by 2021 – = Europe’s biggest market
CS forecasts for Spain FTTH market
Source: Company data, regulator data, Credit Suisse estimates
18/09/2017 126 European telecoms research
Telefonica trades on a discount to sector
despite having the most developed fibre
network and high F-M adoption
Orange over-build is the main domestic risk.
Overbuild in Portugal led to line loss at PT
despite its fibre investment.
TEF may be able to resist this pressure due
to high F-M adoption. But Tef may also have
to accelerate adoption of high speed fibre
among its Fusion subs, undermining the
more-for-more strategy
Telefonica – Orange over-build is the main domestic risk
Source: Company data, regulator data, Credit Suisse estimates
18/09/2017
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
TEF TI TDC KPN Ora TNOR DT BT Telia SCMN Prox
2019E FCF yield FTTH-adj 2019E FCF yield
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
PT retail PT total POR
Valuation adjusted for potential FTTH capex
Portugal line loss trends y/y
127 European telecoms research
Sweden
18/09/2017
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
Telia retail Telia total SWE
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Sweden total broadband lines ('000)
0%
10%
20%
30%
40%
50%
60%
70%
80%
xDSL Cable Fibre (FTTH+fibre LAN) Others (FWA)
Line loss, y/y Fixed broadband market share by technology
Fixed broadband lines (‘000) Total FBB lines growing steadily
Fibre growing strongly, driven by
Challenger fibre networks
– Leading to strong line loss at Telia
Cable market share quite stable
Fibre now 55% of lines
– Highest in W.Europe
– And still growing strongly
Source: Company data, regulator data, Credit Suisse research
128 European telecoms research
The Swedish fibre market is one of the most
advanced with c.85% of homes passed by
fibre. The build out has been led by
municipalities/municipality owned utility
companies
The roll-out has also been supported by
consumer paying c.€2,000 to get fibre
installed in SDUs, even in some areas with
predominately second homes
While FTTH coverage now >80% the land
grab continues with Telia, IP-Only, Telenor
and municipalities all continuing to build.
Com Hem is also considering its own fibre
roll-out – Lately however, getting building permissions have
slowed the pace of roll-out
Swedish fibre market
18/09/2017
Telia is currently the only operator regulated
on fibre but the regulator is currently
conducting a review of the market definition
and have suggested each SDU fibre
network should be viewed as a separate
market.
The Swedish government also raised its
broadband coverage targets, now targeting: – 95% of households and businesses to have access
to 100Mbps broadband by 2020, this is up from 90%
on the previous plan
– By 2025 all Swedish households and businesses
should have access to fast broadband (98% 1Gbps
which was previously 100Mbps, 1.9% 100Mbps and
0.1% 30Mbps which used to be 1Mbps)
129 European telecoms research
0
1,000
2,000
3,000
4,000
5,000
6,000
2012A 2013A 2014A 2015A 2016A
Homes passed by FTTH (gross of overlap) (000)
Telia Telenor IP-Only Others (mainly municipality/utility networks)
Telia now (mid-2017) c.1.6m homes with fibre
Municipalities and municipality owned utilities have led
the fibre build in Sweden
Telenor has acquired most of its fibre footprint through
Bredbandsbolaget and Tele2’s fixed business. Telenor
is targeting more SDU build.
Demand for fibre in Sweden has been and is very
strong. Operators don’t build generally unless getting
40% take-rate.
The open access structure has allowed for resell
challengers like Bredband2 and Bahnhof to take
significant share of the market
Swedish fibre market
Source: Company data, regulator data, Credit Suisse research
18/09/2017
0
500
1,000
1,500
2,000
2,500
2012A 2013A 2014A 2015A 2016A
Retail FTTH subs (000)
Telia Telenor Com Hem Bahnhof Bredband2 Other
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012A 2013A 2014A 2015A 2016A
% of homes passed with fibre and % penetration
% of homes passed by FTTH (net of overbuild)
% penetration of FTTH homes passed (net of overbuild)
130 European telecoms research
Telia targets 1.9m homes passed by the end
of 2018 – we forecast 1.8m due to delays in
getting building permits
We expect IP-Only to continue to build 60-
90k homes per year
We assume limited build by Telenor (+30k
per annum) and municipality build to slow
We forecast penetration (subs relative to
homes passed) to reach > 70% by 2021
CS forecasts for Sweden FTTH market
Source: Company data, regulator data, Credit Suisse estimates
18/09/2017
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
% of homes passed with fibre and % penetration
% of homes passed by FTTH (net of overbuild)
% penetration of FTTH homes passed (net of overbuild)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
Homes passed by FTTH (gross of overlap) (000)
Telia Telenor IP-Only Others (mainly municipality/utility networks)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
Retail FTTH subs (000)
Telia Telenor Com Hem Bahnhof Bredband2 Other
131 European telecoms research
Telia – Continued risk from fibre overbuild
18/09/2017
Telia’ copper network is largely overbuilt by
challenger fibre – Telia covers c.30% of Swedish homes vs a total of just
over 80% of Swedish homes passed by fibre
Telia line loss market share loss has
accelerated as fibre uptake increased
Fixed line service revenues has been
supported by price increases and one-off
fibre installation fees
Challenges for Telia to continue as fibre
uptake increases
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
Telia retail Telia total SWE
0%
10%
20%
30%
40%
50%
60%
70%
80%
xDSL Cable Fibre (FTTH+fibre LAN) Others (FWA)
Line loss y/y
Swedish fixed broadband by technology
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
Swedish fixed service revenues, y/y
Telia fixed service revenue growth
Source: Company data, regulator data, Credit Suisse research
132 European telecoms research
Switzerland
18/09/2017
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
SCOM retail SCOM total SWI
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Switz total broadband lines ('000)
Line loss, y/y Fixed broadband market share by technology
Fixed broadband lines (‘000) FBB market growth is slowing
Voice line loss is accelerating
Cable share has stabilised after
declining in 2012-2015
Figures on fibre lines not available
Source: Company data, regulator data, Credit Suisse research
133 European telecoms research
Swisscom has rolled out FTTH to ~30% of
homes, usually in a 60-40 split between the
local electric company, i.e. most fibre is co-
invested
Swisscom has stopped rolling further FTTH.
Instead it’s focusing on upgrading FTTC to
FTTS (~200m from home) and using G.fast
for residual 60% of homes not covered by
FTTH
Most of the local utilities’ FTTH activities are
part of the consortium SFN (Swiss Fiber
Net), though some of the major utilities (e.g.
Zurich, Geneva) operate independently.
Utilities have very few retail customers.
Wholesale growth should accelerate with
Salt’s fixed entry
SFN’s utilities pass 600k homes and target
1.4m homes passed by 2020
Switzerland
18/09/2017
Swisscom’s high-speed broadband (>50Mbps) mix – homes passed
Swisscom’s plans for delivering high-speed broadband by 2021
Source: Swisscom
134 European telecoms research
Switzerland FTTH market
Source: Company data, regulator data, Credit Suisse estimates
18/09/2017
~30% of premises passed by FTTH
(2016A), net of co-financing
Swisscom generally rolled out alongside
a local utility
Swisscom accounts for most FTTH
subs so far
Utilities have very few retail customers
and some wholesale customers (mostly
Sunrise)
0
50
100
150
200
250
300
2012 2013 2014 2015 2016E
FTTH subs ('000)
Swisscom Sunrise Fiber7 (init7.net) Other (inc Salt)
0%
5%
10%
15%
20%
25%
30%
35%
40%
2012 2013 2014 2015 2016E
FTTH % build out and FTTH subs (% of homes)
% homes passed by FTTH % penetration of FTTH homes passed
0
200
400
600
800
1,000
1,200
1,400
2012 2013 2014 2015 2016E
Homes passed by fibre - net ('000)
Swisscom (FTTH only) Swiss Fibre Net Other
n/a
135 European telecoms research
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E
Homes passed by fibre - net ('000)
Swisscom (FTTH only) Swiss Fibre Net Other
CS forecasts for Switzerland’s FTTH market
Source: Company data, regulator data, Credit Suisse estimates
18/09/2017
We forecast
1.5m FTTH premises passed by 2021E
(38% of total), only slight hike vs 2016
We expect SFN to close the gap and
roll out some fibre independently too
Swisscom FTTH subs to 2x to 500k
subs
We expect FTTH subs to grow when
Salt launches a wholesale utility-fibre
offer
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E
FTTH subs ('000)
Swisscom Sunrise Fiber7 (init7.net) Other (inc Salt)
Swisscom Sunrise Fiber7 (init7.net) Other (inc Salt)
0%
10%
20%
30%
40%
50%
60%
2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E
FTTH % build out and FTTH subs (% of homes)
% homes passed by FTTH % penetration of FTTH homes passed
n/a
136 European telecoms research
FTTH has not been a major issue – FTTC coverage high
– Swisscom has stopped FTTH deployment at
~30% of homes and is rolling out FTTS now
– Utilities have had little traction so far
Almost zero retail customers so far
Little wholesale demand so far
But utility fibre threat could grow – SFN looks on-track to build more FTTH than
Swisscom
– Salt is launching fixed broadband on utility fibre
Depending on price it could take share
driving up FTTH subs on competitor
networks
– Sunrise has been gaining some traction with
high-end broadband, also on utility fibre
Swisscom has said it does not see risk
of hiking capex and FTTS/G.fast
sufficient
But risk is skewed to downside
Swisscom – downside risk from utility fibre
18/09/2017
Source: Company data, Credit Suisse estimates
137 European telecoms research
UK
18/09/2017
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
BT retail BT total UK
0
5,000
10,000
15,000
20,000
25,000
30,000
UK total broadband lines ('000)
Line loss, y/y Fixed broadband market share by technology
Fixed broadband lines (‘000) Strong growth in FBB and total lines
is slowing, due to economy (we
believe)
Voice line loss is accelerating
Total BT lines now in decline
FTTc now c. 30% of FBB lines
ADSL still >50% of lines
Cable share stable
Source: Company data, regulator data, Credit Suisse research
138 European telecoms research
18/09/2017
UK <4% of homes passed (1m) by FTTH end
2016 on our estimate
BT Openreach accounts for a third with
remainder mainly smaller operators
BT focusing more on G.fast (10m homes
planned by 2020 vs. 2m FTTH) but mix could
change & Openreach consulting on potential
further 10m FTTH project
CityFibre, Hyperoptic & Gigaclear recently
raised a combined ~£400m to expand FTTH
footprints
UK FTTH market
0
200
400
600
800
1,000
1,200
2012A 2013A 2014A 2015A 2016A
FTTH homes passed (000s)
BT/Openreach Hyperoptic Gigaclear CityFibre KCOM Other
0
50
100
150
200
250
300
2012A 2013A 2014A 2015A 2016A
FTTH subs (000s)
BT/Openreach Hyperoptic Gigaclear CityFibre KCOM Other
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2012A 2013A 2014A 2015A 2016A
% of homes passed by FTTH and FTTH subs as % of homes passed
% homes passed by FTTH % penetration of FTTH homes passed
Source: Company data, regulator data, Credit Suisse research
139 European telecoms research
18/09/2017
Ofcom’s February 2016 strategic review and
subsequent “Duct & Pole” consultations in Dec-16,
Apr-17 & Aug-17 aim to stimulate the building of a
3rd fibre network in the UK
– BT to compile a database of its ducts and poles
and ensure “ready for use”
– Caps on duct and pole rental charges proposed
in early August 2017
UK Government formally launched a £400m fund to
boost UK fibre build in July 2017
BT Openreach existing commitment is to rollout 2m
FTTH premises by 2020 (plus 10m G.fast homes)
Openreach consultation ongoing into potential 10m
FTTP build out by mid-2020s. Vodafone recently
reported to be considering co-investment although
early days
UK Hyperoptic currently passes 350,000 UK homes
(typically MDUs) in 28 towns and cities
− recently announced expansion plans while raising £100m of funding
− Hyperoptic targeting 2m UK homes passed by 2022, mainly continuing to target MDUs
CityFibre currently deploys fibre in 42 UK cities
− long-term ambitions to expand to 100 UK cities
− recently raised £200m to fund an FTTP build itself initially targeting >200,000 homes passed
Gigaclear fibre provider to rural UK
− recently announced its 10,000th active customer and recently raised £111m in new funding
TalkTalk, Sky and CityFibre’s JV in York (UFO)
Vodafone trialling FTTH in Norfolk
− Has recently expressed an interest in co-investment subject to conditions
140 European telecoms research
18/09/2017
We forecast
c.5m FTTH homes passed by 2021E
BT (Openreach) to pass 2.6m homes and
expected by us to continue building out at this
point
Hyperoptic to pass c.1m homes in MDUs
Gigaclear to pass 150k homes in rural UK
CityFibre to pass 175k in UK cities
c.1.6m FTTH subs by 2021E (33% take-up)
Forecasts would rise if Vodafone goes ahead
with co-investment
CS forecasts for UK FTTH market
0
1,000
2,000
3,000
4,000
5,000
6,000
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
FTTH homes passed (000s)
BT/Openreach Hyperoptic Gigaclear CityFibre KCOM Other
0
200
400
600
800
1000
1200
1400
1600
1800
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
FTTH wholesale subs (000s)
BT/Openreach Hyperoptic Gigaclear CityFibre KCOM Other
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
% of homes passed by FTTH and FTTH subs as % of homes passed
% homes passed by FTTH % penetration of FTTH homes passed
Source: Company data, regulator data, Credit Suisse estimates
141 European telecoms research
18/09/2017
Source: Company data, Credit Suisse estimates
BT Group – CAPEX risk rising from overbuild threat Threat to BT from Challenger FTTH looks small currently
− But CityFibre, Hyperoptic & Gigaclear recently raised a combined ~£400m to expand FTTH
− VMED Project Lightning target 4m homes passed
− Vod showing interest in co-investment if terms are right
In certain scenarios BT could go from 50% to 75% overbuilt by NGN (coax + challenger FTTH) by 2021E, assuming Challenger FTTH focused on non-cable areas
10m additional FTTP Openreach consultation ongoing which could cost €3-6bn over 10 years according to Openreach
BT consensus & CS CAPEX forecasts ~£3.4bn
− Might have to rise to £3.65bn+ by 2019E
0%
20%
40%
60%
80%
100%
120%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
CS forecasts for UK FTTH build (% of hp)
Incumbent FTTH coverage Challenger FTTH coverage
0%
20%
40%
60%
80%
100%
120%
2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E
Scenario: potential over-build of BT including Project Lightning and Vod building 5% of hp
Scenario: potential over-build of BT Incumbent FTTH coverage
142 European telecoms research
18/09/2017
Appendices
143 European telecoms research
Incumbent telcos are currently penalised for fibre build – compare TEF with PROX
– Incumbents that have built more NGN* trade on a discount
– Stocks that have built less NGN* trade at a premium
Stocks that have built NGN should, in theory, trade at a premium (in our view).
Appendix : Relative fibre development
Source: Company data, Credit Suisse estimates* note NGN means coax and FTTH / FTTP ** obviously other factors will also explain some of the
difference in stock valuation, for example relative exposure to non-domestic assets (e.g. DT’s ownership of TMUS, potential discount on TEF’s Latam
assets) etc
18/09/2017
PROX
TDC
ORA DT
TI
KPN TNOR
TEF
TELIA
SCMN
BT
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Adj
uste
d eq
uity
FC
F y
ield
201
8E
Telco's domestic NGN coverage (FTTH and cable) of homes end 2016
Incumbent NGN coverage vs FCF yield
logical correlation**
144 European telecoms research
Risk from overbuild varies significantly. Stocks are also not pricing this risk in
particularly.
Appendix: Valuation not correlated to risk of overbuild either
Source: Company data, Credit Suisse estimates* based on CS forecasts for Challenger FTTH build-out and assuming that FTTH take-up rate grows
by 3pp over 2016-2021E and that Challenger and Incumbent take 50% each of FTTH customers where they over-build each other with FTTH
18/09/2017
PROX
TDC
ORA DT
TI
KPN TNOR
TEF
TELIA
SCMN
BT
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
-18% -16% -14% -12% -10% -8% -6% -4% -2% 0%
Adj
uste
d 20
18E
equ
ity F
CF
yie
ld,
Potential loss of Group EBITDA to fibre overbuild by 2021E relative to 2016 levels*
Potential loss of Group EBITDA to fibre overbuild by 2021E vs FCF yield
logical correlation
145 European telecoms research
18/09/2017 146 European telecoms research
Companies Mentioned (Price as of 13-Sep-2017)
AT&T (T.N, $36.55) Altice (ATCA.AS, €18.68) BT Group (BT.L, 285.05p) Bouygues (BOUY.PA, €38.8) Cellnex Telecom (CLNX.MC, €19.56) Com Hem Holding (COMH.ST, Skr117.8) Deutsche Telekom (DTEGn.F, €15.0) EI Towers (EIT.MI, €49.15)
Elisa Corporation (ELISA.HE, €36.46) Eutelsat Communications (ETL.PA, €23.66) INWIT (INWT.MI, €5.44) Iliad (ILD.PA, €225.0) Inmarsat PLC (ISA.L, 645.5p) KPN (KPN.AS, €2.96) Liberty Global (LBTYA.OQ, $32.45) NOS (NOS.LS, €5.27) Orange (ORAN.PA, €13.98) Orange Belgium (OBEL.BR, €19.3) Proximus (PROX.BR, €29.1) Rai Way (RWAY.MI, €4.75)
SES (SESFd.PA, €18.3) SFR (SFRGR.PA, €34.4) Sprint Corp (S.N, $7.85) Sunrise (SRCG.S, SFr80.2) Swisscom (SCMN.S, SFr480.4) T-Mobile US Inc (TMUS.OQ, $62.8) TDC (TDC.CO, Dkr36.17) TalkTalk (TALK.L, 207.4p) Tele2 AB (TEL2b.ST, Skr94.85) Telecom Italia (TLIT.MI, €0.78) Telecom Italia (TLITn.MI, €0.63) Telefonica (TEF.MC, €9.13) Telefonica Deutschland (O2Dn.DE, €4.52)
Telekom Austria (TELA.VI, €8.14) Telenet (TNET.BR, €55.49) Telenor (TEL.OL, Nkr163.5) Telia Company (TELIA.ST, Skr38.27) Verizon Communications Inc (VZ.N, $47.25) Vodafone Group (VOD.L, 214.9p)
Disclosure Appendix
Analyst Certification
Justin Funnell, Jakob Bluestone, Paul Sidney and Henrik Herbst each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
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Restricted 2%
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See the Companies Mentioned section for full company names
Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): BT.L, LBTYA.OQ, BOUY.PA, TELA.VI, COMH.ST, TEF.MC, SFRGR.PA, ORAN.PA, ATCA.AS, ILD.PA, TELIA.ST, OBEL.BR, TEL.OL, DTEGn.F, KPN.AS, TALK.L, VOD.L, TNET.BR, O2Dn.DE, TLIT.MI, PROX.BR, TDC.CO, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, CLNX.MC, RWAY.MI, EIT.MI, SESFd.PA, ISA.L, ETL.PA
Credit Suisse provided investment banking services to the subject company (LBTYA.OQ, COMH.ST, TEF.MC, SFRGR.PA, ORAN.PA, ATCA.AS, ILD.PA, OBEL.BR, TEL.OL, DTEGn.F, KPN.AS, TALK.L, TNET.BR, O2Dn.DE, TLIT.MI, PROX.BR, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, ISA.L) within the past 12 months.
Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-banking, securities-related: LBTYA.OQ, BOUY.PA, TEF.MC, TEL.OL, KPN.AS, O2Dn.DE, TLIT.MI, PROX.BR, TLITn.MI, SCMN.S
Credit Suisse has managed or co-managed a public offering of securities for the subject company (LBTYA.OQ, TEF.MC, ORAN.PA, OBEL.BR, TEL.OL, DTEGn.F, TALK.L, O2Dn.DE, TLIT.MI, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, ISA.L) within the past 12 months.
Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): LBTYA.OQ, COMH.ST, TEF.MC, SFRGR.PA, ORAN.PA, ATCA.AS, ILD.PA, OBEL.BR, TEL.OL, DTEGn.F, KPN.AS, TALK.L, TNET.BR, O2Dn.DE, TLIT.MI, PROX.BR, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, ISA.L
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (BT.L, LBTYA.OQ, BOUY.PA, TELA.VI, COMH.ST, TEF.MC, SFRGR.PA, ORAN.PA, ATCA.AS, ILD.PA, TELIA.ST, OBEL.BR, TEL.OL, TEL2b.ST, DTEGn.F, KPN.AS, TALK.L, VOD.L, TNET.BR, O2Dn.DE, TLIT.MI, PROX.BR, TDC.CO, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, CLNX.MC, RWAY.MI, EIT.MI, SESFd.PA, ISA.L, ETL.PA) within the next 3 months.
Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): LBTYA.OQ, BOUY.PA, TEF.MC, TEL.OL, KPN.AS, O2Dn.DE, TLIT.MI, PROX.BR, TLITn.MI, SCMN.S
A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (BT.L, LBTYA.OQ, BOUY.PA, COMH.ST, TEF.MC, SFRGR.PA, ORAN.PA, ATCA.AS, ILD.PA, OBEL.BR, TEL.OL, TEL2b.ST, DTEGn.F, ELISA.HE, KPN.AS, TALK.L, VOD.L, TNET.BR, O2Dn.DE, NOS.LS, TLIT.MI, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, INWT.MI, CLNX.MC, RWAY.MI, EIT.MI, ISA.L, ETL.PA) within the past 12 months.
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (SRCG.S, TEF.MC, KPN.AS, TLIT.MI, ISA.L).
As of the end of the preceding month, Credit Suisse beneficially owned between 1% and 3% of a class of common equity securities of (SCMN.S).
Credit Suisse beneficially holds >0.5% short position of the total issued share capital of the subject company (BOUY.PA, OBEL.BR).
Credit Suisse has a material conflict of interest with the subject company (LBTYA.OQ) . Credit Suisse International is acting as financial advisor to Liberty Global plc in relation to the announced acquisition of Multimedia Polska S.A. through its subsidiary UPC Poland.
Credit Suisse has a material conflict of interest with the subject company (DTEGn.F) . Wulf Bernotat, a Senior Advisor of Credit Suisse, is a supervisory board member of Deutsche Telekom AG.
18/09/2017 147 European telecoms research
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This research report is authored by:
Credit Suisse International ...................................................................................... Justin Funnell ; Jakob Bluestone ; Paul Sidney ; Henrik Herbst
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Credit Suisse International ...................................................................................... Justin Funnell ; Jakob Bluestone ; Paul Sidney ; Henrik Herbst
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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only