FT : A welcome redial for European telecoms

A welcome redial for European telecoms

Commissioner is right to take a tougher line on mobile mergers

In the past two years, Europe’s mobile operators have raced to consolidate their industry. Encouraged by the indulgent attitude of the regulator in Brussels, they have launched a wave of deals across the continent. As a consequence, country after country has seen the number of networks in its market contract from four to three.
Germany, Austria and Ireland have all crossed this threshold, generally seen as the point at which competition ceases reliably to operate. They have done so in the teeth of opposition from national regulators. Because the deals involved supranational competitors they ended up with the European Commission, which approved them subject to undertakings. For all the advantages dangled by the purchasers, the result has been as simple as it was expected: prices have gone up.

Now, under a new commission, Brussels is thinking again. Last week, Margrethe Vestager, the Danish competition commissioner, halted plans that would have put together the Danish networks of the Scandinavian operators, TeliaSonera and Telenor.
Significantly, she said the deal could only have passed muster if the purchasers had shed sufficient assets to create a new mobile operator in the country. That, of course, would have rendered the whole exercise largely redundant. Her decision puts a host of similar mergers still lodged in the pipeline — including CK Hutchison’s purchase of O2 in Britain — firmly at risk.
Ms Vestager is right to toughen the rules on undertakings. Not only has Brussels been too liberal about those it has sought, it has neglected implementation. For instance, Hutchison pledged that it would bring in a new operator to piggyback on its spectrum after buying Orange Austria in 2013. More than two years have passed and the undertaking remains unfulfilled.
Part of the problem is that markets with a triumvirate of networks look unappealing to new entrants, who often come in as minnow-sized virtual operators, unable to drive pricing or service quality. Had the Danish merger gone through, for instance, it would have created a forbidding structure, with the two largest players holding almost 80 per cent.
Ms Vestager’s scepticism is also welcome when it comes to the operators’ argument that mergers are necessary to finance new networks and services. In the past, both Jean Claude Juncker, the commission president, and Angela Merkel, the German chancellor, have peddled this claim. But there is no evidence to support it. True, returns on capital employed have fallen in European mobile from a very high 20 per cent to 10 per cent in the past five years. But this still exceeds operators’ cost of capital — at least for those that are sensibly capitalised.
Ms Vestager should now turn her stringent eye to Britain. CK Hutchison’s planned merger of its Three network with that of Telefonica’s O2 demands serious scrutiny. Three is an excellent example of how competition can both spur and reward fresh thinking. Created explicitly as an additional operator in 2000 to hold prices down, it has built a profitable business. It has done so by innovating. Three was among the first operators to spot the importance of the smartphone and to design products and tariffs to support its expansion. It is alone in offering customers an upgrade to 4G without charge.
Regulation needs to preserve these incentives, not smother them by pursuing a nebulous policy of promoting European champions. If Ms Vestager’s policy genuinely resets EU regulation in a more open direction, European consumers will have reason to offer her their thanks.

>>> US Close Dow-0.38% S&P-0.41% Nasdaq-0.34% Russell-0.37%

Closing Market Summary: Stocks Retreat on Light Volume

The stock market began the week on a lower note with the S&P 500 surrendering 0.4% while the Nasdaq Composite (-0.3%) outperformed slightly.

Overall, the Monday affair was very quiet with many investors sticking to the sidelines ahead of Thursday's FOMC policy announcement, which could feature a fed funds rate hike. To that point, fewer than 800 million shares changed hands at the NYSE floor versus a 20-day average of 984 million.

A cautious tone was set during overnight action after China and Japan both released disappointing industrial production reports. Equity bulls attempted to turn the tide during European action, but their efforts were not successful with the selling spilling into the U.S. session.

The key indices hit their lows shortly after 13:00 ET and remained near those levels until the close. Nine sectors registered losses while the utilities space (+0.3%) eked out a slim gain, which was aided by strength in Treasuries that sent the 10-yr yield lower by two basis points to 2.17%.

On the downside, energy (-0.8%) and materials (-1.3%) spent the day behind the remaining sectors, responding to general weakness in the commodity market. To that point, crude oil gave up 1.5%, sliding to $44.07/bbl while copper (-1.6% to $2.41/lb) and silver (-1.0% to $14.36/ozt) also posted losses. Gold was an outlier, climbing 0.4% to $1107.70/ozt. Mining stocks saw some intraday strength in response, but the Market Vectors Gold Miners ETF (GDX 13.12, -0.09) lost 0.7%.

Elsewhere among influential sectors, financials (-0.3%), health care (-0.4%), and technology (-0.3%) settled near the broader market.

The top-weighted tech sector spent the day just ahead of the benchmark index thanks to a 1.0% spike in the shares of Apple (AAPL 115.30, +1.09) after the company's spokesman said iPhone pre-orders are on pace to top last year's weekend sales record. However, it is worth noting that the forecast presented by Apple includes sales from China while last year's iPhone release was not available in China during the first weekend.

Unlike Apple, most of the remaining large cap tech components registered losses while high-beta chipmakers outperformed. The PHLX Semiconductor Index added 0.3% with roughly 2/3 of its components ending in the green.

On a separate note, Solera (SLH 53.66, +4.21) spiked 8.5% after agreeing to be acquired by Vista Equity Partners for $55.85/share in cash, which translates to roughly $6.50 billion. Investors did not receive any economic data today.

Tomorrow, August Retail Sales (consensus 0.3%) and the September Empire Manufacturing Index (consensus 0.3) will be reported at 8:30 ET while August Industrial Production (consensus -0.2%) and Capacity Utilization (expected 77.8%) will cross the wires at 9:15 ET. The day's data will be topped off with the 10:00 ET release of the Business Inventories report for July (expected 0.1%).

  • Nasdaq Composite +1.5% YTD
  • Russell 2000 -4.3% YTD
  • S&P 500 -5.1% YTD
  • Dow Jones Industrial Average -8.2% YTD

>>> What’s Next in the Greek Crisis Saga

Greek voters will cast ballots for third time this year on Sept. 20, with polls showing that Alexis Tsipras’s Syriza party enjoys a narrow lead over main opposition New Democracy.
  • Greek election poll of polls here
  • Here’s a list of key dates ahead for Europe’s most indebted state:
  • Sept. 14: Tsipras, Meimarakis face off in television debate
  • Sept. 16: European Central Bank Governing Council non- monetary policy meeting in Frankfurt; governors to review Emergency Liquidity Assistance ceiling for Greek lenders
    • Greece needs to repay ~EU560m in IMF loans
    • Greece to auction EU1b in 13-week t-bills
  • Sept. 17: General Council meeting of the ECB in Frankfurt
    • Hellenic Statistical Authority releases 2Q unemployment figures
  • Sept. 18: EU1.6b t-bills redemption
    • Greece needs to service ~EU14m in interest on bonds issued by the sovereign and the Athens Urban Transportation Organization
    • Greek election campaign ends; cut-off day for last opinion polls, party rallies
  • Sept. 20: Greek parliamentary elections; polls open at 7am and close at 7pm; exit polls to be broadcast at 7pm; Greek interior ministry expected to release first result projection by 9:30pm
    • Sept. 21: Bank of Greece releases July current account balance reading
  • Greece needs to repay ~EU335m in IMF loans
  • Sept. 30: Hellenic Statistical Authority releases July retail sales reading
  • End-Sept: Greek authorities are required to finalize a medium-term technical assistance plan with the European Commission for the implementation of structural reforms included in its bailout. For a full list of conditions Greece needs to fulfill by end-Sept, see here
  • Oct. 1: Markit releases Sept. Manufacturing PMI reading
  • Oct. 5: Eurogroup meeting in Brussels
  • Oct. 6: EU finance ministers meet
  • Oct. 7: ECB Governing Council non-monetary policy meeting in Frankfurt
  • Oct. 8: Hellenic Statistical Authority releases July unemployment reading
  • Oct. 9: Aug. industrial production, Sept. inflation data released
    • EU1.4b in t-bills comes due
  • Oct. 13: Greece needs to repay ~EU447m in IMF loans
  • Oct. 15-16: EU leaders summit in Brussels
  • Mid-Oct: Greece needs to agree with its creditors on a supplementary 2015 budget, the draft 2016 budget and a 2016–19 Medium-Term Fiscal Strategy, which will include pension and benefits cuts, income tax overhaul, defense spending cuts, and news taxes, including on gambling and television adverts
  • Oct. 16: EU1b in t-bills come due
  • Oct. 21: Bank of Greece releases Aug. current account reading
  • Oct. 22: ECB Governing Council monetary policy meeting in Malta followed by Draghi press conference
    • Greece needs to service ~EU210m in interest
  • Oct. 29: Greece needs to service ~EU180m in principal and interest for Hellenic Railways Organization bonds coming due
  • Oct. 30: Hellenic Statistical Authority releases Aug. retail sales reading
  • End-Oct: Bank of Greece must deliver a report on the segmentation of NPLs on banks’ balance sheets and an assessment of banks’ capacity to deal with each NPL segment
  • Nov. 1: Greece needs to service ~EU155m in interest on IMF loans
  • Nov. 2: Markit releases Oct. manufacturing PMI
  • Nov. 4: ECB Governing Council non-monetary policy meeting in Frankfurt
  • Nov. 6: Greece needs to roll over EU1.4b in t-bills
  • Nov. 9: Eurogroup meeting in Brussels
    • Hellenic Statistical Authority releases Sept. industrial production reading
  • Nov. 10: Ecofin meeting in Brussels
    • Hellenic Statistical Authority releases Oct. inflation reading
  • Nov. 12: Hellenic Statistical Authority releases Aug. unemployment rate reading
  • Nov. 13: Hellenic Statistical Authority to release 3Q GDP flash estimate
    • Greek sovereign debt rating published by Fitch
    • Greece needs to roll over EU1.4b in t-bills
  • Nov. 18: ECB Governing Council non-monetary policy meeting in Frankfurt
  • Nov. 20: Greek debt rating may be published by Moody’s
    • Bank of Greece releases Sept. current account balance reading
  • Nov. 27: Hellenic Statistical Authority to release 3Q GDP final estimate
  • Nov. 30: Hellenic Statistical Authority releases Sept. retail sales
  • Dec. 1: Markit releases Nov. manufacturing PMI
  • Dec. 3: ECB Governing Council monetary policy meeting in Frankfurt followed by Mario Draghi press conference
  • Dec. 7: Eurogroup meeting in Brussels
    • Greece needs to repay ~EU298m in IMF loans
  • Dec. 8: Ecofin meeting in Brussels
  • Dec. 10: Hellenic Statistical Authority releases Sept. unemployment rate, Oct. industrial production, Nov. inflation readings
  • Dec. 11: Greece needs to roll over EU3.6b in t-bills
  • Dec. 16: ECB Governing Council non-monetary policy meeting in Frankfurt
    • Greece needs to repay ~EU560m in IMF loans
  • Dec. 17: EU leaders begin summit in Brussels
    • Hellenic Statistical Authority releases 3Q unemployment data
    • General Council meeting of the ECB in Frankfurt
  • Dec. 18: Second day of EU leaders meeting in Brussels
  • Dec. 21: Bank of Greece releases Oct. current account balance reading
    • Greece needs to repay ~EU335m in IMF loans
  • Dec. 31: Hellenic Statistical Authority releases Oct. retail sales reading
    • Deadline set in the country’s bailout for addressing capital shortfalls in Greek banks, following a stress test by the ECB which will have been completed by end- Oct.

>>> NY Fed issues Aug survey of consumer expectations;

NY Fed issues Aug survey of consumer expectations


The Federal Reserve Bank of New York today released results from its July 2015 Survey of Consumer Expectations (SCE) results suggest relatively stable expectations about the economy. The median one-year and three-year ahead expected rates of inflation remained unchanged at 3.0%. While earnings and household income growth expectations were largely unchanged, median household spending growth expectations retreated substantially to their lowest level since the inception of the survey in 2013. Relative to the prior month, year-ahead credit availability expectations became slightly more pessimistic.

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: CGA +1%, SYNA +0.5%

M&A news: SLH +9.5% (to be acquired by Vista Equity Partners for $55.85 per share in cash), CHS +7.8% (considering sale following private equity interest, according to Bloomberg), NOK +1.7% (Nokia receives CFIUS clearance for proposed acquisition of Alcatel-Lucent; added to Conviction Buy list at Goldman), ALU +1.7%

Other news: COLL +37.5% (reports FDA unanimous recommendation for approval of Xtampza ER), AQXP +24.3% ( Baker Bros discloses purchase of ~2.48 mln shares of common stock at $15.50 per share; Purchase was part of the previously announced offering of 5.5 mln shares; Baker Bros maintains ~40% stake in the company), GERN +5.7% (cont strength coming out of Friday), ACTS +3.1% (amends Dutch Auction tender offer; reaffirms guidance for Q3 revs of $13-14 mln, but expects FY15 revs to growth at a slower pace than previously expected), PIRS +2.3% (Global Life Bioventure discloses 6.25% passive stake in 13G filing), MBLY +2% (rebounding modestly following last weeks selloff), AN +1.3% (authorizes additional $250 mln for share repurchase), WMB +0.7% (increases quarterly dividend 8.5% QoQ to $0.64 per share)

Analyst comments: VRTX +1.5% (upgraded to Overweight from Equal Weight at Barclays ), AAPL +1.3% (positive commets from FBR; iPhone 6s pre-orders off to a strong start led by China), GPRO +0.8% (positive comments at Northland), AZN +0.6% (upgraded to Buy from Hold at Deutsche Bank)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: TMST -10%

Select financial related names showing weakness: RBS -2.2%, BCS -1.1%, SAN -1%, DB -0.9%

Select China related names showing early weakness: JMEI -5.3%, TOUR -3.9%, JD -2.3%, QIHU -1.1%, SOHU -0.9%

Other news: RPTP -33.9% (announces topline results from the Phase 2b CyNCh study, which did not meet its primary endpoint of improving nonalcoholic steatohepatitis in children), BABA -3.7% (Barron's profiles cautious view on Alibaba), AMD -2.5% (following late day spike on Friday), YHOO -2% (in symp with BABA), MT -2% (weakness stemming from concerns of growth in China), GOLD -1.9% (still checking), FCX -1.1% (copper down 1% in pre-mkt)

Analyst comments: HRB -1.5% (downgraded to Neutral from Buy at BTIG Research), GFI -1.1% (downgraded to Neutral from Overweight at JP Morgan
)