* BofAML conference: all about M&A
We hosted over 30 global telco companies and 450 investors at our Global Telecom
and Media conference in London last week. From a thematic standpoint, M&A was
clearly on the forefront, fuelled by ongoing newsflow on AT&T in Brazil, Liberty/VOD
and TMUS/DISH. Beyond stock specific situations, incumbents were pressed about
the rationale for cross border deals. The broad consensus is that those will happen
over time, but that synergies are likely to be limited and political considerations are
still key. The tone on business environment was reasonably constructive. Other
themes included mobile data, cost efficiencies (All-IP, Altice methods) and regulation.
* Focus on in-market/convergence M&A above cross-border
Italy appears to be the next market that is likely to see 4 to 3 mobile consolidation.
Discussions on a 50/50 JV between Wind and Hutch continue to progress. Telecom
Italia is turning into a special situation with Domestic/Brazil/Vivendi talk, while
domestic recovery is ongoing but still exposed to below the line mobile discounting.
Consolidation discussions seem to have cooled down in Brazil and France.
Vodafone / Liberty was a key topic; Vodafone explained that strategically a
combination with Liberty could strengthen both companies and synergies could be
material. VOD has confirmed discussions for an asset swap with Liberty (not a
merger). Orange explained it would continue to increase exposure to Africa and the
Middle East. Incumbents were pressed about the rationale for cross border deals;
consensus seems to be that those deals are likely to happen over time, but not
immediately, while synergies are seen as limited. Nordic operators are downplaying
major M&A near term.
* Stock conclusions – broad-based positive momentum
Overall, the tone was constructive. Sweden remains strong and wireless margins
should improve driven by increasing data consumption/monetisation. Tele2 likely to
have another good quarter in Sweden, hitting their target of mid single digit ASPU
growth. TeliaSonera should show EBITDA improvement QoQ driven by lower
handset subsidies and FTTH connection fees. TDC network investments are
beginning to pay off. Germany also stands out as a sound market. DT was confident
it could retain its quality premium and continues to see good traction from its
convergent product while increasing household ARPU, with VOD willing to play the
quality game and guides to an improvement in post Q2 as back-book impact clears.
Iliad expects the migration of traffic to its own network to bring EBITDA benefits as
early as H1. KPN is seeing positive trends in consumer mobile and expects to see
mobile to get back to growth later in the year. Fixed is also solid with price increases
scheduled for July 2015 post Ziggo’s price increases. We expect a benign Q2 at
Belgacom and could see guidance nudged upwards. TEF could see a weaker Q2
domestic performance post strikes, however synergy opportunities in Brazil look to
be moving higher.