* Network migration onto fibre should help Orange resume revenue growth
* Iliad is the most positively exposed altnet to fibre, Bouygues Telecom’s lower scale means lower returns
* We reiterate our Buy on Orange, Iliad and Numericable-SFR and we rate Bouygues Hold
The key takeaways for French operators are: (1) in areas of higher population density Orange will lose unbundling revenue but will regain market share of broadband at higher ARPUs (Orange expects ARPU uplift of EUR5 in 2015).
(2) Co-investment scheme in less densely populated areas offers altnets the option to invest in tranches of 5% of newly built lines, keeping total capex under control. But not all altnets are equal: the 5% tranches may offer a variable cost structure to Orange’s competitors but there remain some fixed costs that are better covered when the market share is high. Iliad and SFR are currently more than twice the size of Bouygues Telecom. The latter could still grow its market share on the basis of low prices but this will in turn weigh on its long-term returns. We are therefore more positive on Iliad than on Bouygues Telecom. SFR-Numericable will co-invest where it does not have cable and would also benefit due to its existing high ADSL market share. We retain our Buy ratings on Orange (TP EUR17), Iliad (TP EUR255) and SFR-Numericable (TP EUR63). We rate Bouygues Hold (TP EUR37).