After a tough promotional Q1, Q2 is already bringing some relief post the collapse of M&A talks, and H2 should show a brighter earnings picture across the board. In this note, we wrap up on Q1 main trends, and update our numbers post Q1. We reduce our Bouygues TP to €34, while we keep our TPs unchanged elsewhere.
* A snapshot of the quarter: We show key trends in the body of this note. On Mobile, MNP volume improved after nearing record highs in Q4 (2m) but is still relatively high at 1.5m, up 10% y/y. Market postpaid churn in Q1 was at 16.4% vs 17.2% in Q1 15. Orange remains best in class at 13%, SFR still lagging behind (>20% on our estimates). Iliad led market net adds but showed a marked slowdown (+215k vs +370k in Q4). Interestingly, Bouygues posted a strong quarter in mobile despite M&A distraction (postpaid net adds of +151k vs ORA +41k, SFR-78k). On Fixed, ORA led
again in broadband with 52% share of net adds (Q4 42%), BOUY resisted well at 39% (Q4 32%), ILD did better 43% (Q4 19%) helped by a weak SFR -33% (impacted by set-top box shortage).
* Q2 setting the tone for pricing prospects. Fixed has firmly entered a virtuous pricing circle with consecutive and material price increases at three out of the four operators only weeks after the collapse of the M&A talks
(SFR +5%, Bouy +15%, Orange +5-20%). In particular, Orange’s pricing move is significant (€2 to €10), and is introducing a long awaited €5 FTTH premium on 3-play offers (vs only 4-play previously). After a tough Q1, mobile started normalizing in Q2, but is still fragile. SFR’s stated intention to reduce the level of promotions is welcome, but we flag that any deterioration of the company’s churn (in particular post the May price rise) might well lead to a renewed promotional activity.
* Is consolidation dead? Operators’ reported attempt to revive the talks post the official deal failure (JDD, May 8), as well as management teams’ rhetoric not ruling out a future attempt both show, in our view, that all
options are open. Now, does consolidation really matter if prices are going up? Whilst we stick with our upbeat view on fixed pricing prospects (with or without consolidation), and remind that mobile pricing prospects are not any
better in a consolidation scenario (with an empowered Iliad), we believe that consolidation does matter from a cost perspective (we value opex/capex synergies at €15bn). That all said, M&A visibility is non-existent, making it
less relevant to our investment cases at this stage.
* Things to watch: i) ILD's signals on both fixed and mobile pricing, ii) Mobile churn developments at SFR with implications on promotional dynamics, iii) Fixed KPIs across the board post recent pricing revision, we