In this note, we present feedback from our French Telcos trip to Paris late last week where met with Bouygues, Coriolis, Eutelsat, Iliad, Numericable and Orange, among others. We also discuss our thoughts on the key debates and update our stock views. Surprisingly, fibre regulation was a key area of focus, and we came back open-minded on possible (small) adjustments. Pricing dynamics were also a hot topic; there was a consensus on positive pricing prospects on fixed, while mobile is mixed with caution on the low-end but reassuring comments on the high-end. In this context of inflationary broadband pricing, we pick Iliad as our favourite play.
* What if fibre regulation were not set in a stone? Interestingly, fibre regulation was a key focus. Whilst we previously perceived the regulatory framework as being set in a stone, we came back with the view that possible adjustments cannot be ruled out. We don’t expect any structural changes in the access framework; however, an improvement of the economic terms is not totally impossible, in our view. That said, we do not anticipate any significant changes near term.
* What’s next for fixed pricing? The trip comforted our constructive view on broadband pricing. We continue to believe Iliad is likely to follow other operators’ price increases. NUM is likely, in our view, to opt for annual pricing inflation. Bouygues’ pricing discount vs competition is still substantial (30%), and leaves ample room to increase prices further once the 4m broadband subs target is reached (versus 2.9m in Q1).
* Is mobile out of the woods? Interestingly, most operators were more cautious than what we expected on the mobile competitive backdrop with 3 out of 4 operators citing still high promotional activity in Q2 at the low -end. However, we did not sense any major concerns on the high-end (which makes up the majority of the market).
* We play fixed pricing inflation through ILD and NUM. Iliad is our top pick with best-in-class organic growth, and an appealing exposure to fixed inflation. We still see mid-term value at NUM, with a strong catalyst line-up from H2 2016. We are Neutral on both Orange and Bouygues.