In late 2014, we conducted an AlphaWise Survey examining wireless consumer opinion in Germany, Italy and the UK. The results - that subscribers will surf and pay more for network quality - read positively for Euro Telcos, in particular for Vodafone (Project Spring).
1. Some 67% of Euro mobile subscribers would surf more (download more data, and by default spend more) if wireless network quality / speed improved.
This feedback applied in particular to the Italian market (80% would surf more, pending network quality) - positive news considering that Vodafone Italy's mobile service revenues are ca 45% off their peak. We believe that network quality will improve across Europe, driven by LTE, network densification, new spectrum release etc. - this phenomenon should trigger better European service revenue growth trends (positive growth by year-end 2015, vs -9% in Q4 13).
2. European wireless subscribers would be willing to pay a premium of 10%-20% (per month) for improved coverage and speed.
We believe that this bodes well for best networks (EE in UK, Deutsche Telekom in Germany, Orange in France), but also for Vodafone as it improves its network via Project Spring. Again, Italian wireless users stood out from the pack - willing to pay the greatest premium for network quality, an incremental +20% per month.
3. Mobile customers remain very price sensitive - however, encouragingly, 30% of users would switch operator for better network quality.
Price remains the main consumer consideration (for ca 61% of mobile subscribers) when making a wireless purchase. However, as we exit the Great Recession in Europe, we expect an increased focus on network quality (speeds, coverage, 4G), over price.
4. Vodafone's customers are 'less satisfied' than the incumbents / market leaders in the UK and Germany - but Vodafone has taken a lead with consumers in Italy.
We believe that Project Spring should address some of Vodafone's customer satisfaction issues in the UK and Germany - and may help Vodafone Italy to extend a network perception advantage.
We maintain Attractive view on Euro Telcos (LTE, consolidation, DPS yield). Our favourite stocks include Vodafone (revenue growth, op leverage, DPS yield of >4.5%), KPN (FCF doubles by 19e), Telenor (DPS yield >5.5%), TDC
(Danish consolidation, 16e EFCF yld: ca 8.5%), Com Hem (16e EFCF yld: ca 8%), Liberty Global and Talk Talk. We remain cautious on Belgacom and TeliaSonera.