Some Q3 datapoints
Had to pay the mortgage today by hunkering down and writing some maintenance research. My first two sets of company results doubled up on me this morning - Telenor and TeliaSonera. As usual, lots of detail to wade through, but a couple of points came out which are of interest given the orientation of this blog.
Firstly, Telenor revealed that 7% of its DSL line base is "naked DSL." In Q1 the figure was stated as 6%, and no clear figure was given in Q2, but management today said it was 5%. Personally, I have trouble imagining this figure going down in Q2, so I think someone was improvising, but that's something I can take up with the company later. The really significant thing is that, at 7% of its retail DSL lines, this translates to roughly 19,000 lines, on top of which there are, on my estimates, 60,000 fully unbundled lines in the market. In other words, I think it's possible that something like 17% of Norwegian DSL subs may have no PSTN subscription. Mobile substitution is the main culprit so far, but we also know that Telio is thriving in Norway, and this sort of scenario in the DSL market is something that the rest of Europe should probably watch with trepidation. All that said, it looked to me like Telenor is doing a pretty good job of defending itself (line loss was down again on Q2 and half the level of Q1, wholesale line rental growth has stalled, and Telenor's retail DSL lines are adding more users than wholesale/ULL, and picking up speed).
Secondly, TeliaSonera blew the market away at the EBITDA level (I was well above consensus but still 6% too low), and the share price rallied - which is a shame because I have an UNDERPERFORM rating. Try as I may, I can't get to the sort of valuation the stock is trading at now, but I won't begrudge them a bit of good news. Management almost sounded surprised to see a 1% YoY increase in fixed line traffic revenues in the Swedish market. TeliaSonera is still losing about 3% of its access lines on an annualized basis, so how did they swing this? Dig a bit deeper, and we see that total fixed line traffic declined by 1.5% YoY, which is very mild (Q2 was down 3.8%, Q1 a whopping 6.1%). Peel back below that level, and we see that national fixed-to-fixed traffic was down 2.6% YoY (again much milder than the 4.9% in Q2 and the 7.4% in Q1), international was flat, but fixed-to-mobile traffic is up 11.2%, and accelerating. In fact since Q2, outgoing minutes to mobile have increased dramatically and now account for 11.2% of outgoing fixed line minutes on TeliaSonera's network. It looks as though, while the fixed line user base is dwindling, voice usage among the remaining users appears to be stabilizing somewhat, ironically driven by the ubiquity of mobile usage. This is the short-term positive flipside of mobile substitution - higher revenue-yielding fixed-to-mobile minutes growing and increasing their share of the pie, allowing the telcos to eke out some top-line growth in traditional traffic revenues. The interesting thing to see will be, at what point does this apparently more stable legacy user base become more susceptible to cutting the cord completely, and will the arrival of wholesale line rental in the market accelerate the process?
Wednesday, October 27, 2004
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