Struggling giants: the state of Europe’s former telecom incumbents

Incumbent telecommunication companies within Europe have long battled the threat posed by new entrants since the liberalisation of the telecoms sector, hoping to defend their once-dominant market share. However, many now find themselves with their backs to the wall as their large-scale infrastructures and diverse services offer little resistance to new entrants which, increasingly, are able to do more for less.

While the downturn of a company’s fortunes, management missteps, or economical hiccups within the host country all directly impact the price share for those publicly traded, some former incumbents have been harder hit than others. Telecom Italia, for instance, has recently been downgraded from “neutral” to “underperform” by Exane BNP Paribas, following its stock touching lows that had not been seen for half a decade. Faced with aggressive competition from low-cost operator Iliad and the rollout of Open Fiber, the network builder spun out of Enel, TIM CEO Amos Genish recently took the drastic step of purchasing one million shares for E523,000, in the hope of projecting strength from the group.

The likes of Telefonica and BT find themselves in similar boats to that of TIM, with their share prices also tumbling over the past year – the former recording a -16.22% downtrend from the beginning of 2018 and BT shares having lost 25% of their value in the past 12 months. Meanwhile, TIM’s share price has lost 35% since activist fund Elliott audaciously took control in May. TMT Finance is exclusively reporting on situations surrounding all three companies, with noise growing around potential fibre spinoffs from both Telefonica and BT, as well as TIM looking at offloading Sparkle and/or its fixed-line network.

Jonathan Dann, managing director, RBC Capital Markets, said: “Former incumbents have been hit with a series of factors at one time, impacting their positions in the markets and hindering growth. Factors include: wireless competition from new entrants, FX liability, fibre overbuild, 5G spectrum auctions, regulatory risk, and corporate governance issues. Many former incumbents have been struck by three of four of these factors, leading to as much as a 30% or 40% slump in stock pricings for some.

“Optimism can be found in that next year the European Commission rotates mandates. In May 2019, commissioners will be relieved of duties and September will bring about a new cohort to replace them, which could ultimately lead to the transition of four to three operators in a number of countries,” he added.

Former incumbents are proving increasingly attractive acquisition targets for some though and many continue to command robust valuations. Macquarie Infrastructure’s acquisition of Denmark’s TDC Group in February for a valuation of E5.2bn and Iliad’s and NJJ’s agreement to buy a 64.5% stake in Irish telecoms operator eir in a E650m deal stand as testament that some former state monopolies still hold clout.

In terms of upcoming sales, TMT Finance is exclusively reporting on the anticipated sales of Altice Europe’s Portugal Telecom, which could raise E7bn to E8bn, and Bulgarian telecoms operator Vivacom – worth around US$1.2bn. No formal processes are believed to be underway yet, nor financial advisers hired.

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