|DT: At Least 14M, Possibly 35M, Vectored Lines|
|Friday, 28 December 2012 20:40|
Innovative DSL + LTE box could take peak speeds to 200 megabits. DT confirmed they will upgrade 12M German homes to vectored VDSL for speeds of "up to 100 meg" down and "up to 40 meg" up. Field experience from vectoring suggests most but not all of these homes will get 60-100 meg down. Most of this build will be in 2014-2016, although a 2015 date for finishing the 12M is also discussed. Almost all of these homes are also covered by cable offering twice the speed at the same price. Kabel Deutschland has taken about 1M customers.
An additional 12M homes, already served by VDSL without vectoring, may be upgraded to vectored. DT statements on this are contradictory. The total investment is placed at 6B euro, something like $350-500/home. They offset that with a substantial (1B+) reduction due to capex they would otherwise have to spend on these lines.
DT has also suggested they would offer vectored service to about half of the remaining 16M German homes if the government gives them a subsidy. Many of these homes would cost the same or less to serve than the homes already planned. Homes without cable are mostly accidents of history and many are not far from telco facilities. Because DT has less competition here, the lines will be significantly more profitable than others they are upgrading without subsidy. DT is politically very powerful so they may get the money anyway.
Beyond the 20-30M they probably will upgrade in Germany, DT owns networks in Greece, Hungary, Romania, Albania, Croatia and other Eastern countries with an annual turnover of 10B euro. Claudia Nemat's investor day presentation pointed to "Increasing CAPEX for further rollout of Growth Areas (e.g. Broadband with LTE, FTTx)" without giving specifics. I'm estimating at least 2M vectored lines will be included, and additional are certainly possible.
Vectored VDSL is so inexpensive DT projects they can do all this while maintaining capex at the 2010 level of 9-10B euro. (2011 capex fell.) They also are extending LTE to 98% of Britain, 85% of Germany and 65% of the U.S. within that budget. Depreciation is above 10B, which means some would say DT is continuing to "disinvest." The practical demonstrations of vectoring reaching "up to 100 meg" at modest cost have totally changed the regulatory discussion. DT's analysis, which would apply to may other developed countries, is that 50-100 megabits can be delivered to most homes without raising capex or requiring a subsidy. All but the last 5-15% can be offered high speed without high spending.
DT is projecting they will be able to raise prices 90% on reselling vectored lines, from 11-12 euro to 20 euro. Jochen Homann of BNetzA needs to look very closely at the figures behind that price increase. DT recently cut the dividend from 70 to 50 cents/year and clearly has financial problems. Loss of landlines is part of the explanation, but broadband from DT remains a very profitable service. Homann has to decide whether to raise the German broadband price to bail out DT shareholders; nearly a third of DT is still government owned. DT has lost billions on expansion into Greece, just wrote off eight billion from T-Mobile USA, and has huge losses, easily five billion and probably more, expanding into computer services (T-Systems).
DT is demanding an end to unbundling, claiming it's technically impossible to vector if some lines are unbundled. While non-vectored lines do restrict performance, some argue the effect is small. The extent of the problem will be unproven until the companies involved do field testing. In addition, numerous schemes allow two companies to cooperate on vectoring while serving their own customers. Telecom Italia and FastWeb are doing that, which will be an existence proof of a possible solution.
This is the largest network build planned in the Western world.
Here's the DT release, which finds ways to make the spending look much more impressive.
Deutsche Telekom invests almost EUR 30 billion over three years in the future of telecommunications
The demand for broadband will continue to grow significantly both in mobile communications and in the fixed network. Deutsche Telekom is therefore substantially stepping up investments in broadband networks and products over the coming three years in order to improve its competitive position in the long term. Group capex including MetroPCS is to grow to around EUR 9 to 10 billion, bringing the total up to almost EUR 30 billion. The focus is on Germany, where activities will center around building out the LTE network as well as rolling out optical fiber and vectoring technology in the fixed network. On top of that, a hybrid solution is planned for launch that combines LTE and vectoring, thereby increasing bandwidths. In the U.S., the roll-out of the national LTE network is on the agenda. In addition, T-Mobile USA has entered into an agreement with Apple to bring products to market together next year.
At its Capital Markets Day in Bonn, Deutsche Telekom also announced its overall planning which factors in this period of higher investments, and a free cash flow guidance for 2013 of around EUR 5 billion from which a dividend of 50 euro cents is to be paid out both in 2013 and in the following year. Free cash flow of around EUR 6 billion is targeted for 2015. Deutsche Telekom forecasts adjusted EBITDA of around EUR 17.4 billion for 2013. Once the MetroPCS deal is closed in the first half of 2013 as planned, this figure – on a pro-forma basis assuming the inclusion of MetroPCS from the beginning of the year – will increase to EUR 18.4 billion. The Group's net revenue and adjusted EBITDA are scheduled to grow again from 2014. The Board of Management has approved the corresponding planning and passed it on to the Supervisory Board for resolution along with a recommendation to that effect from the Finance and Audit Committees.
"Hesitation now means playing catch-up later. We are investing in the future – with resolve and a clear strategy," said René Obermann, Chairman of the Board of Management of Deutsche Telekom. "The investment plans we have presented today will lay the foundation for future growth. And it is the people in Germany in particular who will benefit more than ever from the modern infrastructure."
"These investment plans will ensure Deutsche Telekom remains absolutely sound and reliable over the long term," added CFO Timotheus Höttges. "We are going against the flow with our high investments in these times of economic challenges – because we have worked hard to establish sound balance sheet ratios and now have the necessary leeway. Our dividend planning offers our investors both an attractive return and planning reliability."
With clear statements regarding targeted financial ratios – net debt to adjusted EBITDA is to stay between 2 and 2.5, and a liquidity reserve that at a minimum is able to cover all maturities of the next 24 months – the Group intends to keep its A-/BBB rating and safeguard unrestricted access to the capital market. Along with a two-year dividend proposal for 2013 and 2014, looking ahead beyond the period of increased investments, the shareholder remuneration policy will be considered again from 2015. The plan is to give shareholders the choice of a dividend in kind or a cash dividend. This gives investors the opportunity to leave funds in the company, to improve financial ratios further and to benefit even more from the success of their investment in the long term. "We are pioneers of this innovative solution in Germany," said Chief Financial Officer Timotheus Höttges. Both the cash dividend and the share-based dividend in kind is tax-free for investors resident in Germany. All statements relating to dividends are subject to resolutions by the relevant boards and committees as well as the shareholders' meeting.
The finance strategy continues to focus on absolute transparency and reliability; a strategy that, in the period since 2010, has already generated a total return (dividend plus share price performance) for investors of 13.5 percent, clearly outperforming other former state-owned telecommunications industry monopolists across Europe. It contributes to the Group strategy of transforming the company from a "telco" to a "telco plus". Options for changes to the portfolio are also examined as part of the finance strategy, in particular the possibility of Everything Everywhere going public, as well as the strategic evaluation of the Scout group.
High-speed Internet access on a scale never seen before – this is the goal of Deutsche Telekom for its domestic market. The key aspects are:
Investments in Germany from 2014 through 2016 are to increase to EUR 4.1 to 4.5 billion, respectively, compared with an average of EUR 3.6 billion in the preceding three years. In addition to increasing overall investments in Germany, expiring investments in other areas free up additional funds to drive ahead restructuring and innovation, bringing the total capital expenditure in connection with the integrated network strategy for optical fiber and vectoring in these areas to around EUR 6 billion. Deutsche Telekom's approach is based on the assumption that the about-face in European regulatory policy recently announced will be adopted in national regulation.
By the end of 2014, the Company aims to have stabilized revenue in Germany compared to 2013. The increased capital expenditure is intended to lay the foundation for compensating for the decline in revenues from traditional fixed-network and mobile telephony as well as text messaging. Bundled products, Entertain and cloud solutions are expected to drive revenues in the growth areas of mobile Internet and connected home in particular. This is to bring the adjusted EBITDA margin to around 40 percent. Deutsche Telekom intends to be the number one both in terms of mobile service revenues and the number of broadband lines, with market shares of 35 percent and 43 percent, respectively.
In the United States, capital expenditure of around USD 4.7 billion has been planned for 2013 and around USD 3 billion in each of the two subsequent years compared with USD 2.7 billion per year on average from 2010 to 2012. The focus in the U.S. is on building out the LTE network, which alone will result in capex of around USD 4 billion. T-Mobile USA is now in an extremely good position to benefit from growth, in particular of mobile Internet in the U.S., thanks to the mobile licenses it received from AT&T following the termination of the sale agreement, the spectrum from the Verizon deal, and the improved financial structure as a result of the long-term cell tower deal with Crown Castle.
In addition, T-Mobile USA benefits from the agreement with MetroPCS to combine their operations, a move designed to strengthen T-Mobile USA's standing in the fast-growing prepay segment. Approval is currently being sought from several U.S. authorities. Deutsche Telekom still expects the deal to close in the first half of 2013.
In the coming year, T-Mobile USA will continue to reinforce its market presence with additions to its rate plan and product portfolio, including Apple products. "Following on from the preceding steps such as the spectrum swap with Verizon, the towers deal with Crown Castle and the transaction with MetroPCS that we have announced, we have now added the final piece to the jigsaw to boost the competitiveness of T-Mobile USA sustainably," said René Obermann.
T-Systems marked a significant milestone in July with the launch of the Telekom IT unit, where the Group's internal IT activities in Germany are now pooled. The aim of the new unit is to sustainably reduce the Group's IT costs by EUR 1 billion by 2015. In external business, T-Systems is focusing even more squarely on cloud-based solutions. Experts are forecasting annual average growth rates in this market of 17 percent through 2017, which is significantly higher than the 2 percent annual growth rate projected for the traditional ICT business. Profitability is to improve by means of focusing on growth markets, enhancing standardization, and intensifying the use of capacities in low-wage countries (offshoring). The adjusted EBIT margin of the market unit is expected to grow to 4 percent by 2015.
In the Europe operating segment stronger collaboration across the national companies under the One DT Europe program aims to leverage economies of scale by centralizing shared tasks. Revenue is expected to grow moderately again from 2014 on an organic basis – i.e., excluding the effects of exchange rates, special taxes, and regulation. This growth will see a revenue mix that continues to shift towards the growth markets of B2B/ICT, mobile data, and TV business. One example of this is the mobile payment solution recently launched in Poland that is also to be rolled out at other Group companies. Deutsche Telekom is also planning further network partnerships in addition to those already in place in the United Kingdom, the Czech Republic, and Poland.
|Last Updated on Saturday, 29 December 2012 16:11|