European wireline 2003 and beyond
Introduction and investment summary
As we made clear in sentence one on the front page, this is not a conventional piece of broker’s research, in the sense that it contains no actionable investment ideas, and weare not changing any stock recommendations or our 6-month sector stance on the PTTs,which remains OVERWEIGHT. This report is an attempt to plot where the sector has been in the past couple of years and where it is now, to examine what the operatorswould like us to believe is a stable situation, and to identify and discuss some threats tothe sector, some of which are visible and recurring, and some of which are emerging,with potentially unforeseen impacts.Prior to giving a brief outline, we think it is important to stress a few points:
In this document we concern ourselves predominately with the residentialfixed line markets of the European incumbents, leaving aside for the time- being the different issues facing the business sector, carrier services, internetand the mobile subsidiary businesses, except where the latter two haverelevance to what is happening in the residential fixed businesses, and theoverall profit profile, of the integrated operators.
We have not devoted any space to regulatory issues, though these are likely to be an area of intense activity over the coming years. We have intentionallylimited ourselves to an examination of current consumer usage patterns, andhow new technological issues may influence the revenue streams derived fromthem. We believe it is very difficult to estimate with any accuracy howconsumer behaviour may be influenced by regulatory intervention in pricing or provision of services.
Being native English speakers resident in the UK, there is an inevitable biastoward the UK market in some of our data sources. Perhaps this is fortunate, asthe UK regulator publishes detailed market data on a quarterly basis, includinguser surveys. In continental Europe, only the Portuguese regulator ANACOM publishes anything of a similar nature on a quarterly basis. Therefore, we haverelied on data from these two markets heavily, augmenting this where possibleand appropriate with EU data, operator-supplied data and our own estimates.
We have avoided, where possible, making hard quantitative predictions aboutthe possible impacts of the developments we discuss here. No one likeslooking stupid in print, and we believe the level of visibility is too poor, andthe rates of technology change too great, for anyone to stand up andconfidently state that telcos will lose x% of revenues by 20xx. We do think thenumbers could be significant, however.
This is not an attempt at a definitive piece on the European sector. We arereally just hoping to set down some markers, some flags in the sand, around afew key issues, to which we will return regularly over the course of the nextyear, through more detailed updates on specific issues raised here.
No changes to the short- term view, but lots of questions about the long term