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“The jury is still out on whether that can turn around,” says Karen Egan, head of telecoms at Enders Analysis. Analysts also expect Vodafone to have to cut its dividend, which may prompt anguish among investors.
Device makers regained their mojo at this year’s MWC, with phones a crucial route to generative AI becoming a daily habit.
AI software has improved and proliferated, but limited differentiation leaves room for consolidation as a competitive funding crunch looms.
Unanswered questions loom large, but won't dim AI's potential.
As viewing moves online, broadcasters’ on-demand players make up a growing proportion of viewing, becoming central to their future strategies.
However, even though SVOD viewing might have begun to plateau, BVOD growth cannot yet balance the decline of linear broadcast.
Of this shrinking pie, 2023 saw most of the major broadcast players increase their viewing shares.
Many telcos are surprisingly advanced in exploring GenAI opportunities, mainly in gleaning cost efficiencies in managing their complex systems, but it may also provide a revenue boost.
European telco CEOs made a heartfelt—if not entirely convincing—plea for regulatory/policy help via a ‘new deal’ to help support future investment, highlighting a genuine lack of price/investment balance in European telecoms.
The most convincing specific regulatory/policy solution is in-market consolidation, with other steps either less effective, or unlikely to happen, but a general shift in regulatory attitude could prove helpful in many small ways.
Karen Egan at Enders Analysis described the sale as a “bold move” that would leave Vodafone’s European operations dominated by the UK and Germany.
She added: “I’m somewhat surprised that they’re leaving Italy altogether given their history there but it’s the right move.”
Vodafone has confirmed that it is in discussions to sell its Italian business to Swisscom for €8bn having rebuffed a higher offer from Iliad for an Italian JV in December.
The Spanish and Italian deals should be reassuring to investors, are helpful to the growth profile of the company, and may help to reduce any conglomerate discount in the share price.
The all-important free cashflow impact of the deals remains to be seen with potential for buybacks of up to €10bn compensating for the direct dilution of the deals and softening the blow of any dividend downgrade in May.
Vodafone’s shares have continued to slide this year, reaching multi-decade lows. The group is not managing to get full valuations for its assets. Spain was distinctly underwhelming. Swisscom is paying 5.5 times last year’s Italian ebitda adjusted for lease payments. European telecoms incumbents trade at 7.2 times on the same basis, according to Karen Egan at Enders.
Karen Egan, head of mobile at Enders Analysis, described the telecoms group as “highly levered”.
She added: “In a world of low rates it made absolute sense to lever everything up as much as you could get away with. With rates now rising, the tolerance for that level of leverage is lower.”
While altnets continued their strong expansion in 2023, a slowdown in 2024 is looking very likely, with financing drying up due to tougher financial conditions and disappointing operating performances from some.
Consolidation is the obvious answer, and the altnets could consolidate into a pure wholesaler (via CityFibre), a retail/wholesale player, or could be absorbed into VMO2/nexfibre.
Which of these routes is taken, and how quickly, will have a profound impact on the structure of the industry, and all players should be careful what they wish for, with long-term outcomes hard to reliably predict in such a complex marketplace.