Building the Gigabit Society - sipotra.it · SCMN and KPN seem expensive, TDC and TI seem cheap...

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SWED PORT ESP SWITZ DEN NORW ITA AVG DE FRA* UK NETH BELG

2016A 2021E

Building the Gigabit Society One year later…

European Telco research analysts

Justin Funnell

[email protected]

+44 207 888 0268

Jakob Bluestone

Paul Sidney

Henrik Herbst

European Telco specialist sales

Jan-Willem Brand

18/09/2017

The growing threat from challenger fibre networks (CS forecasts for homes passed by challenger FTTH)

* ex co-investment

Source: Company data, Credit Suisse estimates

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

The pressure on telcos to invest in FTTH has increased

– FTTH demand continues to gradually grow

– Now a strong government policy consensus in EU to

encourage FTTH/P

– Growing private investment in challenger networks

– Public investment has also intensified

Growing risk of crowding out

– Which all means a growing threat from over-build

– 4G is adopting 5G technologies, leading to gigabit

LTE. The higher speeds plus unlimited data plans

means increased faster risk of mobile substituting

DSL

– Cable continuing to develop faster speeds

Telcos continue to respond, but many have yet to fully

adjust

– DT and BT are in the process of repositioning

– KPN, Prox and SCMN then risk eventually becoming

the ‘hind-most’

Stock valuations pricing in more of the CAPEX risk now

– But risk from overbuild is more of an issue

One year later

Source: Credit Suisse estimates

18/09/2017

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

TEF TI TDC KPN Ora TNOR DT BT Telia SCMN Prox

2019E FCF yield FTTH-adj 2019E FCF yield

Equity FCF yield adjusting for potential FTTH CAPEX

EV/EBITDA vs risk from FTTH overbuild

* potential Challenger FTTH build in 2021E vs incumbent FTTH build in 2016

2 European telecoms research

18/09/2017

Source: Credit Suisse Equity Research

Telco investment

in high speed

broadband

Challengers

building

FTTH Cable

1Gbps via

Docsis3.1

5G mm-wave

1Gbps

Rising

demand for

speed

Falling

Cost to

Build FTTH

Increasing public investment

In broadband

Private investment in infrastructure

Regulation

to target 100Mbps+ (?)

Factors driving incumbents to build FTTH are strengthening

Public investment is increasing in laggard markets e.g. IT, DE, UK – Increasing the risk of crowding-out

Private investment is also responding – e.g. Enel in IT, Vodafone in DE

5G is happening already, with 4.5G adopting higher rate MiMo and applying to 2.6 & 3.5Ghz


Premises passed by FTTH relative to households – end of 2016 and 2017e (see Note on methodology)

Current fibre coverage by EU market – 2016A and 2017E

18/09/2017

0%

20%

40%

60%

80%

100%

120%

Spain Portugal Sweden Denmark Norway Switz WEaverage

Neths France Italy Ireland Germany UK Belgium

2016 2017E

Source: Company data, Credit Suisse estimates Note on methodology: we source fibre data from regulators and telcos. We compare these

publicly- sourced figures to total homes in the country rather than total premises (including businesses as well) as official figures for total premises

are less readily available and also can be inconsistent by market . We estimate total premises to be 125-140% of homes (depending on EU country)

which means a ubiquitous fibre build of all premises would equal 125-140% of homes passed on our definition.


Western Europe 52% covered by 2021E – likely to be well ahead of the USA

Average WE market 61% covered by 2021E (i.e. simple average)

UK, Germany and Belgium still behind, though will offer high speed VDSL

Neths and Switz overtaken by France, Italy and Ireland

CS forecast of fibre coverage by 2021E


18/09/2017

Premises passed by FTTH relative to households – by 2021E

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20%

40%

60%

80%

100%

120%

140%

160%

Spain Portugal Sweden Norway France Denmark WEaverage

Switz Italy Ireland Neths Germany UK Belgium

2016 2021E


NGN coverage by incumbent telco at end 2016

18/09/2017

Source: Company data, Credit Suisse Research

Premises passed by Incumbent NGN relative to households – at end 2016

0%

20%

40%

60%

80%

100%

120%

TEF PT TDC TNOR Telia KPN SCMN Orange TI Eircom Proximus DT BT

FTTH Coax


The dispersion in stock valuation compresses once FCF is adjusted for contingent

FTTH CAPEX costs

Although some outliers remain – e.g. TEF, SCMN, PROX

FTTH CAPEX risk is more priced-in than a year ago

Source: Credit Suisse estimates

18/09/2017

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2.0%

4.0%

6.0%

8.0%

10.0%

12.0%




Supporting information

Source: Company data, Credit Suisse estimates *Note: we already assume DT builds FTTH as fast as possible from 2019E

18/09/2017

Telco

Group

CAPEX

2016

Domestic

CAPEX

2016

Group

CAPEX

2017

Domestic

CAPEX

2017E

Group

CAPEX

2019E

Domestic

CAPEX

2019E

Assumed

extra

CAPEX

Group

CAPEX

2019E -

FTTH adj

Domestic

CAPEX

2019E -

FTTH adj

BT 3,457 3,096 3,402 3,044 3,358 3,003 300 3,658 3,303

DT* 10,968 4,031 11,536 4,250 12,407 4,750 0 12,407 4,750

KPN 1,193 1,193 1,131 1,131 1,008 1,008 200 1,208 1,208

Ora 6,957 3,422 7,200 3,688 7,000 3,579 250 7,250 3,829

Prox 949 949 1,000 1,000 1,000 1,000 150 1,150 1,150

SCMN 2,420 1,746 2,400 1,806 2,400 1,806 250 2,650 2,056

TDC 4,196 3,602 4,161 3,539 3,883 3,276 333 4,216 3,609

TI 4,875 3,709 4,819 3,600 4,291 3,200 500 4,791 3,700

Telefonica 8,703 1,839 8,123 1,648 7,978 1,624 0 7,978 1,624

Telia 15,016 7,119 13,833 7,064 12,911 5,993 0 12,911 5,993

Telenor 22,702 4,771 20,576 5,095 18,564 4,676 0 18,564 4,676

How CAPEX might change if telcos decide to increase investment in FTTH

(figures all in local currency)


Overbuild is however still a growing problem

Source: Company data, Credit Suisse estimates * excluding co-investment in France

18/09/2017

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120%

SWED PORT ESP SWITZ DEN NORW ITA AVG DE FRA* UK NETH BELG

2016A 2021E

Overbuild* to expand by 10pp to 25% by 2021

Italy likely to see the biggest increasing in competition from over-build

Competition from overbuild likely to remain intense in Sweden, Portugal and Spain

0%

5%

10%

15%

20%

25%

30%

ITA PORT ESP SWITZ SWED AVG FRA DE UK DEN NETH BELG NORW

% of homes passed by Challenger FTTH

Increase in Challenger FTTH homes passed

2021E vs 2016


Pricing the risk to the telcos from overbuild


18/09/2017

The difference between prospective fibre overbuild and current incumbent NGN coverage represents a ‘fibre

gap’ which the telco has to adjust to, either by losing market share or building FTTH or a mix of both

We then adjust for the % of group revenues coming from domestic fixed line and then compare to valuation

Market

Stock Fibre

overbuild

(2021E)

Incumbent

NGN

coverage

(2016)

year 5 fibre

gap

% of group

from

domestic

fixed line

expsoure to

fibre

overbuild risk

EV/EBITDA

Belgium PROX 3% 2% 1% 43% 0.2% 6.29

Denmark TDC 39% 63% -24% 49% -11.8% 6.22

France Orange 14% 24% -10% 27% -2.7% 6.54

Germany DT 15% 1% 14% 13% 1.8% 6.91

Ireland 33% 3% 29% -

Italy TI 36% 5% 32% 55% 17.5% 5.16

Netherlands KPN 7% 29% -22% 42% -9.2% 7.33

Norway TNOR 37% 48% -11% 9% -1.0% 6.60

Portugal 98% 72% 25% -

Spain TEF 76% 93% -17% 15% -2.5% 6.73

Sweden TELIA 102% 33% 69% 21% 14.5% 5.96

Switzerland SCMN 54% 37% 16% 47% 7.7% 7.60

UK BT 8% 1% 7% 70% 4.8% 6.29


Most telcos are on the trend-line. SCMN and KPN seem expensive, TDC and TI seem cheap

However, the risk isn’t linear as fibre over-build is a double-whammy (y=x2), increasing

competition and the need to build. So TI isn’t so undervalued if OpenFibre does build. But e.g.

TDC does look undervalued, whilst SCMN looks expensive (in our view)

Pricing the risk from overbuild

Source: Credit Suisse estimates * difference between Challenger FTTH coverage of homes by 2021E vs incumbent FTTH coverage in 2016

18/09/2017

PROX TDC ORA

DT

TI

KPN

TNOR TEF

TELIA

SCMN

BT

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0%

Potential fibre gap*

EV

/EB

ITD

A 2

01

7E


On this basis, the lower NGN coverage today, the bigger the problem

Fibre laggards obviously come out more expensive on this view

Pricing the risk – if telcos have to build out the same FTTH

Source: Credit Suisse estimates * note FTTH-adj EV adds on to current EV the cost of increasing incumbent’s NGN (FTTH and coax) coverage to

75% of homes in the domestic market by end 2021E assuming eu750 per home passed

18/09/2017

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

KPN DT BT SCMN PROX ORA TEF TNOR TI TELIA TDC

EV/EBITDA FTTH-adj* EV/EBITDA

EV/EBITDA vs FTTH-adjusted* EV/EBITDA


TEF stands out with by far the most FTTH coverage and F-M adoption.

Most telcos still have a lot of work to do (F-M adoption and NGN build <50%)

Best incumbent defence is to invest in fibre and F-M

Source: Company data, Credit Suisse estimates * note includes coax and FTTH, excludes FTTc

18/09/2017

PROX

TDC

ORA

DT

TI

KPN

TNOR

TEF

TELIA

SCMN

BT

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80% 100% 120%

% o

f con

sum

er fi

xed

cust

omer

s

on F

-M b

undl

e

Incumbent NGN* build (% of hp) end 2016


Valuation can also reflect non-domestic factors (e.g. TMUS in DT’s case)

But many of the domestic plays are still not pricing in relative risk fully

e.g. SCMN and KPN look fully valued, TDC looks undervalued

TEF Spain looks undervalued on this basis (though we are still cautious Tef Latam)

Development of Domestic business vs stock valuation


18/09/2017

PROX TDC ORA

DT

TI

KPN TNOR

TEF

TELIA

SCMN

BT

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%

EV

/EB

ITD

A 2

017E

FTTH build (%hp) + F-M adoption (% of consumer subs)

R2 = 0.11

Valuation vs development of domestic business measured in FTTH build and uptake of F-M bundles

(blue line = actual correlation, red line = theoretical correlation)


List of recommendations

Source: Credit Suisse Research

18/09/2017 15 European telecoms research

List of recommendations



18/09/2017

Building the Gigabit Society: The factors driving FTTH build – an update one year later


18/09/2017


Telco investment

in high speed

broadband

Challengers

building

FTTH Cable

1Gbps via

Docsis3.1

5G mm-wave

1Gbps

Rising

demand for

speed

Falling

Cost to

Build FTTH

Increasing public investment

In broadband

Private investment in infrastructure

Regulation

to target 100Mbps+ (?)

Factors driving incumbents to build FTTH are strengthening

Public investment is increasing in laggard markets e.g. IT, DE, UK – Increasing the risk of crowding-out

Private investment is also responding – e.g. Enel in IT, Vodafone in DE

5G is happening already, with 4.5G adopting massive MiMo


Subscriptions to high speed broadband lines continues to rise steadily – 7 markets at 50%+ now

1. Increasing demand for high speed broadband

18/09/2017

% of broadband subs on 30Mbps+ bband packages (inc cable)



FTTH demand slowly accelerating

18/09/2017

FTTH net adds in W.Europe

Source: Regulator data, Credit Suisse Europe research

FTTH subs as % of households


Running at 800-1000k per qtr in 2016

Sweden approaching 50% of homes

using FTTH

0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014 2015 2016 2017E

Average take-up rate - FTTH subs vs FTTH homes passed

0%

10%

20%

30%

40%

50%

2012 2013 2014 2015 2016

Belgium Denmark France Germany Ireland

Italy Netherlands Norway Portugal Spain

Sweden Switzerland UK


Source: Company data, Credit Suisse research

18/09/2017

2. Falling cost to build FTTH

Source : atpableplough

Mole ploughing in action

Micro-trenching in action

Source : TalkTalk

Sharing of physical infrastructure

Source : BT.co.uk


18/09/2017

Civil engineering has traditionally been 70-80% of the cost of new-build

Planning controls make a big difference – Horizontal

Digging or aerial?

Digging: Ducts vs micro-trenches

– Verticals

External (Romania, Spain) or internal (Italy, Germany)

Self-install? Enabling ‘self-digging’ has helped take-up rates in Norway

– Without any planning and access restrictions, FTTH build would be much cheaper

EU has regulated to lower build costs – EU Directive 2014/61/EU on lowering broadband build costs

Encourages sharing of existing and new infrastructure, including telcos and utilities (“obligation to meet reasonable requests for

access to deploy high speed broadband”)

Right to negotiated co-ordination of civil works

Faster granting of build permits.

Easier access in new buildings

– These are incremental improvements to build costs

But planning is ultimately a national and local issue and currently varies significantly

– e.g. Germany to examine a loosening of restrictions on micro-trenching and building regulations

– e.g. Ofcom to allow OR cost recovery on clearing ducts and poles (£100/hp)

Planning


18/09/2017

Analysys Mason calculated £1500-4000 FTTH cost per home passed with mole-trenching in

rural areas

– £1000-3000 if use BT PIA offer as well

– They concluded funding FTTH in rural areas could be challenging

But if the demand is there, customers become willing to improve economics by committing to

the project and paying an upfront fee

– Swedish consumers paying SEK20,000 for fibre to be connected

– Gigaclear charging £100 connection fee + £125 installation fee

Rising demand improves build cost economics

Self-build PIA +

geotype 6b 7b 6b 7b

Cost per home passed (£) 1570 2400 1055 1710

Cost per home connected (£) 2840 3970 1910 2820

Payback periods >10 yrs >10 yrs >10 yrs >10 yrs

IRR <<10% <<10% <10% <10%

Source: Analysis Mason, 2012

Cost per home passed in rural areas (geotypes 6 and 7)

“Sourcing adequate amounts of capital for NGA infrastructure in

final third [i.e. rural] areas could prove to be challenging” Analysys Mason, 2012

Source : Gigaclear


Enel expecting to fund OpenFibre’s FTTH

build of 19m homes in Italy 60% with non-

recourse project finance debt

– eu500m of which has already been

arranged (Unicredit, BNP, SocGen)

– Remaining eu3.0bn to be arranged in

2018 once Infratel-B is signed and having

hit initial build milestones

Mostly from commercial project finance

bank arrangers

EIB funding may also be available

– We expect Enel to build Infratel A&B with

just 60% of available maximum Italy

government subsidy

– Enel funding the c. 75% overbuild of TI

with just eu500m of equity

3. Private investment in fibre continuing to rise

Source: Company data, Credit Suisse Equity research

18/09/2017

0

1000

2000

3000

4000

5000

6000

7000

8000

Exp

ecte

d fu

ndin

g of

Ope

n F

ibre

(eu'

m)

Equity from Enel Expected project finance debt Expected Public subsidies

Expected funding of Open Fibre


Vodafone also showing initial interest in co-investment in UK with Openreach

Vodafone to invest eu2bn in fibre in Germany

Source: Vodafone


80-90% of non-dense awards going to

challengers, investing private funds alongside

the public subsidy available

– SFR (Altice)

– Covage (Cube Infrastructure & Partners

Group)

– Axione (Caisse des Depots, FIDEPP,

Bouygues)

– Altitude (Jean-Paul Riviere)

Government expects non-dense to be 1/3 by

subsidy. Including local authority funding,

around 50% of cost is privately funded on

our estimate

France local authorities tend to favour

challengers to Orange and Orange expects

to win only 20% in total in these regions

Challengers building most of non-dense France

Source: Arcep

18/09/2017

Non-dense awards in France to date


EU ‘Juncker’ plan to invest eu315bn in

infrastructure, part funded by the EC

Eu27bn funding signed so far

– Includes loans to incumbents, including TI,

DT, Ora, OTE

– And loans to challengers, including IP Only,

Ewetel, Fastweb, Iliad , Jazztel, Hyperoptic,

Axione, several local French fibre co’s

National governments continue to fund

broadband targets

4. Rising public investment in fibre

Source: EIB, Credit Suisse Equity Research

18/09/2017

EIB loans to telecom sector (eu’m)

Source: Telegeography

Source: telecompaper


18/09/2017

More EU countries are developing national bband plans

Source: Government of Ireland

Cluster Description Cities Popul-

ation

No of

buildings

Pops Target Expected

investment

cost**

Coverage

today

Government support

A Top cities 15 15% 0.57 9.4 100Mbps eu1bn 30Mbps FTTc access to debt and tax relief

B Conditions don’t guarantee acceptable returns 1120 45% 4.50 28.2 100Mbps eu6.1bn 30Mbps FTTc access to debt, tax relief and some limited grants

C Marginal areas of market failure* 2650 25% 3.50 15.7 100Mbps eu4.2bn ADSL access to debt, tax relief and bigger grants

D Areas of widespread market failure*. Especially in the south of Italy 4300 15% 2.30 9.4 100Mbps eu1bn ADSL eu12.3m of public subsidy required

* market failure means failure of market to build 100Mbps by 2020

** based on Italian government broadband plan

Italy national broadband plan

Ireland national broadband plan German digital alliance

Source: BNetzA



18/09/2017

Local municipalities have been funding FTTH for many years in some markets – Sweden, Norway, Denmark, some German cities

– Sweden is a notable success: the first country in Europe to develop a broadband policy (1999) and

now has the widest FTTH network roll-out and highest level of take-up

Public funding is now expanding elsewhere in Europe, particularly where NGA

development is slow and build costs appear to be high

Rising public investment

Source: Government data, Credit Suisse Equity Research, *Tenders currently being awarded

FTTH

coverage

(end 2015)

Public

construction

Netwoork

construction

subsidy

Public

finance

Vouchers Tax credits Note

Sweden 83% ✔ ✔ Public utility projects

Spain 82% All privately funded and built

Portugal 65% All privately funded and built

Norway 58% ✔ Public utility projects

Denmark 55% ✔ Public utility projects

Neths 33% All privately funded and built

Switz 28% ✔ JV between Swisscom (60%) and local utilities (40%)

Italy 25% ✔ ✔ ✔ Public utility (Metroweb) and now public funding for private build

France* 20% ✔ ✔ ✔ Public support for local projects in non-dense

Ireland 10% ✔ Public funding for private build

Germany 5% ✔ City networks

UK 1% Public funding focused on 10Mbps currently

Belgium 0%

Summary of public investment initiatives


Infratel plans to over-build TI across 30% of

homes in Italy

State threatened to sue TI when TI lost the

Infratel bid to OpenFibre and planned its own

FTTx build in the same area.

This planned overbuild by OpenFibre has

lowered TI’s local loop value by eu10bn

Latest proposed European Council (i.e.

Member States) draft of new Framework

would protect public investment in fibre across

the EU in the same way.

Germany considering larger public investment

in fibre. Funding of FTTx in ‘non-dense’ France

remains a long-term threat to Orange. UK

govt. also starting to subsidise fibre (£400m).

Growing threat of crowding out

18/09/2017

Source: telecompaper, July 2017

Source: Consilium, Sept 17


Impact of overbuild in Norway

18/09/2017

Telenor got c. 40% overbuilt by

utility fibre (Lyse).

Lyse developed a strong

customer proposition (altibox)

Has achieved 60% take-up

as a result


Norway market & incumbent line loss

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Market line loss, y/y TNOR retail line loss, y/y

TNOR retail+wholesale line loss, y/y

0%

10%

20%

30%

40%

50%

60%

70%

2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E

Norway FTTH homes passed

% homes passed - incumbent (FTTH + cable)

% homes passed - challengers

% homes passed - incumbent (FTTH)

-2.0% -2.2% -2.4% -2.5% -2.5% -2.5% -2.5%-3.2%

-4.0%-4.8%

-5.4%

-9.0%

-12.3%

-14.0%-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Q416 Q117 Q217

Telenor suffers worse line loss in sector

(retail line loss y/y)


TI lacks regulated access to Infratel

or Enel OpenFibre networks

Government also blocking overbuild

of Infratel by TI VDSL

OF building 30k hp / week and to

accelerate to 49k/ week

Vod and Wind signed as resellers

of OF – Wholesale price <eu10/m (?)

Potential impact in Italy


18/09/2017

0

5,000

10,000

15,000

20,000

25,000

30,000

2013A 2014A 2015A 2016A 2017A 2018A 2019A 2020A 2021A 2022A 2023A 2024A 2025A 2026A

Total lines TI total lines

TI retail lines TI wholesale lines

Other networks (inc OF)

TI lines fall from 2019 despite growing market

CS forecasts for OF/Infratel build and wholesale subs

FTTx plans for different Italian telco groups


Potential impact in Italy


18/09/2017

Variation of valuation of TI fixed line local network (eu’m) depending on long-term growth outlook

Scenario analysis: forecasts for TI fixed line assuming OpenFibre builds out


18/09/2017

5. EU regulation to change to encourage fibre


SMP? No

Yes

Unregulated

>30Mbps?

Yes

No Cost-based

access

regulation

3 tests

-competitive

constraint

-Equivalence -economic

replicability

Yes

Access obligation

But not cost

based

Current regime - simplified


EC proposing to impose on all networks

an obligation to grant access to wiring

and cables inside buildings or up to the

first concentration point. – This is to facilitate competition from new

networks

– This could be a new potential threat to cable

(e.g. MDUs)

– New network elements (e.g. FTTH) are excluded

from this obligation

Hawkish Member States (Neths, Belgium, UK) have

given up arguing for UMP and are now arguing for

more liberal use of this symmetric regulation of non-

replicable assets

– To potentially include more of the network

– And thereby allow regulation of cable as well as

incumbent

Some debate about extent of symmetric regulation

18/09/2017

Source: Europa, Sept 2016

Extract from proposed draft Telecoms Directives


18/09/2017

Trialogue process is about to start

– Likely to conclude in mid 2018

The new EU proposals will be subject to

revision and create uncertainty near term – But ultimately the EC, Member States and

Parliament are likely to find agreement about

stimulating investment in high speed broadband

Member States are also likely to continue

to pursue their own fibre strategies in the

mean time

New Framework gives a lot more options

to regulate and is likely in our view to lead

to increasing regulatory divergence, with

hawks regulating more, and doves less

Hawks: Neths, UK, Belgium

Doves: Germany, Spain, Nordics

Regulatory debate likely to continue to mid 2018


BEREC European

Commission

European

Parliament

Rapporteurs

Oettinger – DG DigEc

Vestager – DG Comp

Ansip Vice Pres

European

Council

President

Co-decision making process

28 Member States

28 NRAs


18/09/2017

Wholesale regulation of netco and alternatives is key

Source: Credit Suisse equity research

FTTH economics is highly dependent on pricing E.g. for a market entrant the FTTH network will need to be able to command

eu20/m wholesale price to offer sufficient potential returns to be funded

Lowering <100Mbps services to eu10/m cost-based pricing would undermine this

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0 5 10 15 20 25 30

FTTH ROE at different Netco wholesale prices *

ROE

Netco wholesale access price per month (eu)

ULL BSA VULA Sub-ULL * i.e. assuming eu1000 cost per hp, 50% take-up, 60% leverage, maintenance cost of 3% pa


18/09/2017

The good news – EU to protect 30Mbps+ pricing flexibility...


30Mbps

2020 100Mbps

2025

10

20

30

ULL

VULA

BSA

Higher returns for investment

in 30Mbps+ (e.g. FTTc)

were sanctioned by Neelie Kroes

Typic

al w

hole

sale

price

fro

m in

cum

bent te

lco in

euro

per

month


18/09/2017

…as lowering <100Mbps prices would impact >100Mbps

30Mbps

2020 100Mbps

2025

10

20

30

wholesale price (ex VAT)

retail price (ex VAT)

wholesale price

Price

in e

uro

per m

onth

Regulating sub-100mbps NGA on a cost basis would lower sub-100Mbps pricing. This would lower

what networks can charge for 100Mbps+ and undermine FTTH investment incentives

Lower

<100Mbps retail

prices would

undermine retail

prices for

>100Mbps

Old retail price

New retail price

New wholesale price*

Old wholesale price s

*unregulated wholesale

price for >100Mbps



CableLabs has announced full duplex Docsis.

Capable of up to 10Gbps symmetric on 1.2Ghz network

LBTY and Vodafone investing in 1Gbps now, investing in D3.1

6. Cable upgrading to 1Gbps+

Source: Cablelabs, Vodafone


5G remains in development – Technical standard (5G NR) still being

developed

Likely to be a form of OFDMA

Gains in speed coming from more array

antenna, beam-forming and more spectrum

5G networks to be rolled out from 2020 and

beyond

But: these technologies are already

being adopted in 4G – 32x MiMo being introduced

– 3 or 4 carrier aggregation

– 2.6GHz, 3.5Ghz, WiFi bands (LTE-U)

Phone modems continuing to improve – Cat18 devices have max 1.2Gbps speed

Up to 8 MiMo layers

Operators heading towards “gigabit

LTE” – Real-world speeds of 100Mbps

– Much faster than DSL and faster than basic

VDSL

7. 5G to increase wireless speeds

18/09/2017

Source: Light Reading, August 2017

Source: 5G Americas White Paper (Ryvasy Research), August 2017

5G still some way from mass-market


European MNOs are starting to adopt

unlimited data plans – Result of increased 4.5G network capacity

– Popular with customers

Mobile starting to exceed DSL

speeds

Increasing risk of DSL substitution

Unlimited data plans are closing the price gap vs DSL

18/09/2017

11 markets in W.Europe now have at least one unlimited data plan on offer


Source: Akamai, State of the Internet Report Q1 17, CS Research


Most MNOs can handle 10-20GB of average usage per sub before hitting congestion and

having to increase network investment substantially

Average DSL usage is 100GB+, but with a significant % well below this average

Also, there is excess outside the busy cell areas

So there is mobile capacity for a significant portion of DSL subs to migrate over to mobile-only

Most MNOs have the capacity to offer unlimited data

Source: Credit Suisse estimates Unlim ited mobile data plans - Popular, but how sustainable?. *assuming same usage patterns as assumed

for Finland, including 2.5bps/Hz on DL, 7% of daily traffic in Busy Hour (BH), UL=20% DL traffic, 50% of BH traffic in 15% of cells, 70% maximum

average sector load in BH, 75% reach on spectrum above 2.1Ghz

18/09/2017

0

10

20

30

40

50

60

DNA Telia Elisa TMUS VZW AT&T Sprint T-MoDE

Vod DE O2DE Vod UK EE O2 3UK SCMN Sunrise Salt Orange SFR Bouy Iliad KPN Vod-ZigT-M NL Tele2 TIM Vod IT Wind-Tre

Max usage (GB) per month inc high band

Maximum monthly data usage (GB) per subscriber * - using current network and spectrum


https://plus.credit-suisse.com/r/V6NStR2AF-WEoD1f






ADSL is still the majority of FBB lines in several markets


18/09/2017

0%

20%

40%

60%

80%

100%

High speed broadband DSL

% of fixed broadband (FBB) lines that are still ADSL


Impacted by mix of fibre and mobile substitution

DT, BT and TI quite exposed if this trend spreads

ADSL is declining in most markets

Source: Regulator data, Company data, Credit Suisse research

18/09/2017

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

Q3 16 Q4 16 Q1 17

Growth (decline) in market ADSL lines y/y


Market line growth has stalled despite

recovering European economy

A slight correlation with mobile speed

premium vs fixed

This impact will probably increase as

mobile speeds increase and more MNOs

adopt unlimited plans

A mobile speed premium brings slightly worse FMS

Source: Credit Suisse Research. Note: Red dot = market where unlimited mobile data is the market

norm, Orange is where unlimited mobile data plans have been recently introduced

18/09/2017

y/y line growth

Mild correlation between Mobile speed premium and FBB growth

Mobile

speed p

rem

ium

vs

Fix

ed (

Mbps)

Growth in FBB lines y/y y/y growth in FBB lines



18/09/2017

In the Telcos defence….Vectoring and pair bonding present a viable interim solution from a technological point of view

Source: ispreview


18/09/2017

DT strategy at CMD 2012

Source: DT investor presentation , 2012


18/09/2017

Modular build is best for speed of delivery and risk/reward Gradually deepening fibre allows the network to grow with demand

30Mbps 100Mbps 1Gbps

Euros 2016 demand

Fibre to the…. …Central office

…Street cabinet

…Last Node*

…Home

2030 demand

Cost to build

* last point of loop aggregation in the network e.g. the “distribution point” in BT’s case

To get the average home above 100Mbps the telco has to increasingly build fibre beyond the cabinet (on average)

500Mbps

Source: Credit Suisse research


18/09/2017

Leaves a big opportunity for others to cherry-pick the market

– UK: VirginMedia, Hyperoptic, Gigaclear, CityFibre, … and Vodafone?

– Germany: Deutsche Glasfaser, Inexio, Ewetel, Vodafone….

– Italy: Enel is now overbuilding TI extensively

– Neths: CIF and utility overbuild small but growing

– Switz: Utilities continuing to build without Swisscom co-investment

Demand for FTTH is likely to reach a tipping point i.e. be non-linear

– There is a risk to the telco of mis-judging how quickly demand grows

– e.g. Telenor – now having to build FTTH to catch-up with utilities

National government support can change quite quickly

– Risk that politicians in FTTc/Gfast markets decide one day that they are getting ‘left behind’

– e.g. Italy – Renzi’s strong support for Enel’s fibre build

– UK has shifted from debate about network separation to getting fibre built

– German government position has also pivoted towards FTTH during 2017 (Minister Dobrindt)

– Neths, Belgium and Switzerland next?

This is leading to FTTc telcos having to shift to FTTH faster

– e.g. For BT : building FTT-distribution point sooner

– e.g. For DT : building fibre in the areas not addressed by vectoring

– E.g. For TI: building more FTTH and building FTTc in more low dense areas

This suggests ongoing pressure on CAPEX for the telcos that backed FTTc

– including BT, DT, TI, KPN

But: This has left a risk of the telco ‘leaving it too late’


18/09/2017

Building the Gigabit Society: EU fibre development


W.Europe average 32% of homes passed by FTTH (end 2017)*

Growing divergence in build. Belgium, UK and Germany falling further

behind. Neths losing its early lead.

FTTH development by market

Source: Company data, Credit Suisse estimates* note: net of overbuild by competing FTTH networks and co-investment.

18/09/2017

0%

20%

40%

60%

80%

100%

120%

Spain Portugal Sweden Denmark Norway Switz WEaverage

Neths France Italy Ireland Germany UK Belgium

2016 2017E

FTTH premises passed relative to households in country


One third of W.Europe is now passed by FTTH (end 17E)

18/09/2017

Premises passed by FTTH relative to households – 2012 to

2017E (maximum is c. 125% - see note)

Source: Company data, Credit Suisse estimates, Note: we compare fibre network coverage of premises (homes and business) relative to homes.

Total premises = typically in EU c. 125-140% of homes but varies by market

Premises passed by FTTH relative to

households – WE Average

0%

10%

20%

30%

40%

50%

2012 2013 2014 2015 2016 2017E

Weighted average Simple average

Growing +5pp per annum.

Simple average is higher – the average WE market is 44% covered, +6pp pa

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017E

Belgium Denmark France

Germany Ireland Italy

Netherlands Norway Portugal

Spain Sweden Switzerland

UK Weighted average


Average incumbent FTTH coverage of 22% at end 2017E. +3pp in 12m – Simple average is higher – average market is 37% covered by incumbent FTTH*

Spain and Portugal at 100% of homes (max is c. 130% due to B2B)

Pace of build still varies significantly by market, driven by cost

FTTH* homes passed by incumbents

Source: Company data, Credit Suisse estimates, * note includes coax of TDC and Telenor

18/09/2017

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017E




Incumbent FTTH homes passed % WE average

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017E

Average - weighted Average - simple


Gigabit coverage by incumbent telco at end 2016

18/09/2017

Source: Company data, Credit Suisse research Note: we compare fibre network coverage of premises (homes and business) relative to homes. Total

premises = typically in EU c. 125% of homes but varies by market

Premises passed by Incumbent Gigabit networks (FTTH + coax)

relative to households – at end 2016

0%

20%

40%

60%

80%

100%

120%

TEF PT TDC TNOR Telia KPN SCMN Orange TI Eircom Proximus DT BT

FTTH Coax


FTTH built by challengers, as % of total households

18/09/2017

Premises passed by Challenger FTTH networks relative to households – end 2016

Source: Company data, Credit Suisse research Note: challenger FTTH figure includes active FTTH network built by challenger, so e.g. excludes co-

investment by challengers in semi-dense in France

0%

20%

40%

60%

80%

100%

120%

Sweden Spain Portugal Denmark Norway Switz Italy Germany Neths France UK Ireland Belgium


Incumbent vs challenger NGN coverage

Source: Company data, Credit Suisse estimates note: NGN coverage includes incumbent-owned coax in case of Denmark and Norway

18/09/2017

Premises passed by Incumbent and Challenger NGN

networks relative to households – end 2016

Belgium

Denmark

France Germany

Ireland

Italy

Netherlands

Norway

Portugal Spain

Sweden

Switzerland

UK

0%

20%

40%

60%

80%

100%

120%

0% 20% 40% 60% 80% 100% 120%

Hom

es p

asse

d by

Cha

lleng

er F

TT

H

Homes passed by Incumbent FTTH

Less FTTH overbuild

More FTTH overbuild

Belgium

Germany

Ireland

Italy

UK

0.0%

5.0%

10.0%

15.0%

20.0%

0.0% 5.0% 10.0% 15.0% 20.0%

Less developed WE markets –

end 2016


Western Europe 52% covered by 2021E – likely to be well ahead of the USA

Average WE market 61% covered by 2021E (simple average)

UK, Germany and Belgium still behind, though will also offer high speed VDSL

Neths overtaken by France, Italy and Ireland

Fibre coverage by 2021E

Source: Company data, Credit Suisse estimates * Note: maximum is c. 125-140% due to fibre to business premises

18/09/2017

Premises passed by FTTH relative to households*

0%

20%

40%

60%

80%

100%

120%

140%

160%

Spain Portugal Sweden Norway France Denmark WEaverage

Switz Italy Ireland Neths Germany UK Belgium

2016 2021E


CS forecasts for fibre coverage in EU by end 2021E

18/09/2017


Premises passed by FTTH relative to households – 2012 to 2021E

0%

20%

40%

60%

80%

100%

120%

140%

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E




% of HH FTTH Homes Passed


18/09/2017

NGN coverage by incumbent telco – 2016 vs 2021E

Premises passed by Incumbent NGN relative to households – 2016 and 2021E


0%

20%

40%

60%

80%

100%

120%

140%

PT TEF TNOR TDC Orange KPN Telia SCMN Eircom TI PROX BT DT

2016 2021E


We forecast weighted average 31% coverage by 2021E – Build continuing at 3pp, with Spain/Portugal slowing but DE/UK/IT accelerating

DE/UK reduce the weighted average. The simple average is a lot higher –

average market is 49% covered by incumbent by 2021E

Incumbent telco FTTH* build – forecasts to 2021E

Source: Company data, Credit Suisse estimates *note: Norway and Denmark include coax owned by incumbent

18/09/2017

0%

20%

40%

60%

80%

100%

120%

140%

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E




0%

20%

40%

60%

80%

100%

120%

2012 2014 2016 2018E 2020E


Incumbent FTTH homes passed % WE average


We forecast incumbents and challengers to build at the same pace

Challengers building as fast as incumbents


18/09/2017

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

% homes passed by FTTH - incumbent % homes passed by FTTH - incumbent total (before adj for overbuild)

FTTH premises passed vs homes in the market


Weighted average coverage of 18% at end 2017E – vs 22% for incumbents

Growing at same +3pp pace as incumbents

Simple average is higher. Average market is 30% covered end 2017E

Challenger FTTH coverage

Source: Company data, Credit Suisse estimates Note: France excludes co-investment in semi-dense area

18/09/2017

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017E




Challenger FTTH homes passed % WE average

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017E



We forecast 25% coverage by challengers by 2021E

– Simple average is higher. Average market is 35% covered by 2021E

Wide variation will continue – driven by passive access and subsidy

Source: Company data, Credit Suisse estimates *note France excludes co-investment in semi-dense regions

18/09/2017

FTTH built by challengers – 2016 vs 2021E

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E




0%

20%

40%

60%

80%

100%

120%

2012 2014 2016 2018E 2020E

Challenger FTTH homes passed % WE average


Incumbent vs challengers – our forecasts for 2021E

Source: Company data, Credit Suisse estimates Note: France excludes co-investment

18/09/2017

Belgium

Denmark

France Germany

Ireland

Italy

Netherlands

Norway

Portugal

Spain

Sweden

Switzerland

UK

0%

20%

40%

60%

80%

100%

120%

140%

0% 20% 40% 60% 80% 100% 120% 140%

Hom

es p

asse

d by

FT

TH

- c

halle

nger

s (e

nd 2

021E

)

Homes passed by FTTH - incumbent (end 2021E)

Less overbuilt by challengers

More overbuilt by challengers


Made worse if incumbent is also slow to build FTTH (Telenor)

Incumbent cost of building fibre < cost of not building fibre

Overbuild by challengers correlates with incumbent line loss


18/09/2017

Proximus

TDC

Orange

DT

TI

KPN

Telenor

Telefonica

Telia

Swisscom

BT

R² = 0.5358

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

0% 20% 40% 60% 80% 100% 120%

Incu

mbe

nt li

ne lo

ss y

/y Q

2 17

(

reta

il an

d w

hole

sale

)

% of homes passed by Challenger FTTH end 2016


Markets where FTTH challengers are a bigger threat


18/09/2017

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

Switzerland

% of homes passed - incumbent % of homes passed - challengers

0%

20%

40%

60%

80%

100%

120%

2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E

Norway

% homes passed - incumbent (FTTH + cable)

% homes passed - challengers

% homes passed - incumbent (FTTH)

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

Italy

% of homes passed by incumbent (inc Flash Fibre(

% of homes passed by challengers (ex Flash Fibre)

% of homes passed by challengers (inc Flash Fibre)

0%

20%

40%

60%

80%

100%

120%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

Sweden



Vodafone has signed a contingent

wholesale deal with TEF – Vod believes its investment in cable and FTTH

was instrumental in TEF improving its wholesale

offer.

– This stalls Vod FTTH coverage at 3.5m hp (inc

network sharing with Ora)

But Orange is still building – Already covers 10m homes (including c. 1m

shared with Vod)

– And could cover 14m of homes by 2021E (2/3

of households)

– Would likely drive price down given sunk-cost

economics

– Overbuild using PT ducts has impacted Meo

and NOS for the same reason

– This overbuild is likely to depress FTTH retail

pricing and may threaten more-for-more on

Fusion at some stage

Spain….Orange remains a threat


18/09/2017

0%

20%

40%

60%

80%

100%

120%

140%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

Spain – If Orange builds out to 14m



France….it’s complicated


18/09/2017

0%

20%

40%

60%

80%

100%

120%

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

France

% of homes passed - incumbent % of homes passed - challenger

0

5,000

10,000

15,000

20,000

25,000

30,000

2016 2017E 2018E 2019E 2020E 2021E

FTTH homes passed with co-investment obligation

By Orange By Others

France is governed by symmetric

regulation in semi-dense (48%) and

non-dense areas (27%)

Orange is likely to continue to do

most of the FTTH build

Challengers can pay eu500 to

unbundle a line from Orange and

also pay eu5/m

Orange has the same symmetric

right to unbundle on challenger fibre

in semi-dense and non-dense areas

Orange also collects fees for use of

its passive network

See ORAN.PA: Orange - A closer look at

the non-dense areas


https://plus.credit-suisse.com/r/V6Ewlc2AK-V4Gv







Markets less exposed to FTTH challengers currently

18/09/2017

0%

20%

40%

60%

80%

100%

120%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

Neths

% homes passed - incumbent % homes passed - challengers

0%

20%

40%

60%

80%

100%

120%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

Belgium



The incumbents in these markets have an opportunity to protect long-term competitive position

Equally, FTTH challengers also have a significant investment opportunity in these markets

0%

20%

40%

60%

80%

100%

120%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

UK

Incumbent FTTH coverage Challenger FTTH coverage

0%

20%

40%

60%

80%

100%

120%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

Germany



Threat from Challenger FTTH looks small

currently

However:

– Virgin Media is also expanding

coverage with coax/FTTH by c 10pp

(Project Lightning)

– Vodafone has publicly stated a

potential interest in building FTTH over

Openreach

Vod’s Demand for exclusivity

seems in accordance with draft EU

regulation

Would be funded potentially by

Group asset disposals

In this scenario BT could go from 50% to

75% overbuilt by NGN (coax +

challenger FTTH) by 2021E, assuming

Challenger FTTH focused on non-cable

areas

UK…threat bigger than it first looks


18/09/2017

0%

20%

40%

60%

80%

100%

120%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

UK (assume no build by Vod)

Incumbent FTTH coverage Challenger FTTH coverage Cable coverage

0%

20%

40%

60%

80%

100%

120%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

Scenario: potential over-build of BT (inc coax and FTTH) including Project Lightning and Vod building 5% of hp

Scenario: potential over-build of BT Incumbent FTTH coverage


Exposure of European telco stocks to FTTH over-build risk varies

significantly based on extent on overbuild, amount of build by incumbent and

diversification of Group beyond domestic wireline

Scenario analysis: Risk to forecasts from FTTH overbuild

Source: Company data, Credit Suisse estimates * based on CS forecasts for Challenger FTTH build-out and assuming that FTTH take-up rate grows

by 3pp over 2016-2021E and that Challenger and Incumbent take 50% each of FTTH customers where they over-build each other with FTTH

18/09/2017

-18% -16% -14% -12% -10% -8% -6% -4% -2% 0%

Telia

TI

Swisscom

TDC

BT

KPN

Telefonica

Orange

Proximus

Telenor

DT

Scenario: decline in Group EBITDA 2021E vs 2016 if Fibre take-up rate grows 3pp per annum over 2016- 2021E*


18/09/2017

Building the Gigabit Society: EU fibre demand


partly a base effect, but also reflects growing fibre construction

Europe is leading OECD on growth in fibre subscriptions

Source: OECD


Fibre adoption continues to vary significantly across Europe

Source: OECD


Price of 400GB of usage per month on 100Mbps+ service, PPP adjusted (Dec-16)

NGN broadband more affordable in Europe than Americas

Source: OECD, Credit Suisse Research Note: reflects FTTH or cable broadband pricing, depending on local market conditions


FTTH - % of homes passed and take-up rates


18/09/2017

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Spain Sweden Portugal Denmark Norway Switz Neths France Italy Germany UK Ireland

FTTH Homes Passed, 2016 (% of HH) FTTH subs as % of FTTH homes passed

FTTH homes passed and penetration


Take-up rate at 32% end 2016 – Grew 3pp in 2016

– We forecast an acceleration in 2017

c. 60% in most advanced

markets – Norway and Sweden

FTTH take-up rate slowly growing


18/09/2017

0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014 2015 2016 2017E

Take-up rate by market – FTTH subs vs FTTH homes passed

Denmark France Germany Italy

Netherlands Norway Portugal Spain

Sweden Switzerland UK total

0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014 2015 2016 2017E

Average take-up rate - FTTH subs vs FTTH homes passed

0% 10% 20% 30% 40% 50% 60% 70%

SWITZ

DE

UK

ESP

FRA

Average

DEN

PORT

ITA

NETH

SWED

NORW

Take-up rate by market – end 2016 (net of overbuild)


Sweden – most netcos promote

wholesale access. Reasonable

competition between resellers (including

Telia, Com Hem, Telenor, Bredband2

and Bahnhof).

Norway - Altibox good service

– Lyse has helped create common and

coordinated approach among the

netcos

Denmark- Waoo! A weaker platform

– lack of coordination between netcos

Switz – lack of competition in reseller

market so far

– Means Swisscom has less incentive

to sell

– Could change with SALT

Penetration partly reflects age of network, competition among resellers and also quality of service platform


18/09/2017

DEN

FRA

DE

ITA

NETH

NOR

PORT ESP

SWED

SWITZ

UK

R² = 0.234

0%

10%

20%

30%

40%

50%

60%

70%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Tak

e up

rat

e (F

TT

H s

ubs

vs F

FT

H h

p)

% of current FTTH network built in the last 5 years

Age of FTTH network explains only part of the variation in take-up rate


FTTH take-up not particularly correlated with GDP


18/09/2017

DK FR

DE

IE

IT NL

NO

PT

ES

SE

CH GB

R² = 0.0667

0%

10%

20%

30%

40%

50%

60%

70%

0 10000 20000 30000 40000 50000 60000 70000 80000 90000

Take-u

p r

ate

, 2016

(Subs a

s %

Hom

es P

assed)

GDP Per Capita, 2016 (USD)

Take-Up Rate vs GDP Per Capita


FTTH take-up steadily growing

FTTH now 10% of fixed broadband subs

in W.Europe

– 55% in Sweden

– 38% in Norway

Cable share slightly rising (DE helps)

– Cable flat in most markets where fibre

roll-out is extensive

DSL share falling inexorably

FTTH subscriber market share

Source: Regulator data, Credit Suisse research

18/09/2017

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Fix

ed b

road

band

mar

ket s

hare

xDSL Cable Fibre (FTTH) Others (FWA)

W.Europe

0%

10%

20%

30%

40%

50%

60%

70%

80%

Fix

ed b

road

band

mar

ket s

hare

xDSL Cable Fibre (FTTH) Other

Sweden

0%

10%

20%

30%

40%

50%

60%

70%

80%

Fix

ed b

road

band

mar

ket s

hare

xDSL Cable Fibre (FTTH) Others (eg FWA)

Norway


FTTH subscriber market share in other fibre markets

18/09/2017

Source: Regulator data, Credit Suisse research

Denmark

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Fix

ed b

roa

db

an

d m

ark

et

sha

re


Spain

0%

10%

20%

30%

40%

50%

60%

70%

80%


Portugal

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

xDSL Fibre (FTTH) Other (incl cable)

France


18/09/2017

Building the Gigabit Society: Country by country


Belgium

18/09/2017

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

PROX retail PROX total BEL

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Belgium total broadband lines ('000)

0%

10%

20%

30%

40%

50%

60%

70%

80%

xDSL Cable Other (FWA)

Line loss, y/y Fixed broadband market share by technology

Fixed broadband lines (‘000) Little FTTH in Belgium currently

Cable and DSL market share relatively

stable

Proximus plans to build 50% by 2032

This would leave Belgium well behind most

European markets

Proximus and Telenet offer high speed

broadband but the slow FTTH build leaves

the risk of riding pressure from government

policy and overbuild by challengers

Source: Company data, regulator data, Credit Suisse research


18/09/2017

Proximus announced its intention to pass 40% of

Belgian homes within 10 years and 50% within 15

years

– Announcement made in December 2016

– CAPEX guidance increased to ~€1bn/year

Proximus announcement reflected growing political

and competitive pressure to invest in FTTH

– Belgian FTTH build so far has been very limited

– Belgian cable coverage is close to 90%

Proximus will likely (in our view) have to speed this

build plan at some point (lowering FCF further)

Proximus – likely to need to speed up FTTH build Proximus announced intention to pass 50% of homes in 15 years

Source: Proximus fibre presentation December 2016


Belgian FTTH build so far has been minimal

0

10

20

30

40

50

60

70

80

90

100

% c

over

age

of h

ouse

hold

s

Belgian cable coverage at around 90%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Sweden Spain Portugal Norway Denmark Neths Switz Italy France Ireland Germany UK Belgium

Source: Source: OECD (2010), Indicators of broadband coverage, OECD, Paris


Denmark

18/09/2017

-9.0%

-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

TDC retail TDC total DEN

0

500

1,000

1,500

2,000

2,500

3,000

Denmark total broadband lines ('000)

0%

10%

20%

30%

40%

50%

60%

70%

80%



Fixed broadband lines (‘000) Total lines and total broadband lines

slightly falling on mobile substitution

Fibre lines now 20%

Cable has still taken some share

DSL in steady decline



Denmark has seen extensive FTTH

build-out by utilities, particularly in rural

areas

In 2010 most of the utilities formed a

consortium (Waoo). However, Waoo

has been partly dissolved and is now

only 9 utilities (down from ~15 at peak)

The biggest independent utility (SE)

bought #2 cable operator Stofa in 2012

and is buying Boxer (DTT) – could move

into cable wholesale outside its

footprint. SE is the natural consolidator

of utility fibre (successful penetration in

own footprint, strong balance sheet) but

many of the utilities appear unwilling to

exit

Denmark

18/09/2017

TDC’s main avenue for offering

high-speed broadband is via its

cable network covering ~50% of

homes in Denmark

TDC also bought DONG’s FTTH

business in Copenhagen (~200k

homes) and has a wholesale

agreement with Ewii (~100k) on

Fyn. But for regulatory reasons it

is constrained from consolidating

more of the utility fibre


Denmark FTTH market


18/09/2017

Over 50% of homes passed by FTTH

(2016A)

Mainly by utilities and a bit by TDC

Waoo main utility consortium (~25% h-

hold coverage) with several indep.

utilities too (SE/Stofa, Ewii…)

TDC cable coverage ~50% with TDC

FTTC/FTTH in a further ~20%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2012 2013 2014 2015 2016

FTTH homes passed ('000)

TDC (ex cable) Waoo! (ex SE) SE/Stofa (combined) Other (Ewii etc)

0

100

200

300

400

500

600

2012 2013 2014 2015 2016

FTTH subs ('000)


0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014 2015 2016

FTTH % buildout and FTTH subs (% of homes)

% homes passed by FTTH % penetration of FTTH homes passed


CS forecasts for Denmark’s FTTH market

Source: Company data, regulator data, Credit Suisse estimates

18/09/2017

We forecast

c.1.8m FTTH homes passed by 2021E

Waoo coverage rising from 25% of

homes to nearly 30%

Only coverage expansion by TDC

We expect FTTH subs to grow from

500k to 800k, ie from 33% of subs to

46%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E



0

100

200

300

400

500

600

700

800

900

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

FTTH subs ('000)


0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

FTTH % built out & FTTH subs (% take-up penetration of hp)



Denmark has seen a lot of utility fibre – but with mixed success

SE/Stofa (in SE DK) has been v successful with 50-60% market share in footprint

But some of the other utilities (residual of Waoo) have lacked ability to retail

#2 (Ewii) even decided to become a wholesaler to TDC

We see overall FTTH competition as fairly mature & stable

However, if SE/Stofa could become more of a threat

– It is moving into more wholesale with acquisition of Boxer

– It could become a regional consolidator (cash-rich, successful within footprint)

TDC – stable, but with downside risk from SE/Stofa


18/09/2017

0%

10%

20%

30%

40%

50%

60%

70%

80%


Fixed broadband market share by technology Fibre lines only growing slowly

Finland market continues to see strong F-M

substitution

Mobile networks are dense with a high

allocation of spectrum. MNOs offer

unlimited data

We have calculated capacity to carry

50GB/sub/m.

So we expect mobile substitution to

dominate the market for the next 3-5 years

Finland

0

10

20

30

40

50

60

DNA Telia Elisa TMUS VZW AT&T Sprint T-MoDE

Vod DE O2DE Vod UK EE O2 3UK SCMN Sunrise Salt Orange SFR Bouy Iliad KPN Vod-ZigT-M NL Tele2 TIM Vod IT Wind-Tre

Max usage (GB) per month inc high band

Hypothetical mobile data capacity per sub per month (GB)

Source: Regulator data, Credit Suisse estimates


France

18/09/2017

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

ORA retail ORA total FRA

0

5,000

10,000

15,000

20,000

25,000

30,000

France total broadband lines ('000)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

xDSL Fibre (FTTH) Other (incl cable)

Line loss, y/y

Fixed broadband market share by technology

Fixed broadband lines (‘000) Broadband market continuing to grow

at steady rate despite high penetration

Slight increase in voice line loss

Cable and fibre both taking share

DSL loss of share offset by market

growth currently



Fibre in France is mostly rolled out through a

co-financing/co-investment shared-cost

model with different regulation in Very Dense

Areas and Medium/Non-Dense Areas

Orange has been responsible for most of the

deployment so far with 8m homes passed.

~50% of fibre has been in VDAs despite

these only accounting for ~20% of premises

Iliad has stepped up its participation

materially recently with access to FTTH in 5m

homes (Q2 17; 2015A 2.5m)

Most FTTH deployment has been in cable

areas so SFR’s participation has been more

limited. It has rolled out fibre to 1m homes

but will roll out more as deployment shifts to

non-cable areas

France

18/09/2017

Bouygues only has 2.2m homes to

which it can offer FTTH

Non-dense areas’ subsidies are

being tendered by end-18 and have

mostly gone to independent fibre

companies (Axione, Altitude,

Covage)

These will run open networks,

hosting the major players

SFR has said it could over-build

some of these independent fibre

networks

Long term we believe the

independent fibre companies could

be consolidated by the big operators


France FTTH market


18/09/2017

26% of premises passed by FTTH (2016A),

net of co-financing

Orange has been network operator in most

cases, followed by SFR

Iliad can offer FTTH to 5m homes – mostly

via co-financing. ByTel can offer to 2m

entirely through co-financing

Of 8m homes passed, 4m in VDAs, 3m in

MDAs and 1m in NDAs

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2012 2013 2014 2015 2016

FTTH premises passed ('000)

Orange SFR (FTTH-only) Iliad Bouygues

0

200

400

600

800

1,000

1,200

1,400

1,600

2012 2013 2014 2015 2016

FTTH subs ('000)


0%

5%

10%

15%

20%

25%

30%

2012 2013 2014 2015 2016


% premises passed by FTTH (net of overbuild) % penetration of FTTH homes passed


CS forecasts for France’s FTTH market


18/09/2017

We forecast

c.18m FTTH premises passed by

2021E (60% of total)

We expect Iliad to participate in all

Orange’s FTTH and SFR to participate

in non-cable areas.

We expect FTTH subs to rise from 2m

(2016A; 8% of subs) to 12m (35%)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

FTTH premises passed ('000)


0

1,000

2,000

3,000

4,000

5,000

6,000

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

FTTH subs ('000)


0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E


% premises passed by FTTH (net of overbuild) % penetration of FTTH homes passed


For fibre regulation France is split into – Very dense areas (“Zones Très denses”; 6m

homes)

– Medium dense areas (“Zones Appel à

Manifestation d'Intention d'Investissement” or

“Zones AMII”; 14m homes)

– Non-dense areas (“Zones s réseaux d'initiative

publique “ or “Zones RIP”. Also known as

“Private Initiative Networks” or “PINs”; 9m

homes)

– Deeply rural areas (“4m homes”)

– (Out of these nearly 3m are unoccupied)

There is a different regulatory model for

the very dense areas (co-investment)

and the medium-/non-dense areas (co-

financing)

In the non-dense area the government is

focused on broadband access rather

than high-speed broadband

Orange – Overview of French fibre

18/09/2017

FTTH deployment so far – Very dense: ~4m homes out of 6m

– Medium dense: ~3m out of 14m

– Non-dense: ~1m out of 9m

– Rural: virtually no fibre build so far

However non-dense areas have

become more important recently – Subsidy tenders due to complete by

end-18

– Orange has only rolled out ~20% of

FTTH in these areas (200k out of 1m

homes)

– Orange has only won a few of the

tenders & expects to win ~25% of

tenders


In the very dense areas – Each operator rolls out their own horizontal

– The vertical infrastructure is shared

Each operator pays its proportion of the deployment cost (50% if 2 operators, 33% if 3, etc)

The service operators (usually SFR/ByTel/ILD) pay the network operator (usually Ora) a monthly

maintenance fee of ~€2/m

Co-investment can take place on deployment or at a later stage (with cost growing ~10% pa)

Recent regulation requires Orange to facilitate vertical & horizontal connection (“adduction”)

– Orange has done most of the rollout as most of rollout has been in cable areas

– Iliad opted for P2P instead of GPON meaning it has a dedicated line (& higher rollout costs)

– Bouygues lacks horizontal infrastructure so has struggled to get coverage

Orange – very dense areas overview

18/09/2017

FTTH deployment in very dense areas

Source: Company data


In the medium dense areas – All operators are responsible for own deployment to optical node though some WS available

– One operator (currently 80% Ora, 20% SFR) deploys fibre network from optical node to home

– The service providers then make co-financing investments in 5% increments & pays €5/m for co-financed

lines

E.g. a 5% investment gives access to 5k homes in a 100k deployment

– There is also a rental model available (~€15-20)

– So far rollout has been relatively slow in these areas

– SFR has said it wants to do more than 20% of the deployment

Orange – medium dense areas overview

18/09/2017

FTTH deployment in less dense areas

Source: Company data. 1 = from optical network node to shared access; 2 = shared access to connecting point; 3 = connecting point to end point


In the non-dense areas – The regulation is the same as in the medium dense areas

– The main difference is the presence of subsidies (medium dense areas are designated to be able to

attract sufficient private investments; non-dense areas are seen to require subsidies)

– Covage/Altitude/Axione Infrastructure (=mostly PE-backed) appear to be main winners

– We expect Orange to be responsible for 25% of the network deployment long term

Orange – non-dense areas overview


Orange stands to lose retail share, ULL

revs and will need to pay wholesale

access fees

However, we estimate these will be

nearly offset by – Market / penetration growth

– fibre ARPU uplift (+€8/m)

– Co-finance receipts in footprint areas (€5/m)

– Passive access fees (~€2/m) in all NDAs

– Savings from copper switch-off (~€40m)

Returns attractive – Invest ~€500 upfront (-)

– WS access offset by passive access fees (0)

– fibre ARPU uplift (+€8/m) (+)

– Savings from copper switch-off (+)

– = ~20% ROCE if ARPU uplift maintained

Orange – non-dense area financial impact overview


French fibre is quite complex…

But ultimately fibre is a pay-to-play business model – and the other operators are

not matching Orange’s investments

So Orange should take share over time – Bouygues appears to be the main laggard

– SFR is losing share too (FTTH winning vs cable)

– Iliad is the operator that is closest to matching Ora’s FTTH-reach

Orange – pay-to-play = strong BB adds at Orange


Orange’s capex has risen and been a recent investor concern ahead of CMD – We expect Ora to stick to capex guidance (CSe ’17 €7.2bn, ’18 €7.4bn, ’19 €7.0bn)

Orange’s fixed line trends have clearly improved as Ora invested in FTTH – Fixed revs -5% in early-13, now flat

– Broadband revenues flat in early-13, now +5%

We expect Orange fixed trends will remain robust with more FTTH

Unlike some peers Ora FTTH spend is (mostly) in consensus – and should fall in

18 months

Orange – investment clearly driving better fixed revs


Germany

18/09/2017

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

xDSL Cable FTTB/FTTH Other

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Germany total broadband lines ('000)

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

DT retail DT total GER


Fixed broadband lines (‘000) Broadband line growth has accelerated,

leading to total line growth

Cable taking market share, but at a

slowing rate

DSL decline in share offset by market

growth currently



Germany continues to fund 50Mbps speeds

in white spaces (20% of HH) – Eu3.1bn in public funding so far; expected to meet

around half the costs

– Maximum funding of eu15m per project

– Technology neutral

– Approved by EC

– Awarded to DT and challengers

– Aims to cover white spaces by end 2018

German Minister of Infrastructure Dobrindt

announced in March 2017 a Gigabit

Germany plan – To attract eu100bn in public and private funding to turn

Germany into a gigabit society by 2025

– ‘Government ready to invest eu3bn pa

– Government has requested BNA to consider how to

change regulation to create incentives to invest

– Politicians concerned Germany is ‘falling behind’

– Ministry currently busy with diesel emissions issue and

election. More decisions likely in 2018.

DT starting to form JVs with city networks

Germany

Source: Germany, Credit Suisse research

18/09/2017

Government has requested BNA to

consider how to change regulation

to create incentives to invest in

FTTH. Possible scenarios include

– Ex post retail-minus regulation of

FTTH rather than ex ante

– Geographic SMP analysis

Deregulation in competitive areas

BNA likely to adapt approach under

current German telecoms law rather

than wait for revision to EU

Framework


German FTTH market


18/09/2017

Germany <10% of homes passed by

FTTH end 2016

Mainly by city networks

D.Glasfaser and Inexio funded by

private equity

DT focusing on FTTc/vectoring

currently. Likely to increase FTTH

investment in 2018+ (in our view)

0

500

1,000

1,500

2,000

2,500

2012A 2013A 2014A 2015A 2016A

FTTH homes passed (000)

M-Net Deutsche Telekom NetCologne wilhelm.tel Deutsche Glasfaser EWETel

0

100

200

300

400

500

600

700

2012A 2013A 2014A 2015A 2016A

FTTH subs (000)

NetCologne M-Net Deutsche Glasfaser wilhelm.tel Deutsche Telekom EWETel


We forecast

c.10m FTTH homes passed by 2021E

DT to pass 3.6m homes, and still

accelerating at this point

City networks to cover 4m+

DGF / Inexio etc to cover 1m+

Vodafone to cover 1.3m

Significant scope for consolidation

c.3.6m FTTH subs by 2021E – Still c.10% of broadband lines

– but growing 46% y/y in 2021E

CS forecasts for German FTTH market


18/09/2017

0%

20%

40%

60%

80%

100%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

% of homes passed by FTTH and FTTH subs as % of homes passed


0

2,000

4,000

6,000

8,000

10,000

12,000

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

FTTH homes passed (000)

Deutsche Telekom Deutsche Glasfaser NetCologne M-Net

wilhelm.tel EWETel Vodafone Other

0

1,000

2,000

3,000

4,000

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

FTTH subs (000)

Deutsche Telekom Deutsche Glasfaser NetCologne M-Net

wilhelm.tel EWETel Vodafone Other


Italy

18/09/2017

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

TI retail TI total ITA

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Italy total broadband lines ('000)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

DSL Other techologies


Fixed broadband lines (‘000)

Strong acceleration in broadband line

growth, following investment in VDSL

– only 60% of homes of FBB

Has led to a return to line growth in

the market



Enel OpenFibre has transformed outlook for FTTH in

Italy

– Acquired Metroweb for eu814m in 2016

Included 1.2m homes passed

– 1.45m FTTH homes passed at end 2016

– Planning to pass 9.5m of 15.5m homes in A&B areas

Reported to be building 20-30k/week

– Has also won Infratel I and II

Targeting 9.3m homes with FTTx

– Total plan = 18.8m hholds = 73%

Telecom Italia announced plan to pass 95% of homes

with FTTx by 2018E

– But Vivendi now appears to be scaling back this plan

in parts of C&D area

– Also formed a JV (Flash Fibre) with Fastweb to build

FTTH past 3m homes in 29 cities by 2020, investing

eu1.2bn. Targets homes already covered with FTTc.

– Vivendi CEO not ruling out sale of TI Fixed network

Italy

Source: Enel, Telecom Italia, Fastweb

18/09/2017

TI’s new FTTx plan – Q1 2017

(% homes passed)

Enel’s financial targets for OpenFibre – June 17


c. 3.5m homes passed end 2016 – c. 40% penetration of homes passed

Metroweb was the leader in FTTH – Acquired by Open Fibre

Fastweb leads in FTTH subs – Having targeted FTTH for 17 yrs

Enel own-build was small pre 2017

Fastweb remains in a strong position,

having access to Flash Fibre and OF

Italy fibre market



We forecast

17m FTTH homes passed by 2021 with c.

25% overlap between TI and OF

Open Fibre to cover 9m homes by 2021 – Halfway to targeted 18m

TI to cover 6.2m inc Flash Fibre

Fastweb to remain a leader in FTTH subs due

to brand and multi-platform access

3.5m+ subs on Open Fibre network by

2021E won from TI and from market growth

CS forecasts for Italy fibre market



Netherlands

18/09/2017

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

KPN retail KPN total NETH

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Neths total broadband lines ('000)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



Fixed broadband lines (‘000) FBB lines growing slowly

Total lines in the market have also

returned to growth despite unlimited

data plans from TMoNL/Tele2

Cable has lost slight market share

Fibre now15% of lines and growing,

though at a slower rate in 2016



18/09/2017

KPN-owned network operator

Reggefiber the dominant provider

(>85%) offering FTTH access ~16

different service providers

Service providers on Reggefiber’s

network comprise almost 90% of the

overall FTTH subscribers in Netherlands

Netherlands The main challenger to Reggefiber is

CIF, an infrastructure fund that entered

the FTTH market in 2011 with its own

proprietary FTTH network

CIF currently owns ~12% of the overall

Dutch FTTH market and its service

providers have up to 10% of the overall

Neths FTTH subscriber base


18/09/2017

Neths ~33% of homes passed by FTTH

end 2016

Mainly by wholly-owned KPN network

operator Reggefiber

c. 40% penetration of homes passed

KPN covered 78% of Neths with

FTTH/FTTc at end 2016, will continue to

grow using vectoring/pair bonding as FTTH

build slows

Netherlands FTTH market

0

200

400

600

800

1000

1200

2012A 2013A 2014A 2015A 2016A

FTTH Subs (000)

Reggefiber Network (KPN) Other (incl CIF)

0

500

1,000

1,500

2,000

2,500

3,000

2012A 2013A 2014A 2015A 2016A

FTTH Homes passed (000)


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2012A 2013A 2014A 2015A 2016A





18/09/2017

We forecast

c.3.8m FTTH homes passed by 2021E

KPN (Reggefiber) to pass ~3.2m

assuming a re-acceleration in investment

in FTTH by Reggefiber in response to

demand and political pressure

c.1.7m FTTH subs by 2021E

CS forecasts for Netherlands FTTH market

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E



0

200

400

600

800

1000

1200

1400

1600

1800

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

FTTH Subs (000)


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E





18/09/2017

KPN – Main fibre risk is govt policy not competition Relatively straightforward market with KPN-owned network operator Reggefiber the main provider (>80%) of FTTH access to 16 different service providers − Service providers on Reggefiber’s network comprise ~90% of the

overall FTTH subscribers in Netherlands

− But CIF remains subscale compared to KPN

In our view, the biggest risk is that KPN’s 2015 decision to slow Reggefiber’s FTTH build in order to focus on cheaper VDSL expansion may cause it to face further regulatory & political pressure to increase FTTH coverage

Source: KPN capital Markets Day presentation, March

2016

KPN has focused more on speed than technology since end 2015

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E




850

900

950

1,000

1,050

1,100

1,150

1,200

2017E 2018E 2019E 2020E

CS KPN CAPEX estimates Consensus KPN CAPEX estimates (pre-Q217)

Source: CS estimates, KPN pre-Q217 consensus compiled by KPN

KPN CAPEX forecasts – CS & Consensus forecast CAPEX falling


Norway

18/09/2017

-16.0%

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

TNOR retail TNOR total NOR

0

500

1,000

1,500

2,000

2,500

Norway total broadband lines ('000)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



Fixed broadband lines (‘000) FBB lines growing

Heavy voice line loss

Cable broadband market share now

slightly declining

Fibre 40% of lines – the leading

infrastructure now and growing

steadily



Most FTTH deployment has been by

utilities, lead by Lyse and ~30 utilities in

the Altibox partnership

We estimate the utilities cover >2x as

many homes (~700-800k; ~32% of

homes) as Telenor (~300k; ~13%).

These are continuing to expand, albeit

slowly

Telenor has historically relied on its

cable network which passes 800k

homes (32%)

Telenor has in last couple years ramped

up FTTH deployment and we expect

this to ramp up further. Telenor targets

800k homes passed by FTTH in 2020

(400k MDU and 400 SDU)

Norway

18/09/2017

Source: Altixbox via Googlemaps

Altibox deployments in Norway

Altibox deployments in Southern Norway (zoom)


https://www.google.com/maps/d/viewer?mid=1fPhTBiQ5XV8nyolLfGWwO6T2qeQ&ll=60.31903722675647,8.247346849999985&z=7

https://www.google.com/maps/d/viewer?mid=1fPhTBiQ5XV8nyolLfGWwO6T2qeQ&ll=60.31903722675647,8.247346849999985&z=7

Norway FTTH market


18/09/2017

~50% of Norway’s households passed

by FTTH (2016)

Most of this is by utilities which have

gradually built out over the past decade

Telenor has accelerated FTTH build

since ~2015

Utilities have had very high uptake

(~60%) and account for nearly two-

thirds of FTTH subs

0

200

400

600

800

1,000

1,200

1,400

2012A 2013A 2014A 2015A 2016E


Telenor Altibox Other

0

100

200

300

400

500

600

700

800

2012A 2013A 2014A 2015A 2016E

FTTH subs ('000)

Telenor Altibox NextGenTel Other

0%

10%

20%

30%

40%

50%

60%

70%

2012A 2013A 2014A 2015A 2016E

FTTH build out & FTTH subs (% of homes)



CS forecasts for Norway FTTH market


18/09/2017

We forecast

1.8m homes passed by 2021 (>70%)

Telenor to pass 900k subs with rollout

slowing after 2020E (800k target in

2020)

Altibox rollout to continue slowly

We expect FTTH penetration to rise at

Telenor from 23% (2016) to 40%

(2021), and remain high at Altibox

(60%)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E


Telenor Altibox Other

0

200

400

600

800

1,000

1,200

1,400

2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E

FTTH subs ('000)

Telenor Altibox NextGenTel Other

0%

10%

20%

30%

40%

50%

60%

70%

80%

2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E 2021E

FTTH build out & FTTH subs (% of homes)



Telenor has suffered from some of Europe’s most successful 3rd party fibre

Altibox (led by Lyse) successfully retailed FTTH – and got 50-60% uptake

Recently Telenor has started to deploy more FTTH

Telenor is having to overbuild as it does not have access to utilities’ fibre – Expensive but necessary

As a result utility-FTTH net adds have slowed, as BB Telenor adds have stabilised

Overall utility fibre impact is well developed and, at margin, TNOR pressure easing

Telenor – utility fibre well-developed as Telenor fighting back


Portugal

18/09/2017

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

PT retail PT total POR

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Portugal total broadband lines ('000)

0%

10%

20%

30%

40%

50%

60%

70%

80%



Fixed broadband lines (‘000) Total FBB market growing fast

Total lines growing too

But PT losing significant lines due to

competitive fibre offers

Fibre now one third of lines and about

to overtake cable, which has been

steadily losing market share



0%

10%

20%

30%

40%

50%

60%

70%

80%

2012A 2013A 2014A 2015A 2016A

% of homes passed with fibre and % penetration

% of homes passed by FTTH (net of overbuild) % penetration of FTTH homes passed

PT passed 3m homes with fibre at the end of 2016,

including a 900k joint footprint with Vodafone (PT and

Vod built 450k homes each which is shared)

NOS passes c.500k homes with fibre in addition to its

c.3.2m cable footprint.

Operators have not been aggregating demand prior to

building fibre, and uptake is below 40% (net of

overbuild, ie market fibre subscribers over net homes

passed by fibre)

Portugal fibre market


18/09/2017

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2012A 2013A 2014A 2015A 2016A

Premises passed by fibre (000)

PT Vodafone NOS

0

100

200

300

400

500

600

2012A 2013A 2014A 2015A 2016A

FTTH subscribers

PT Vodafone NOS


0%

20%

40%

60%

80%

100%

120%

140%

160%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E


% of homes passed by FTTH (net of overbuild) % penetration of FTTH homes passed

PT (Altice) targets 5,300 premises passed

by fibre in 2020 bringing total penetration to

140% of households

We forecast Vodafone to continue to invest

in fibre

We forecast penetration of FTTH homes

passed to continue to rise to 47% in 2021

with 67% of broadband subs taking fibre

CS forecasts for Portugal FTTH market


18/09/2017

0

1,000

2,000

3,000

4,000

5,000

6,000

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

Premises passed by fibre (000)

PT Vodafone NOS

0

200

400

600

800

1,000

1,200

1,400

1,600

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

FTTH subscribers

PT Vodafone NOS


Spain

18/09/2017

-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

TEF retail TEF total SPA

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Spain total broadband lines ('000)

0%

10%

20%

30%

40%

50%

60%

70%

80%



Fixed broadband lines (‘000) Total FBB market growing steadily

Total lines also growing, with F-M

bundling defending fixed voice

Fibre lines growing strongly, reaching

35% of FBB lines from 25% a year

before

Fibre likely to over take DSL in 2017

Cable has been defending share



Tef covers 17.1m premises at end 2016

and 18.4m at June 2017

Orange and Vodafone largely use Tef

ducts and therefore largely overlap with

Tef network currently

Vod has focused more on Ono up to

now, so has fewer FTTH subs

Orange is more reliant on FTTH and has

sold it more successfully so far

Spain fibre market



Tef plans to push towards 100% coverage,

though whether of homes (18.5m) or

premises (25m) isn’t clear

Vodafone build likely to slow as relies on

fibre wholesale + Ono

Orange likely to keep building for now

We assume mas.movil remains small and

faces ULL decommissioning

We forecast c13m. FTTH subs by 2021 – = Europe’s biggest market

CS forecasts for Spain FTTH market



Telefonica trades on a discount to sector

despite having the most developed fibre

network and high F-M adoption

Orange over-build is the main domestic risk.

Overbuild in Portugal led to line loss at PT

despite its fibre investment.

TEF may be able to resist this pressure due

to high F-M adoption. But Tef may also have

to accelerate adoption of high speed fibre

among its Fusion subs, undermining the

more-for-more strategy

Telefonica – Orange over-build is the main domestic risk


18/09/2017

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%



-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

PT retail PT total POR

Valuation adjusted for potential FTTH capex

Portugal line loss trends y/y


Sweden

18/09/2017

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

Telia retail Telia total SWE

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Sweden total broadband lines ('000)

0%

10%

20%

30%

40%

50%

60%

70%

80%

xDSL Cable Fibre (FTTH+fibre LAN) Others (FWA)


Fixed broadband lines (‘000) Total FBB lines growing steadily

Fibre growing strongly, driven by

Challenger fibre networks

– Leading to strong line loss at Telia

Cable market share quite stable

Fibre now 55% of lines

– Highest in W.Europe

– And still growing strongly



The Swedish fibre market is one of the most

advanced with c.85% of homes passed by

fibre. The build out has been led by

municipalities/municipality owned utility

companies

The roll-out has also been supported by

consumer paying c.€2,000 to get fibre

installed in SDUs, even in some areas with

predominately second homes

While FTTH coverage now >80% the land

grab continues with Telia, IP-Only, Telenor

and municipalities all continuing to build.

Com Hem is also considering its own fibre

roll-out – Lately however, getting building permissions have

slowed the pace of roll-out

Swedish fibre market

18/09/2017

Telia is currently the only operator regulated

on fibre but the regulator is currently

conducting a review of the market definition

and have suggested each SDU fibre

network should be viewed as a separate

market.

The Swedish government also raised its

broadband coverage targets, now targeting: – 95% of households and businesses to have access

to 100Mbps broadband by 2020, this is up from 90%

on the previous plan

– By 2025 all Swedish households and businesses

should have access to fast broadband (98% 1Gbps

which was previously 100Mbps, 1.9% 100Mbps and

0.1% 30Mbps which used to be 1Mbps)


0

1,000

2,000

3,000

4,000

5,000

6,000

2012A 2013A 2014A 2015A 2016A

Homes passed by FTTH (gross of overlap) (000)

Telia Telenor IP-Only Others (mainly municipality/utility networks)

Telia now (mid-2017) c.1.6m homes with fibre

Municipalities and municipality owned utilities have led

the fibre build in Sweden

Telenor has acquired most of its fibre footprint through

Bredbandsbolaget and Tele2’s fixed business. Telenor

is targeting more SDU build.

Demand for fibre in Sweden has been and is very

strong. Operators don’t build generally unless getting

40% take-rate.

The open access structure has allowed for resell

challengers like Bredband2 and Bahnhof to take

significant share of the market

Swedish fibre market


18/09/2017

0

500

1,000

1,500

2,000

2,500

2012A 2013A 2014A 2015A 2016A

Retail FTTH subs (000)

Telia Telenor Com Hem Bahnhof Bredband2 Other

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012A 2013A 2014A 2015A 2016A


% of homes passed by FTTH (net of overbuild)

% penetration of FTTH homes passed (net of overbuild)


Telia targets 1.9m homes passed by the end

of 2018 – we forecast 1.8m due to delays in

getting building permits

We expect IP-Only to continue to build 60-

90k homes per year

We assume limited build by Telenor (+30k

per annum) and municipality build to slow

We forecast penetration (subs relative to

homes passed) to reach > 70% by 2021

CS forecasts for Sweden FTTH market


18/09/2017

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E


% of homes passed by FTTH (net of overbuild)

% penetration of FTTH homes passed (net of overbuild)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

Homes passed by FTTH (gross of overlap) (000)

Telia Telenor IP-Only Others (mainly municipality/utility networks)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

Retail FTTH subs (000)

Telia Telenor Com Hem Bahnhof Bredband2 Other


Telia – Continued risk from fibre overbuild

18/09/2017

Telia’ copper network is largely overbuilt by

challenger fibre – Telia covers c.30% of Swedish homes vs a total of just

over 80% of Swedish homes passed by fibre

Telia line loss market share loss has

accelerated as fibre uptake increased

Fixed line service revenues has been

supported by price increases and one-off

fibre installation fees

Challenges for Telia to continue as fibre

uptake increases

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

Telia retail Telia total SWE

0%

10%

20%

30%

40%

50%

60%

70%

80%

xDSL Cable Fibre (FTTH+fibre LAN) Others (FWA)

Line loss y/y

Swedish fixed broadband by technology

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Swedish fixed service revenues, y/y

Telia fixed service revenue growth



Switzerland

18/09/2017

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

SCOM retail SCOM total SWI

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Switz total broadband lines ('000)


Fixed broadband lines (‘000) FBB market growth is slowing

Voice line loss is accelerating

Cable share has stabilised after

declining in 2012-2015

Figures on fibre lines not available



Swisscom has rolled out FTTH to ~30% of

homes, usually in a 60-40 split between the

local electric company, i.e. most fibre is co-

invested

Swisscom has stopped rolling further FTTH.

Instead it’s focusing on upgrading FTTC to

FTTS (~200m from home) and using G.fast

for residual 60% of homes not covered by

FTTH

Most of the local utilities’ FTTH activities are

part of the consortium SFN (Swiss Fiber

Net), though some of the major utilities (e.g.

Zurich, Geneva) operate independently.

Utilities have very few retail customers.

Wholesale growth should accelerate with

Salt’s fixed entry

SFN’s utilities pass 600k homes and target

1.4m homes passed by 2020

Switzerland

18/09/2017

Swisscom’s high-speed broadband (>50Mbps) mix – homes passed

Swisscom’s plans for delivering high-speed broadband by 2021

Source: Swisscom


Switzerland FTTH market


18/09/2017

~30% of premises passed by FTTH

(2016A), net of co-financing

Swisscom generally rolled out alongside

a local utility

Swisscom accounts for most FTTH

subs so far

Utilities have very few retail customers

and some wholesale customers (mostly

Sunrise)

0

50

100

150

200

250

300

2012 2013 2014 2015 2016E

FTTH subs ('000)

Swisscom Sunrise Fiber7 (init7.net) Other (inc Salt)

0%

5%

10%

15%

20%

25%

30%

35%

40%

2012 2013 2014 2015 2016E

FTTH % build out and FTTH subs (% of homes)


0

200

400

600

800

1,000

1,200

1,400

2012 2013 2014 2015 2016E

Homes passed by fibre - net ('000)

Swisscom (FTTH only) Swiss Fibre Net Other

n/a


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

Homes passed by fibre - net ('000)

Swisscom (FTTH only) Swiss Fibre Net Other

CS forecasts for Switzerland’s FTTH market


18/09/2017

We forecast

1.5m FTTH premises passed by 2021E

(38% of total), only slight hike vs 2016

We expect SFN to close the gap and

roll out some fibre independently too

Swisscom FTTH subs to 2x to 500k

subs

We expect FTTH subs to grow when

Salt launches a wholesale utility-fibre

offer

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

FTTH subs ('000)



0%

10%

20%

30%

40%

50%

60%

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

FTTH % build out and FTTH subs (% of homes)


n/a


FTTH has not been a major issue – FTTC coverage high

– Swisscom has stopped FTTH deployment at

~30% of homes and is rolling out FTTS now

– Utilities have had little traction so far

Almost zero retail customers so far

Little wholesale demand so far

But utility fibre threat could grow – SFN looks on-track to build more FTTH than

Swisscom

– Salt is launching fixed broadband on utility fibre

Depending on price it could take share

driving up FTTH subs on competitor

networks

– Sunrise has been gaining some traction with

high-end broadband, also on utility fibre

Swisscom has said it does not see risk

of hiking capex and FTTS/G.fast

sufficient

But risk is skewed to downside

Swisscom – downside risk from utility fibre

18/09/2017



UK

18/09/2017

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

BT retail BT total UK

0

5,000

10,000

15,000

20,000

25,000

30,000

UK total broadband lines ('000)


Fixed broadband lines (‘000) Strong growth in FBB and total lines

is slowing, due to economy (we

believe)

Voice line loss is accelerating

Total BT lines now in decline

FTTc now c. 30% of FBB lines

ADSL still >50% of lines

Cable share stable



18/09/2017

UK <4% of homes passed (1m) by FTTH end

2016 on our estimate

BT Openreach accounts for a third with

remainder mainly smaller operators

BT focusing more on G.fast (10m homes

planned by 2020 vs. 2m FTTH) but mix could

change & Openreach consulting on potential

further 10m FTTH project

CityFibre, Hyperoptic & Gigaclear recently

raised a combined ~£400m to expand FTTH

footprints

UK FTTH market

0

200

400

600

800

1,000

1,200

2012A 2013A 2014A 2015A 2016A

FTTH homes passed (000s)

BT/Openreach Hyperoptic Gigaclear CityFibre KCOM Other

0

50

100

150

200

250

300

2012A 2013A 2014A 2015A 2016A

FTTH subs (000s)


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2012A 2013A 2014A 2015A 2016A





18/09/2017

Ofcom’s February 2016 strategic review and

subsequent “Duct & Pole” consultations in Dec-16,

Apr-17 & Aug-17 aim to stimulate the building of a

3rd fibre network in the UK

– BT to compile a database of its ducts and poles

and ensure “ready for use”

– Caps on duct and pole rental charges proposed

in early August 2017

UK Government formally launched a £400m fund to

boost UK fibre build in July 2017

BT Openreach existing commitment is to rollout 2m

FTTH premises by 2020 (plus 10m G.fast homes)

Openreach consultation ongoing into potential 10m

FTTP build out by mid-2020s. Vodafone recently

reported to be considering co-investment although

early days

UK Hyperoptic currently passes 350,000 UK homes

(typically MDUs) in 28 towns and cities

− recently announced expansion plans while raising £100m of funding

− Hyperoptic targeting 2m UK homes passed by 2022, mainly continuing to target MDUs

CityFibre currently deploys fibre in 42 UK cities

− long-term ambitions to expand to 100 UK cities

− recently raised £200m to fund an FTTP build itself initially targeting >200,000 homes passed

Gigaclear fibre provider to rural UK

− recently announced its 10,000th active customer and recently raised £111m in new funding

TalkTalk, Sky and CityFibre’s JV in York (UFO)

Vodafone trialling FTTH in Norfolk

− Has recently expressed an interest in co-investment subject to conditions


18/09/2017

We forecast

c.5m FTTH homes passed by 2021E

BT (Openreach) to pass 2.6m homes and

expected by us to continue building out at this

point

Hyperoptic to pass c.1m homes in MDUs

Gigaclear to pass 150k homes in rural UK

CityFibre to pass 175k in UK cities

c.1.6m FTTH subs by 2021E (33% take-up)

Forecasts would rise if Vodafone goes ahead

with co-investment

CS forecasts for UK FTTH market

0

1,000

2,000

3,000

4,000

5,000

6,000

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

FTTH homes passed (000s)


0

200

400

600

800

1000

1200

1400

1600

1800

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

FTTH wholesale subs (000s)


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E





18/09/2017


BT Group – CAPEX risk rising from overbuild threat Threat to BT from Challenger FTTH looks small currently

− But CityFibre, Hyperoptic & Gigaclear recently raised a combined ~£400m to expand FTTH

− VMED Project Lightning target 4m homes passed

− Vod showing interest in co-investment if terms are right

In certain scenarios BT could go from 50% to 75% overbuilt by NGN (coax + challenger FTTH) by 2021E, assuming Challenger FTTH focused on non-cable areas

10m additional FTTP Openreach consultation ongoing which could cost €3-6bn over 10 years according to Openreach

BT consensus & CS CAPEX forecasts ~£3.4bn

− Might have to rise to £3.65bn+ by 2019E

0%

20%

40%

60%

80%

100%

120%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

CS forecasts for UK FTTH build (% of hp)

Incumbent FTTH coverage Challenger FTTH coverage

0%

20%

40%

60%

80%

100%

120%

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E

Scenario: potential over-build of BT including Project Lightning and Vod building 5% of hp

Scenario: potential over-build of BT Incumbent FTTH coverage


18/09/2017

Appendices


Incumbent telcos are currently penalised for fibre build – compare TEF with PROX

– Incumbents that have built more NGN* trade on a discount

– Stocks that have built less NGN* trade at a premium

Stocks that have built NGN should, in theory, trade at a premium (in our view).

Appendix : Relative fibre development

Source: Company data, Credit Suisse estimates* note NGN means coax and FTTH / FTTP ** obviously other factors will also explain some of the

difference in stock valuation, for example relative exposure to non-domestic assets (e.g. DT’s ownership of TMUS, potential discount on TEF’s Latam

assets) etc

18/09/2017

PROX

TDC

ORA DT

TI

KPN TNOR

TEF

TELIA

SCMN

BT

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Adj

uste

d eq

uity

FC

F y

ield

201

8E

Telco's domestic NGN coverage (FTTH and cable) of homes end 2016

Incumbent NGN coverage vs FCF yield

logical correlation**


Risk from overbuild varies significantly. Stocks are also not pricing this risk in

particularly.

Appendix: Valuation not correlated to risk of overbuild either

Source: Company data, Credit Suisse estimates* based on CS forecasts for Challenger FTTH build-out and assuming that FTTH take-up rate grows

by 3pp over 2016-2021E and that Challenger and Incumbent take 50% each of FTTH customers where they over-build each other with FTTH

18/09/2017

PROX

TDC

ORA DT

TI

KPN TNOR

TEF

TELIA

SCMN

BT

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-18% -16% -14% -12% -10% -8% -6% -4% -2% 0%

Adj

uste

d 20

18E

equ

ity F

CF

yie

ld,

Potential loss of Group EBITDA to fibre overbuild by 2021E relative to 2016 levels*

Potential loss of Group EBITDA to fibre overbuild by 2021E vs FCF yield

logical correlation



Companies Mentioned (Price as of 13-Sep-2017)

AT&T (T.N, $36.55) Altice (ATCA.AS, €18.68) BT Group (BT.L, 285.05p) Bouygues (BOUY.PA, €38.8) Cellnex Telecom (CLNX.MC, €19.56) Com Hem Holding (COMH.ST, Skr117.8) Deutsche Telekom (DTEGn.F, €15.0) EI Towers (EIT.MI, €49.15)

Elisa Corporation (ELISA.HE, €36.46) Eutelsat Communications (ETL.PA, €23.66) INWIT (INWT.MI, €5.44) Iliad (ILD.PA, €225.0) Inmarsat PLC (ISA.L, 645.5p) KPN (KPN.AS, €2.96) Liberty Global (LBTYA.OQ, $32.45) NOS (NOS.LS, €5.27) Orange (ORAN.PA, €13.98) Orange Belgium (OBEL.BR, €19.3) Proximus (PROX.BR, €29.1) Rai Way (RWAY.MI, €4.75)

SES (SESFd.PA, €18.3) SFR (SFRGR.PA, €34.4) Sprint Corp (S.N, $7.85) Sunrise (SRCG.S, SFr80.2) Swisscom (SCMN.S, SFr480.4) T-Mobile US Inc (TMUS.OQ, $62.8) TDC (TDC.CO, Dkr36.17) TalkTalk (TALK.L, 207.4p) Tele2 AB (TEL2b.ST, Skr94.85) Telecom Italia (TLIT.MI, €0.78) Telecom Italia (TLITn.MI, €0.63) Telefonica (TEF.MC, €9.13) Telefonica Deutschland (O2Dn.DE, €4.52)

Telekom Austria (TELA.VI, €8.14) Telenet (TNET.BR, €55.49) Telenor (TEL.OL, Nkr163.5) Telia Company (TELIA.ST, Skr38.27) Verizon Communications Inc (VZ.N, $47.25) Vodafone Group (VOD.L, 214.9p)

Disclosure Appendix

Analyst Certification

Justin Funnell, Jakob Bluestone, Paul Sidney and Henrik Herbst each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector , with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected to tal return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time.

Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 44% (64% banking clients)

Neutral/Hold* 40% (59% banking clients)

Underperform/Sell* 14% (53% banking clients)

Restricted 2%

*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to de finitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Important Global Disclosures

Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to https://plus.credit-suisse.com .

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.credit-suisse.com/sites/disclaimers-ib/en/managing-conflicts.html .

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Credit Suisse has decided not to enter into business relationships with companies that Credit Suisse has determined to be involved in the development, manufacture, or acquisition of anti-personnel mines and cluster munitions. For Credit Suisse's position on the issue, please see https://www.credit-suisse.com/media/assets/corporate/docs/about-us/responsibility/banking/policy-summaries-en.pdf .

See the Companies Mentioned section for full company names

Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): BT.L, LBTYA.OQ, BOUY.PA, TELA.VI, COMH.ST, TEF.MC, SFRGR.PA, ORAN.PA, ATCA.AS, ILD.PA, TELIA.ST, OBEL.BR, TEL.OL, DTEGn.F, KPN.AS, TALK.L, VOD.L, TNET.BR, O2Dn.DE, TLIT.MI, PROX.BR, TDC.CO, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, CLNX.MC, RWAY.MI, EIT.MI, SESFd.PA, ISA.L, ETL.PA

Credit Suisse provided investment banking services to the subject company (LBTYA.OQ, COMH.ST, TEF.MC, SFRGR.PA, ORAN.PA, ATCA.AS, ILD.PA, OBEL.BR, TEL.OL, DTEGn.F, KPN.AS, TALK.L, TNET.BR, O2Dn.DE, TLIT.MI, PROX.BR, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, ISA.L) within the past 12 months.

Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-banking, securities-related: LBTYA.OQ, BOUY.PA, TEF.MC, TEL.OL, KPN.AS, O2Dn.DE, TLIT.MI, PROX.BR, TLITn.MI, SCMN.S

Credit Suisse has managed or co-managed a public offering of securities for the subject company (LBTYA.OQ, TEF.MC, ORAN.PA, OBEL.BR, TEL.OL, DTEGn.F, TALK.L, O2Dn.DE, TLIT.MI, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, ISA.L) within the past 12 months.

Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): LBTYA.OQ, COMH.ST, TEF.MC, SFRGR.PA, ORAN.PA, ATCA.AS, ILD.PA, OBEL.BR, TEL.OL, DTEGn.F, KPN.AS, TALK.L, TNET.BR, O2Dn.DE, TLIT.MI, PROX.BR, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, ISA.L

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (BT.L, LBTYA.OQ, BOUY.PA, TELA.VI, COMH.ST, TEF.MC, SFRGR.PA, ORAN.PA, ATCA.AS, ILD.PA, TELIA.ST, OBEL.BR, TEL.OL, TEL2b.ST, DTEGn.F, KPN.AS, TALK.L, VOD.L, TNET.BR, O2Dn.DE, TLIT.MI, PROX.BR, TDC.CO, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, CLNX.MC, RWAY.MI, EIT.MI, SESFd.PA, ISA.L, ETL.PA) within the next 3 months.

Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): LBTYA.OQ, BOUY.PA, TEF.MC, TEL.OL, KPN.AS, O2Dn.DE, TLIT.MI, PROX.BR, TLITn.MI, SCMN.S

A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (BT.L, LBTYA.OQ, BOUY.PA, COMH.ST, TEF.MC, SFRGR.PA, ORAN.PA, ATCA.AS, ILD.PA, OBEL.BR, TEL.OL, TEL2b.ST, DTEGn.F, ELISA.HE, KPN.AS, TALK.L, VOD.L, TNET.BR, O2Dn.DE, NOS.LS, TLIT.MI, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, INWT.MI, CLNX.MC, RWAY.MI, EIT.MI, ISA.L, ETL.PA) within the past 12 months.

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (SRCG.S, TEF.MC, KPN.AS, TLIT.MI, ISA.L).

As of the end of the preceding month, Credit Suisse beneficially owned between 1% and 3% of a class of common equity securities of (SCMN.S).

Credit Suisse beneficially holds >0.5% short position of the total issued share capital of the subject company (BOUY.PA, OBEL.BR).

Credit Suisse has a material conflict of interest with the subject company (LBTYA.OQ) . Credit Suisse International is acting as financial advisor to Liberty Global plc in relation to the announced acquisition of Multimedia Polska S.A. through its subsidiary UPC Poland.

Credit Suisse has a material conflict of interest with the subject company (DTEGn.F) . Wulf Bernotat, a Senior Advisor of Credit Suisse, is a supervisory board member of Deutsche Telekom AG.


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For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=320475&v=45t2wigkd2arsch2iphdv0kup .

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

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Credit Suisse Securities (Europe) Limited (Credit Suisse) acts as broker to (ISA.L).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (LBTYA.OQ, TEF.MC, SFRGR.PA, ORAN.PA, ATCA.AS, OBEL.BR, TEL.OL, DTEGn.F, KPN.AS, TALK.L, O2Dn.DE, TLIT.MI, TLITn.MI, SCMN.S, VZ.N, S.N, T.N, TMUS.OQ, RWAY.MI, ISA.L) within the past 3 years.

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Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

This research report is authored by:

Credit Suisse International ...................................................................................... Justin Funnell ; Jakob Bluestone ; Paul Sidney ; Henrik Herbst

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the FINRA 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse International ...................................................................................... Justin Funnell ; Jakob Bluestone ; Paul Sidney ; Henrik Herbst

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Building the Gigabit Society - sipotra.it · SCMN and KPN seem expensive, TDC and TI seem cheap...

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Transcript of Building the Gigabit Society - sipotra.it · SCMN and KPN seem expensive, TDC and TI seem cheap...