Business Irish

Wednesday 17 July 2019

Eir owner faces test in French home market

Owner: Xavier Niel completed a €1.4bn purchase of Eir earlier this year. Photo: Bloomberg
Owner: Xavier Niel completed a €1.4bn purchase of Eir earlier this year. Photo: Bloomberg

Kasper Viita and Angelina Rascouet

INVESTORS will be fixated on one issue when telecom carrier Iliad reports earnings on Tuesday: how badly it's losing market share in France. Long the disruptor of the country's telecom industry, Iliad is suffering from a reversal of fortunes as competitors successfully counter its low-price offers. The carrier founded by billionaire Xavier Niel reported its first-ever broadband subscriber loss in May and its shares continued to slide through the summer after rivals Orange, Bouygues and Altice Europe's SFR all showed customer gains in the second quarter. The stock is down 45pc this year.

Earlier this year Mr Niel completed a €1.4bn purchase of Eir here in Ireland.

In France, Iliad is set to report a loss of 22,000 broadband subscribers in the three months that ended June 30, according to the average of three analysts' estimates compiled by Bloomberg. Mobile net additions probably slowed to 39,000, according to the data. That would follow a loss of 19,000 broadband customers and gain of 130,000 mobile clients in the first quarter. The focus on Iliad's competitive weakness is a shift from earlier in the year, when Patrick Drahi's telecom group Altice Europe took the spotlight for its soaring debt and expectations for a weaker outlook at SFR in France. The narrative around Altice Europe has improved after a restructuring and now Iliad is getting the attention.

"Iliad seems to be the main victim of the current competitive environment," Jean-Baptiste Sergeant, an analyst at MainFirst, wrote on August 31, keeping his neutral rating.

Strong commercial results from Orange, SFR and Bouygues, along with market figures published by the country's telecom regulator, mean that Iliad's mobile performance was probably very weak in the second quarter, said Thomas Coudry, an analyst at Bryan, Garnier & Co.

Iliad has shot back at the negative sentiment in the run-up to its results. While acknowledging that competitors have lured some of its customers - specifically low-paying subscribers with contracts for €2 per month - those willing to spend €20 a month have continued to increase, Iliad said last month. The statement came after Bloomberg reported that a record number of Iliad's mobile users defected to the former phone monopoly Orange, citing people familiar with the matter. As French troubles mount, Iliad is looking for growth in Italy, with some initial success. It passed a million mobile customers in the country in July, 50 days after starting services. Aside from the growth effort in Italy and any potential mergers with competitors in France - a persistent topic in recent years - Iliad's future success will also rest on its ability to deliver high-quality services in its home market.

"The way back for Iliad would be to accelerate its fibre deployment in its fixed segment and narrow the perceived mobile quality gap that Iliad suffers from," said Jonathan Dann, an analyst at RBC.

Some analysts think investors are too negative on Iliad. UBS analysts including Polo Tang confirmed their buy rating on the stock in an August 31 note, identifying it as one of their most preferred names in the European telecom industry.

"The recent share price fall is overdone and the potential for long-term revenue growth and operating leverage expansion has been underestimated," the UBS analysts wrote.

In addition, "the potential French in-market consolidation and the Italian venture offer optionality that is not priced in at the current level".


Irish Independent

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