Bouygues Sells Towers To Ease The Squeeze
Bouygues Telecoms announced the sale of 2,166 of its mobile towers in France to Antin Infrastructure Partners for EUR205mn. The announcement comes as Bouygues is implementing a range of cost - cutting measures in response to a squeeze on both revenues and margins that is occurring across Western Europe - but has been magnified in France by the launch of Free Mobile in January 2012. BMI believes cost- cutting measures will enable operators in France to achieve improved financial performance from 2014 as the impact of Free's launch lessens, and the macroeconomic environment improves.
The deal between Bouygues and Antin is a tower sale and lease- back deal of the sort announced earlier in November 2012 between KPN and American Tower in the Netherlands. The towers will be owned and operated by France Pylones Services (FPS), in which Bouygues will hold a 15% stake. Bouygues has already transferred 1,873 mobile towers to FPS, with the remaining towers set to be transferred in Q213. Bouygues will lease capacity from FPS , with spare capacity then sold to other telecoms operators. Bouygues expects a net benefit of EUR185mn from the deal , which it plans to use to invest in its business as well as to pay down debt.
|Data Rush Requires Operator Adaptation|
|Bouygues KPIs, 2009-2012|
BMI believes the decision by Bouygues to sell its towers is a response to market conditions that have squeeze d revenues and eroded margin s in recent years . Monthly blended ARPU has declined 10% year-on-year ( y-o-y ) to EUR33.2 in Q312, and down 16.7% since Q311. At the same time , EBITDA margin has declined; Bouygues ' 12- month rolling EBITDA margin declined 3. 2 points to 19.3% in Q312, and is down 5.2ppts since Q311. This decline in ARPU and margin is a consequence of heightened competition from Free's launch, as well factors impacting markets around Europe such as mobile termination rate cuts and SMS IP or VoIP substitution. Indeed Bouygues' main rivals, Orange and SFR , also exhibit similar trends in terms of financial performance in 2012 and have undertaken cost-cutting measures, for instance SFR is due to present to unions in November 2012 about redundancies .
In this climate of declining ARPU and squeezed margins operators have had to reassess investment strategies associated with the rollout of next generation data networks . The requirement to invest is driven by changing consumer demand as w ireless data u sage has increased dramatically. Bouygues ' avera ge monthly data usage increased 61.9% y-o-y to 170MB in Q312, and is forecast to continue growing in the medium term. On the one hand , this growth in data usage places a strain on operators to increase capital expenditure, but it also presents the opportunity to move to a more data- centric business model and away from traditional services such as voice and SMS that are negatively impacted by low-cost competition to a greater extent.
BMI believes that using the proceeds from sale of tower assets for investment in next generation infrastructure would benefit Bouygues and prepare it for longer - term growth once market conditions improve. The proceeds of the sale can be used to invest in 4G LTE infrastructure, having acquired licenses at 2.6GHz and 800MHz in Q411 and Q112, improving Bouygues ' competitive position in higher - value next generation wireless data services while minimising the financial strain . This will help the operator reposition itself away from the low-value end of the market, where competition has intensified following the launch of Free Mobile and the activities of MVNOs.
A successful transition to a higher-value more data- centric business model would position Bouygues for improved financial performance from 2014. BMI expects macroeconomic conditions to improve over the medium term, and there will not be ongoing cuts to MTRs with the last round scheduled for January 2013. Additionally, we expect the impact of Free's launch to decline over the medium term as it raises its prices. We believe it will remain a low- cost operator ; however , its prices will be less disruptive as it moves to a sustainable business model. Cost- cutting measures and investment in infrastructure by the three more established operators in Bouygues, SFR and Orange c ould therefore be the foundation for stronger financial performance from H213 and especially 2014.