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Final regulatory decision brings unfavourable wind

Final regulatory decision brings unfavourable wind

19.7.2011 9:48

The Belgian regulators published the final decisions on the opening of the Belgian cable networks yesterday evening. As a reminder, the decisions stipulates that cable operators will have to provide wholesale offers in analogue TV and broadband to alternative carriers, and open their network for digital TV offers.

The final version comes quickly after the European Commission announced (late June) that it had certain concerns about the proposal, but the Belgian regulators state that the concerns raised by the EC have been taken into account in the final decisions.

The regulators believe that commercial offers based on the decisions should be available in the market by the end of October 2012.

Our View:
Negative for Telenet, especially in termsof timing as we did not expect the regulators to come up with a final decision so quickly giventhe concerns raised by the EC.
Telenet is looking into all legal options to appeal the decision and have it suspended.
If Telenet is unsuccessful in fighting the decision in court, the most direct short-term impact might be the costs associated with complying with the regulatory proposal. A few months ago, Telenet stated in the press that this would require ‘tens of millions of euros‘ of investments. While this might be somewhat exaggerated in order to put pressure on regulators, it nevertheless means that the investments could eat away a few percent of next year’s EBITDA (KBCS: € 750m), although these should be one-off costs with a very limited impact on valuation.
The impact on the competitive landscape (and Telenet’s market share) will remain limited we believe. Belgacom will be helped somewhat by the regulatory proposal as it will give them access to the analogue TV offer over cable, allowing to connect multiple TV sets (using analogue TV) even if clients have only one set top box (currently Belgacom TV clients need a STB for each TV set).
Mobistar might decide to switch to cable for its TV product (part of the Starpack bundle) instead of the satellite technology it is using now, but the proposal might come too late for Mobistar we believe as by that time Mobistar will have built up a certain base of clients using satellite, making it difficult to switch to a different technology.
We do not think alternative (foreign?) operators will decide to enter the Belgian triple play market, given the dominance of Belgacom and the cable operators in Belgium.

We reiterate our Accumulate rating on Telenet mainly based on the attractive cash returns (over the next3 years Telenet intends to distribute 40% of its market cap to shareholders, starting with a € 4.5 ps capital reduction next week). The regulatory proposal is bad for sentiment however and is likely to weigh on the share price in the short term.

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