Swedish multi-play operator Com Hem has reported its Q1 revenue increased by 1.6 per cent to SEK 1,784 million (€171.2m) for the Group, with Com Hem Segment increasing by 4 per cent to SEK 1,374 million.
Unique consumer subscribers rose by 4,000 to record high 987,000.. There was also continued volume growth in broadband, up 7,000 to record high 757,000 RGUs.
Digital TV RGU’s declined by 1,000 to 653,000 negatively affected by price adjustments while TiVo customers increased by 3,000 (to a penetration rate of 41 per cent).
In a statement Anders Nilsson, CEO of Com Hem Group, said:
Product improvements lay foundation for full year growth in the Com Hem Segment
On the back of product improvements in 2017 such as additional TV-channels and on demand content as well as broadband speed upgrades, price adjustments in the Com Hem Segment were successfully implemented in the quarter. Since the price adjustment was larger than previous years the corresponding churn was also higher than usual in the quarter with an increase to 14.8% from 13.6% in Q4 2017, in-line with expectations. We expect churn to decrease into Q2 2018.However, due to a change in our customer cancellation procedures which helps us generate more revenue, we will see a small effect on churn related to price adjustments in Q2 2018 as well.
Our customer base grew by 4,000 in the segment while the number of RGUs was flat compared to Q4 2017 as an increase of 7,000 broadband RGUs was offset by a decline of 1,000 digital TV RGUs and 6,000 fixed telephony RGUs. Our TiVo base grew by 3,000 customers, (now 41% of our DTV base). The blended consumer ARPU declined by SEK 2 compared to Q4 2017 to SEK 371, similar to the ARPU decline last year in Q1, due to seasonality effects and the structural decline in the fixed telephony business. Similar to last year we expect ARPU to increase in Q2 2018 as the price adjustments take full effect. Operational KPIs for the quarter were affected by timing of a landlord contract which we did not renew. As this affected about 2,000 unique customers, digital TV net adds would have been roughly flat and broadband net adds would have been closer to the regular quarterly run rate, excluding the effect of the contract. Within B2B we saw a decline in revenue, down 10.6% (SEK 8m) compared to Q1 2017, as we focus on the OnNet broadband business which grew by 25.3% compared to Q1 2017.
Addressable households reach 2.9 million
We made further progress in our network expansion programme with the Group now connected to 2.9 million addressable households, 200,000 of which are unique to Boxer. Since the start of the footprint expansion less than two years ago, the Group has increased its footprint by 45% and we remain confident that we can reach our target of at least 3.0m households, which constitutes an increase of 50% from before the SDU expansion and the Boxer acquisition.
Aligning Boxer with the more-for-more strategy
We continue to see positive momentum in Boxer with an additional 4,000 broadband RGUs added in the quarter and ARPU reaching another record high of SEK 304 due to increased dual penetration and price adjustments. Price adjustments were successfully implemented in the Boxer TV customer base and we saw the majority of the effect on both ARPU and churn within the quarter. We expect churn to approach normalized levels in Q2 with the exception of a potential one-off effect related to an ongoing Boxer-specific content negotiation. In spite of the price adjustments the decline in unique subscribers and RGUs of 9,000 and 7,000 respectively were almost half of what we saw one year ago between Q4 2016 and Q1 2017. Boxer’s fibre footprint increased from 1,100,000 to 1,200,000 addressable households in Q1 including roughly 200,000 which do not overlap with the Com Hem Segment.
In February, Boxer reached RGU neutrality for the first time since the acquisition. While this is largely because of increased demand for Boxer TV during the Olympics and is not yet a sustainable trend it is an indication that the alignment of Boxer with the Group’s more-for-more strategy is working. The improvement in Boxer has so far been achieved through expansion of the fibre footprint, increased marketing and operational efficiency without significant product improvements or full integration of the business. We are pleased with the results so far and see further potential in this asset once the IT integration is completed next quarter and the TV Hub is introduced to Boxer customers. The work so far to establish Boxer as a broadband-led TV operator in the newly acquired SDU fibre footprint has laid the foundation for Boxer to eventually be able to fully capitalize on the operational advantages of being part of the Com Hem Group with more efficient systems, sales and marketing as well as product portfolio.
Taking steps to solidify our leadership in a changing TV market
In a rapidly growing TV market where consumption is shifting from traditional linear content delivered through a TV box toward on demand content streamed to multiple devices directly over the internet, it is important for a TV distributor to adapt. In order to secure our position as the leading Swedish TV provider and capitalize on these market trends we have in the beginning of April launched two new exciting TV-products; our next generation TV-platform –the TV Hub, and our own standalone boxless SVOD service – ComBo.
The TV Hub, which is now our main TV-offering alongside TiVo, is compatible with all our infrastructures and will be available to both Com Hem and Boxer customers. It is based on the Android ecosystem allowing cost-efficient development, quick and flexible updates, and gives customers access to third-party applications. The user interface is designed to give easy access to non-linear content with improved search and customization features, offering a significantly better way of watching OTT and on demand content without compromising the linear television experience.
ComBo, which was developed in-house alongside the TV Hub is Com Hem’s first step as a provider of a boxless SVOD service. Given our scale as an aggregator of video content, an OTT service is a natural next step for Com Hem as we can leverage our ability to bundle the best on demand content and deliver it to consumers who live within our footprint but are not necessarily traditional TV consumers. This opens up a completely new segment in the market for Com Hem and could potentially be a significant growth driver over time. We do not expect this to materially affect our near-term growth but it will allow us to tweak the functionality, content and sales channels to eventually develop ComBo into a standalone off-network TV service, catering to a much larger potential customer base. It constitutes another puzzle piece to make the upcoming merger with Tele2 even more attractive by combining a high quality mobile network and a large mobile customer base with an on-the-go video service.
With these new services we can offer something to every type of video consumer in the market. Whether you prefer a traditional linear TV experience or a more modern on demand-centric service with or without hardware you can now find it in the Com Hem product portfolio. Given the significantly lower cost of these new services we are able to let the customer pick freely among the TV services while Com Hem generates similar amount of cash regardless of which service the customer chooses. We believe that the freedom to choose will make customers happier, make them stay longer and thereby secure resilient long term growth for our TV business.
We look forward to another exciting year for Com Hem. Not only are we entering the next chapter of growth through the expected merger with Tele2 later this year, we are also taking our main growth drivers to the next level. This year we rollout DOCSIS 3.1 and thereby upgrade our bread and butter broadband service to a level that has so far not been done at scale in this country. We just introduced our next generation TV services which we believe will secure our place as the leading TV provider in Sweden in the future. Combined with the continued expansion into the SDU market and the system integration and improvements of Boxer we are setting up the Group to deliver on our financial guidance for this year and securing resilient growth for the future. Meanwhile we will do everything we can to prepare Com Hem for the integration process so that we can hit the ground running as we combine with Tele2 in the second half of 2018.