Bank: “German broadband faces structural change”
July 26, 2022
Jefferies says there are clear signs of structural change within the German broadband market. “Ninety per cent of growth is now driven by fibre,” notes a report from the investment bank . “However, a slower market means absolute broadband intake is unsustainable at historical levels.”
Jeffferies, in its report to clients, focuses on Deutsche Telekom (DTE) which it reiterates with its ‘Buy’ advice.
The bank says: “In the context of 1Q trends, latest regulatory data, and 2Q expectations we highlight changes to DTE’s domestic trading backdrop in broadband. Market growth is clearly slowing, with all reporting fixed broadband operators reporting subscriber losses in 1Q save DTE. This is clearly neither sustainable nor healthy from the point of view of regulatory risk.”
In the bigger picture the bank says that two effects shift the backdrop.
“First, market growth has slowed, likely as the pandemic brought forward some of the otherwise expected organic penetration growth,” says Jefferies.
“Second, fibre altnet activity is picking up a larger share of market growth, with DTE taking more than fair share. We believe the domestic broadband market backdrop and DTE’s position within that remain supportive. Defending retail volume share around 40 percent avoids regulatory concern, allows for gradual growth from upselling through speed tiers. Investor focus should shift from DTE’s absolute broadband intake towards market share where we remain confident – not least also on the support to DTE from the forthcoming end to collective housing association contracts for cable. Ex-post regulated fibre wholesale opens an avenue for wholesale growth as well,” continues Jefferies.
The bank forecasts a quarterly rise of just 60,0000 for DTE’s broadband and a +2.7 per cent y-o-y for DTE’s mobile service in terms of revenue growth.