As those with teenage children will be all too painfully aware, kids don’t make phone calls any more – even text messages can be a hard-wrung concession. Social media, on the other hand, or streaming films and music: these are addictions that simply have to be fed.
It’s why the world’s telecommunications companies are so desperate to get us to agree contracts for superfast broadband and blistering speeds for mobile networks, including 5G.
While the quest is still on to secure dominance in the so-called market for quad-play provision – to win contracts for a landline, mobile, broadband and TV subscription – what really unifies it all is the theme of wireless connectivity. In fact, none of the five businesses shortlisted in the Emea telecommunications category of the Citywire Elite Companies Awards actually make mobile phones and just one supplies its own-brand landline handsets.
Three of the five companies – which represent top-performing investors’ highest conviction telecommunications plays in the Emea region – are former state-owned monopolies and another was created after being spun out of one of them. They are spread across Europe, ranging from the UK and Germany to Italy and the Netherlands. As investments, they have given their shareholders some rough rides over the years, though some have fared better than others.
The winner will be revealed at a gala event at the London Stock Exchange on 21 June.
The shortlist
Source: FactSet. PE = price-earnings ratio. PE and dividend yield based on 12-month forecasts
The first of the former government monopolies is Telecom Italia (IT:TIT), which was nationalised by Benito Mussolini’s fascist administration at the time of the Great Depression in 1933. The group was officially created in 1994 through the merger of five state-owned businesses, including SIP, which was in charge of Italy’s domestic telephony operations.
The shares are listed on the Milan Stock Exchange following the group’s privatisation in 1997 and the Italian Treasury retains a stake of 9.8% through the Cassa Depositi e Prestiti (CDP).
Telecom Italia is the largest provider of landline and mobile telephony services to consumers and businesses in Italy and also operates in Brazil. It runs fibre-optic networks and data centres in Italy and has several strategic partnerships, including with Google’s cloud arm. However, it has increasingly struggled in the face of mounting domestic competition and the pressure to sell off assets in order to reduce its hefty debts, which stood at €25.8bn at the end of March.
The group is still in receipt of a non-binding bid for its landline network from private equity firm KKR and there has been speculation it will sells stakes in its data centres unit and its enterprise division, involved among other things in cybersecurity.
One of the businesses that Telecom Italia started to auction off in order to reduce its debts is Infrastrutture Wireless Italiane (IT:INW), the Italian telecoms tower operator whose name tends to be shortened to Inwit. The group initially raised almost €800m in 2015 by selling a 40% stake in Inwit through a separate listing on the Italian stock exchange, Borsa Italiana, though it has subsequently further reduced its holding through follow-on deals.
Companies such as Inwit have been in hot demand among Europe’s big telecom players, as well as attracting interest from private equity, because they are at the heart of the growth of voice and data markets and offer a reliable revenue stream thanks to their long-term contracts with mobile and network operators. As a result, in 2020 Inwit merged with Vodafone’s Italian mast businesses to form a talismanic national number-one in charge of more than 23,000 towers. Earlier this year, French investment firm Ardian was reported to be contemplating an offer for Inwit, which is currently valued at €11.4bn. The group’s sales have more than trebled since the 2015 listing and the shares have risen by more than 200%.
Thatcher’s poster child
When BT (GB:BT.A) was privatised by Margaret Thatcher’s government in 1984, the sale was seen as one the symbols of the birth of a share-owning democracy in Britain, along with other state sell-offs including British Gas. Hundreds of thousands of individual investors bought shares in the company, then known as British Telecom, and retail investors still dominate the shareholder register today.
That’s not to say that its owners have had a lucrative time of it – BT’s shares have lost more than 70% of their value since a peak in late 2015 as the company has grappled with high debts, rising competition, wrangles with the regulator and an expensive investment drive to improve the UK’s broadband infrastructure.
The group dates its history back to 1846 the formation of the Electric Telegraph Company in England in 1846, which for the first time established a nationwide communications network. Before its privatisation it was part of the Post Office.
In its modern form, BT is the largest provider of fixed landline, broadband and mobile phone services in the UK, supplying businesses as well as individual customers. It also offers network and IT services and subscription deals for TV and has activities in Europe, the US and Asia. As well as the BT brand, the group owns the EE mobile network provider, as well as Plusnet, which sells broadband services, and Openreach, which manages the copper wires and fibre cables that connect households and businesses to phone, broadband and ethernet services. It doesn’t make mobile phones, but does offer BT-branded landline phones.
BT has committed to spend £12bn improving the UK’s broadband network and getting ultrafast connections to a further 20 million homes, although it will be benefiting from government subsidies along the way. The group spent two years negotiating with regulators at Ofcom about its role running Openreach, which will perform the upgrades. While it headed off calls for a separation, Openreach has to be run as an arms-length business.
The third of the former state-owned telecom monopolies is KPN (NL:KPN), the Dutch national champion that was owned by the government until it began selling off stakes in 1994. The state completed the divestment in 2006, including relinquishing its golden share enabling it to block takeovers. KPN has subsequently seen off takeover bids from Swedish private equity investor EQT in 2020, and a consortium featuring EQT, Stonepeak Infrastructure Partners and KKR, in 2021.
KPN is the largest provider of fixed-line, mobile, broadband and TV subscription packages to consumers and businesses in the Netherlands. It also sells access to its networks to rival providers. It used to operate an international arm but its activities are now confined to the Netherlands.
While KPN doesn’t have to contend with a debt burden that’s as high as other European operators, its sales have come under pressure in recent years as a result of rising competition. However, sales last year improved for the first time since the financial crisis and operating profits were at their highest level in just over a decade, suggesting signs of a turnaround. The shares, though volatile, have been gradually gaining ground.
With the fifth company on the telecoms shortlist, we have a business that is different again. United Internet (DE:UTDI) is to all intents and purposes a pure-play internet company that specialises in providing web access to businesses as well as individual customers. As well as web-hosting, servers and storage through the cloud, the company is building its own 5G network.
Established in 1988 in Montabaur, Germany as a marketing company, United Internet’s biggest market is its domestic one, although it operates across Europe’s biggest economies and is also in the US, Canada and Mexico. Listed on Germany’s Deutsche Börse since 1998, the founder Ralph Dommermuth still owns a stake of just under 49%.
United Internet owns numerous brands, several of which, including 1&1 AG and Ionos, have their own separate listings. 1&1 offers landline and mobile services and Ionos is a web-hosting company that has been heavily advertising in the UK.
