Announcement:
Moody's: Iliad's move into Italian market is credit negative for mobile companies
18 Jul 2018
Madrid, July 18, 2018 -- French telecoms company Iliad's entry into the Italian mobile phone market will aggravate competition and shrink mobile service revenues of the three resident mobile operators -- Wind Tre S.p.A. (B1 stable), Telecom Italia S.p.A. (Ba1 stable) and Vodafone Group Plc (Baa1 review for downgrade) -- by an average 4%-6% per year for the next two years, says Moody's Investors Service in a report published today.
Moody's report, "Telecommunications -- Europe: Italian mobile operators feel the heat from French newcomer Iliad," is available on
www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.
"The largest mobile operators say that they don't plan to undercut Iliad in an effort to protect their higher-priced customer bases. However, there have been significant price cuts and sales promotions since Iliad's entry, on top of the sharp price per Gigabyte (Gb) declines of up to 60% over the last year, which increases the risk of a price war," says Laura Perez, Vice President -- Senior Credit Officer at Moody's.
"Wind Tre and virtual operators competing in lower-cost segments will be hit the hardest by the tougher competition. Larger operators Telecom Italia and Vodafone are somewhat more insulated given their position in higher-end segments of the market and better-quality networks," adds Mrs Perez.
We expect Wind Tre's mobile service revenue to fall by a significant 8%-9% annually to around EUR3.5 billion in 2019, resulting in reported EBITDA falling by 5%-6%. Telecom Italia's and Vodafone's mobile service revenues, in Italy, will fall by around 4%-5% per year until 2019 and their EBITDA will grow by 0%-1% and 3%-4% respectively.
Despite Iliad's consumer offer being aggressive it will not severely disrupt the market like it did in France, even if it is lower than certain existing providers' prices. Wind Tre, Telecom Italia's low-cost brand Kena Mobile, and Vodafone's ho mobile are offering at least 20 Gigabyte for headline prices (including activation fees) between €10 and €17, more or less similar prices to Iliad at €0.5-€0.7 per Gb.
Moody's expects Iliad to gain around 5% to 7% mobile market share over 2018-20, but sharply falling prices will make it much tougher for the company to reach a reasonably scalable market share in excess of 10%.
Brand differentiation and mobile/fixed convergence could be used to combat Iliad, with Vodafone and Telecom Italia most strongly positioned with a differentiated brand strategy, in which their low-cost brands target value segments of the market. Telecom Italia is also well-placed to accelerate convergence of mobile and fixed line products because it is the only fully integrated telecoms company in Italy.
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