muscleman Posted March 11, 2016 Share Posted March 11, 2016 Does anyone know the economics of the MVNO business? I went through this conference call here and they said MVNO is capital light and you can do incremental roll out. http://edge.media-server.com/m/p/ppxq5y6j Usually how are the MVNO contracts constructed? Where can I see some financials of some of these MVNOs? In the US there are a number of these, like H2O wireless and Chricket. They are cheaper than the big four. But they are not public companies. Link to comment Share on other sites More sharing options...
Shooter MacGavin Posted March 11, 2016 Share Posted March 11, 2016 Shooter Can you explain how you get to 25% expected return based on your assumptions? Thanks hey I've attached a quick and dirty spreadsheet. I threw in some color coding for you to make it a little clearer. hope that helps. Let me know if you agree or disagree with anything here. Thanks.Liberty_Global.xlsx Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted March 12, 2016 Share Posted March 12, 2016 Does anyone know the economics of the MVNO business? I went through this conference call here and they said MVNO is capital light and you can do incremental roll out. http://edge.media-server.com/m/p/ppxq5y6j Usually how are the MVNO contracts constructed? Where can I see some financials of some of these MVNOs? In the US there are a number of these, like H2O wireless and Chricket. They are cheaper than the big four. But they are not public companies. I assume MVNO is a commodity business since it is not that difficult to enter that business? (*It will vary depending on the regulatory environment in a particular country.) But if the spectrum and network owners are renting out their infrastructure, than the MVNOs are mostly buying a commodity and reselling+repackaging it. Obviously they have to be good at marketing and providing customer service. For cable companies, the MVNO business can be attractive to them since they already own infrastructure- a Wifi network. They can try to get their customers to use their Wifi router, which greatly expands their Wifi network. They can also add Wifi hotspots to their existing data network. Link to comment Share on other sites More sharing options...
Munger_Disciple Posted March 12, 2016 Share Posted March 12, 2016 Shooter Thanks for posting the spreadsheet. I have a few questions/comments on the model: 1. When you calculate the tax, you seem to subtract the capex from Adj. EBITDA. It seems to me that you need to subtract depreciation, not capex to calculate taxes. This will reduce the FCF. 2. EBITDA growth rate of 7.5% may be optimistic, especially if measured in USD. 3. Sustaining capex of 25% of EBITDA may be too low given that technology needs to be constantly updated. 35-40% of EBITDA seems more realistic to me. Link to comment Share on other sites More sharing options...
muscleman Posted March 13, 2016 Share Posted March 13, 2016 Shooter Thanks for posting the spreadsheet. I have a few questions/comments on the model: 1. When you calculate the tax, you seem to subtract the capex from Adj. EBITDA. It seems to me that you need to subtract depreciation, not capex to calculate taxes. This will reduce the FCF. 2. EBITDA growth rate of 7.5% may be optimistic, especially if measured in USD. 3. Sustaining capex of 25% of EBITDA may be too low given that technology needs to be constantly updated. 35-40% of EBITDA seems more realistic to me. It should be EBITDA minus interest, tax and maintenance capex, for these kinds of "real estate" companies. Regarding capex, it really depends on what you have to spend to fend off your DSL competitors. DSL's top internet speed has a bottleneck. I think they just need to upgrade to a speed a lot more than that to stay competitive. There is no need to keep increasing your speed every year. EBITDA growth is guided at 7-9%, on rebased terms, which assumes constant currency rate. If you are uncomfortable with it, you can hedge the currency. Link to comment Share on other sites More sharing options...
Shooter MacGavin Posted March 13, 2016 Share Posted March 13, 2016 muscleman and munger_disciple, Thank you. yes you're right. I caught that but I was lazy. It should be taxed at maintenance depreciation. Even so, it barely moves the needle. the other offset is that I didn't count ~6.0B of NOLs. on Adj. EBITDA, I agree with muscleman on these points, although f/x is more the concern for me. They guided to high single digits for the next few years. They're adding households in the UK and they're still under-penetrated in broadband (most jurisdictions) vs. the US. And yet, Charter is still growing 7-9% within its own current footprint. Cablevision was at $450 Adj. EBITDA per homes passed before Tom Rutledge left and the bigger cable companies in the US are around $330+ adj. EBITDA, so that's sort of a rough, (keyword rough) goal of what's possible in my mind. Link to comment Share on other sites More sharing options...
Munger_Disciple Posted March 13, 2016 Share Posted March 13, 2016 I agree that Liberty Global is unlikely to pay significant taxes for a long time due to depreciation and and NOLs. Link to comment Share on other sites More sharing options...
Liberty Posted March 13, 2016 Author Share Posted March 13, 2016 Does anyone know the economics of the MVNO business? I went through this conference call here and they said MVNO is capital light and you can do incremental roll out. http://edge.media-server.com/m/p/ppxq5y6j Usually how are the MVNO contracts constructed? Where can I see some financials of some of these MVNOs? In the US there are a number of these, like H2O wireless and Chricket. They are cheaper than the big four. But they are not public companies. I assume MVNO is a commodity business since it is not that difficult to enter that business? (*It will vary depending on the regulatory environment in a particular country.) But if the spectrum and network owners are renting out their infrastructure, than the MVNOs are mostly buying a commodity and reselling+repackaging it. Obviously they have to be good at marketing and providing customer service. For cable companies, the MVNO business can be attractive to them since they already own infrastructure- a Wifi network. They can try to get their customers to use their Wifi router, which greatly expands their Wifi network. They can also add Wifi hotspots to their existing data network. The main benefit of a MVNO is reducing churn via triple and quad play. If you can get churn down, it can be very profitable to run a MVNO, and it also gives you a foot in the door if you ever decide to own your own wireless infrastructure. Link to comment Share on other sites More sharing options...
Aman1 Posted March 14, 2016 Share Posted March 14, 2016 Does anyone know the economics of the MVNO business? I went through this conference call here and they said MVNO is capital light and you can do incremental roll out. http://edge.media-server.com/m/p/ppxq5y6j Usually how are the MVNO contracts constructed? Where can I see some financials of some of these MVNOs? In the US there are a number of these, like H2O wireless and Chricket. They are cheaper than the big four. But they are not public companies. Telenet is the most successful mobile-cable operator in Europe that has used MVNO. This was something launched a few years ago under a different management team before Liberty Global assumed control (and back before Malone's big u-turn on mobile assets). An interesting way to look at MVNO economics is to analyse it from the reverse angle and take a look at Telenet's reasons for buying Base (MNO) from KPN and forgoing the existing MVNO relationship with Mobistar in Belgium. I've attached Telenet's presentation which runs through the logic and syngeries of the deal. While the launch into MVNO was pre-Malone, by the time of the acqusition this was a Malone / LG entity, so the presentation should be able to provide some insight into how the group now thinks of mobile. Agree with many of the earlier points - the main goal from LG has been churn reduction - a lot of value in this when you can target your acquisition dollars on gross adds and need not worry about churn leaving you standing still in terms of net adds. Single play has high teens churn, triple play high single digit churn, and quad play has mid single digit churn - so enormous value in any kind of MVNO offering even if the mobile product breaks even. However, as mobile subs are added and market share grows, the unit economics of MVNO become poor as you fail to gain operating leverage from scale, at which point ownership of a network (or large capacity wholesale deal) becomes more valuable due to the profitability from the product itself. This is what happened in Belgium with Telenet. The other issue is pricing of MVNO and was partially flagged earlier by comments on regulation and competition. Recent consolidation deals in Europe (Austria, Germany, Ireland) have provided generous terms to MVNO operators for the next 5-6 years. The danger will obviously be what happens when these deals come up for renewal in future and there is not as much pressure on the network provider to offer generous terms, in which case selective acquisition in markets with large cable footprints might make more longer-term strategic sense. IR_Communication_Presentation_vFinal.pdf Link to comment Share on other sites More sharing options...
jay21 Posted March 14, 2016 Share Posted March 14, 2016 Given the capital requirements of wireless, at what point do you start to earn reasonable returns? Has any company gotten to that point yet (if so, please share because I would like to learn more)? MVNO let's you gain a customer relationship without putting up the capital to build our own network. Each side of that coin has costs and benefits. Link to comment Share on other sites More sharing options...
muscleman Posted March 14, 2016 Share Posted March 14, 2016 Given the capital requirements of wireless, at what point do you start to earn reasonable returns? Has any company gotten to that point yet (if so, please share because I would like to learn more)? MVNO let's you gain a customer relationship without putting up the capital to build our own network. Each side of that coin has costs and benefits. Yeah. Wireless companies have far higher capex requirements than cable cos. The only trouble with MVNO is that once your cheap contracts expire, you may have to pay a high price to renew. ::) Link to comment Share on other sites More sharing options...
Aman1 Posted March 14, 2016 Share Posted March 14, 2016 Given the capital requirements of wireless, at what point do you start to earn reasonable returns? Has any company gotten to that point yet (if so, please share because I would like to learn more)? MVNO let's you gain a customer relationship without putting up the capital to build our own network. Each side of that coin has costs and benefits. Do you mean for a greenfield wireless business? Or for a cable company? For cable, my Telenet example is a good one - they have 7% market share, are buying a network with c.15% market share and see sizeable synergies from the deal. In terms of greenfield wireless buildout in Europe (which is probably representative of most countries), a good rule of thumb to get a sense of operating leverage is that the EBITDA margins roughly equal the market share in the teens, then as market share goes over 20%, EBITDA margins will go to 30%+. I'm surprised about the capex comments - it's far more capital intensive to build out a cable network (or fiber) than wireless? Cable steady state run-rate is probably high teens % of sales (set top boxes is a big part of this, often called "success based" growth capex but seems something of a fallacy in my opinion) while mobile can run at low double digit % of sales? Link to comment Share on other sites More sharing options...
muscleman Posted March 24, 2016 Share Posted March 24, 2016 https://www.sec.gov/Archives/edgar/data/1570585/000157058516000499/a03-23x168xkexhibit991pubo.htm The timelines are very tight. Unlikely CHTR-TWC merger, this one seems fast. Why is there such a difference? Link to comment Share on other sites More sharing options...
Liberty Posted May 9, 2016 Author Share Posted May 9, 2016 Q1 results are out (also for LiLAC): http://www.libertyglobal.com/pdf/press-release/LG-Earnings-Release-Q1-16-FINAL.pdf Link to comment Share on other sites More sharing options...
muscleman Posted May 11, 2016 Share Posted May 11, 2016 Q1 results are out (also for LiLAC): http://www.libertyglobal.com/pdf/press-release/LG-Earnings-Release-Q1-16-FINAL.pdf According to them, this is the best Q1 ever in UK. But how come the triple play percentage is dropping and double play is increasing? Also, the wireless results are not that great. https://www.sec.gov/Archives/edgar/data/1570585/000157058516000642/ex991fixedincomeq12016repo.htm Page 3. Page 10: Net adds of video and internet are also both weaker than last Q1 in Germany. Their explanation is higher prices. I am a bit upset that Mike is so promotional. Link to comment Share on other sites More sharing options...
muscleman Posted May 16, 2016 Share Posted May 16, 2016 Please let me know if I am wrong here. http://www.stockopedia.com/ratios/cash-return-on-invested-capital-last-year-189/. Cash Return On Invested Capital (CROIC or CROCI) measures how much cash a company cgenerate based on each dollar it invests into its operations. It is similar to ROIC but focuses on cash, rather than profits. CROIC = Free Cash Flow divided by Invested Capital. Invested Capital in turn is calculated as Total Equity + Total Liabilities - Current Liabilities - Excess Cash (using the Greenblatt definition of Excess Cash as cash at hand in excess of 5% of revenues). LBYTK is going to generate $2 bn cash. Its invested capital is over $56 bn, so the CROIC is just 3.4%? Link to comment Share on other sites More sharing options...
Jurgis Posted May 16, 2016 Share Posted May 16, 2016 LBYTK is going to generate $2 bn cash. Its invested capital is over $56 bn, so the CROIC is just 3.4%? That looks correct. Whether it's a meaningful ratio in case of LBTYA is not clear. Don't expect tons of FCF from this company. People probably value this based on EBITDA... Though I agree that with EV or IC in the ratios, this won't look cheap. Link to comment Share on other sites More sharing options...
marazul Posted May 16, 2016 Share Posted May 16, 2016 They will generate $2bn if FCF this year, generated $2.5bn last year. FCF is depressed because they have been expanding their network (passings). This should yield high single digit revenue growth in the following years. If they wanted to eliminate growth capex (which would be unwise), they might be able to generate $3.5bn + in FCF all things equal. Link to comment Share on other sites More sharing options...
Liberty Posted May 16, 2016 Author Share Posted May 16, 2016 If you believe management that they're getting IRRs in the 30%+ range on the new builds that they're doing (project lightning in UK, etc), you want them to spend that money on growth capex rather than see it end up as FCF... They also did many acquisitions in the past few years that have restructuring charges and synergies still going through the pipe, so that impacts things. They've been blocked from doing as much buybacks as they want recently because of the CWC deal. The moratorium ends on May 18. That might have an impact on price, we'll see. Link to comment Share on other sites More sharing options...
marazul Posted May 26, 2016 Share Posted May 26, 2016 Some comments on LBTYA https://www.dropbox.com/s/7bn5uyhzv4si5zh/Liberty%20Global%20Investment%20Thesis.pdf?dl=0 Link to comment Share on other sites More sharing options...
rogermunibond Posted June 2, 2016 Share Posted June 2, 2016 Lilac distribution announced, as expected. http://finance.yahoo.com/news/liberty-global-announces-distribution-lilac-134700391.html Link to comment Share on other sites More sharing options...
Liberty Posted June 3, 2016 Author Share Posted June 3, 2016 Lilac distribution announced, as expected. http://finance.yahoo.com/news/liberty-global-announces-distribution-lilac-134700391.html All at once, no playing around! Link to comment Share on other sites More sharing options...
Liberty Posted June 6, 2016 Author Share Posted June 6, 2016 Reuters piece on a potential VOD-LBTYA deal, and how O2 being back in play could catalyze things: http://www.reuters.com/article/us-britain-telecoms-malone-idUSKCN0YS0LI Link to comment Share on other sites More sharing options...
Liberty Posted June 21, 2016 Author Share Posted June 21, 2016 http://www.businesswire.com/news/home/20160620005993/en/Liberty-Global-Announces-Final-Ratio-LiLAC-Group LILA distribution ratio has been announced, 8.01482. Link to comment Share on other sites More sharing options...
Jurgis Posted June 21, 2016 Share Posted June 21, 2016 And both LBTYA and LILA down today. Maybe opportunity if someone wants to add. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now