EUR 850.00 For Business Accounts Only

Morningstar | Updated Proximus SA

Proximus faces tough competition as cable providers aggressively encroach on its fixed-line business. Increased wireless competition is also occurring. The firm recognizes its limitations and avoids buying growth in areas where it has no competitive advantage. Instead, it returns most of its free cash flow to shareholders in the form of dividends and stock buybacks.However, in late 2016, Proximus announced it would maintain its increased capital expenditure budget at around EUR 1 billion annually for at least the next three years as it rolls out fiber more quickly to better compete. We believe this will improve the quality of the network, and where it is built out, Proximus will have the best network available. The company's initial focus was on the business segment, not consumers, but it has recently increased the speed of its rollout in order to compete better against the cable operators. We believe this acceleration is good decision. While Belgium has historically been slower to move to newer technologies than many European countries, the demand for faster broadband speeds is increasing throughout the region, including Belgium.Bundles of services are very important in Belgium. Telenet has long been a fierce competitor in fixed-line telephone and broadband services and now wireless through the acquisition of Base, the third-largest wireless operator, which enables it to control all aspects of its quad-play service, at least in the north of the country. Telenet has marketed free fixed-line phone service for customers purchasing cable television and broadband. Also, Voo, the cable TV operator in the south, has become more aggressive in the past couple of years. Proximus has responded by marketing free television service for customers who purchase fixed-line telephone and broadband services. Both strategies have succeeded in stealing customers from the other firm, but market shares have remained fairly stable.We believe management can build out its network and maintain free cash flow as it also reduces costs. This should enable Proximus to maintain its dividend and keep debt at around 1 times EBITDA, which puts it at the low end of European telecom operators.