As telecoms asset classes go, towers should be more predictable than most, and the recent earnings season has laid bare the diverging trends seen between some of the developed market tower companies and the emerging market ones. We are seeing positive trends emerge for tower companies in developed markets like SBAC, Inwit, and to a lesser extent Cellnex. Meanwhile, the outlook in India Bharti Infratel remains difficult and AMT remains stuck in the middle with a foot in both camps.
DoCoMo’s announcement on Wednesday evening that the Japanese market leader intends to give back up to ¥400bn in discounts to consumers, offering cheap plans at a 20-40% price cut to existing levels has derailed what until this week had been perceived as the last large good market for telco investors, where all three operators generate a return well above their cost of capital. The response in share price terms was savage: at the low point of trading on Thursday, DoCoMo’s share price had lost 44% of all the gains made over its 6 year bull run from 2012 to its recent high. So, what should investors in Japanese telcos do from here? Is Japan over? Are, as we heard a number of investors say in the last 2-3 days, Japanese telcos headed to multiples similar to those the Chinese operators trade on?
We had the two largest Wireless companies and the two largest Cable companies report results this week with trends that were a little different between the two companies in each category and market reactions that were starkly different.
While some of the differences in operating trends were more surprising than others, and some of the difference in market reaction less welcome than others, the reactions aren’t that surprising in retrospect. We try and dissect what happened, and why, in this edition of the Global Weekly Review.
The next couple of weeks should mark a turning point for US Cable. We are hoping the Comcast / Sky deal will close before Comcast reports results on Thursday. If it hasn’t closed by Thursday, it will be very soon after. As soon as it has closed we would expect Comcast’s management to provide a more fulsome account of their ambitions with Sky, with updated guidance.