Until recently, Telenet looked like a castle with a double moat. Its wildly popular cable network and equally popular TV set-top box were insurmountable obstacles to competition. The update for the first half of 2022 shows once again that digital TV is a necessity for fewer and fewer people, Netflix and other streaming services further dimming the first channel. Proximus is again trying to fill the second channel with a new fiber optic network.
Telenet chief executive John Porter spoke of a ‘modest report’ when he published the half-year accounts on Thursday. It is an acknowledgment that things are not going well at Telenet. Its major competitor Proximus also announced better numbers on Friday, including a slight growth in revenue. Revenue at Telenet has stagnated. In the second half of the year, sales will be boosted by the price increases that came into effect this summer.
Telenet chief executive John Porter spoke of a ‘modest report’ when he published the half-year accounts on Thursday. It is an acknowledgment that things are not going well at Telenet. Its major competitor Proximus also announced better numbers on Friday, including a slight growth in revenue. Revenue at Telenet has stagnated. Sales will get a boost in the second half of the year as a result of the price increases that came into force this summer. The fall in the number of customers within fixed telephony and digital TV, on the other hand, does not seem to be stopping. For example, since 2018, Telenet has already had 200,000 fewer customers who still buy digital TV. In the past six months, there have been 50,000 fewer TV subscribers compared to the first half of 2021. The decline in this lucrative segment therefore does not stop. The so-called cord cutters don’t subscribe massively to Streamz either. It is the streaming service that Telenet has set up together with vtm as a competitor to Netflix. The main bright spot is that Telenet has succeeded in getting more families, especially existing subscribers, to upgrade to the One formulas, which have a strong focus on fast and unlimited surfing via the Telenet connection at home or mobile. Digital TV, with or without a decoder, is an additional option there, and Telenet has therefore become much more vulnerable with its new formulas. The company has grown by allowing its customers to switch en masse to a bundled subscription of digital TV, fast fixed internet, landline telephony and later also mobile telephony. It has a market share of approximately 60 percent in Flanders. Fixed internet and digital TV were the two strongest pillars in this respect. Telenet has managed to put its more than one and a half million customers behind a double ditch, but it is now being closed. One of these channels is the strong position in digital television. Just over ten years ago, Telenet could still offer a larger and better selection of pay TV in digital TV than its old challenger Proximus or the streaming pioneer Netflix. Its decoder also provided a very pleasant viewing experience with unlimited commercials for recorded programs as characters. In order to protect the business model of the traditional commercial channels – Telenet itself owns the Play channels – it was necessary to limit the fast forward function a bit this year. It makes up for this with a generous free replay feature, but the mandatory commercial blocking for delayed viewing still causes dissatisfaction among customers. Even more important to the decline of digital TV is the exploded offering via streaming. The classic channels now each have their own online TV platform, free of advertising. In addition, the paid streaming services can no longer be counted on one hand. Those who want to cancel their digital TV therefore have alternatives, and it often works out a little cheaper. Telenet does not yet have a good answer to that, unless it can really grow Streamz. But the marketing effort and investment in additional exclusive programs for it is a greater risk. The supply is already enormous, many new prestige series are also flopping. Canceling or changing a streaming subscription is a piece of cake. The threshold for leaving is therefore lower for customers who no longer buy traditional TV. Telenet’s second defense belt is the fixed internet. Telenet has a superior network with cable connections. Proximus cannot match that with its copper telephone connection. But Telenet is losing its lead there because Proximus wants to roll out fiber optic connections in Belgium at an accelerated pace, including through joint ventures that make superfast internet possible. In theory, it can already connect more than 1 million homes to fiber; around 200,000 are already effective fiber customers. After investments, Telenet can let its network compete for a period with a network that consists exclusively of fiber optics via the traditional cable connections. It may also turn out in a few years that Telenet has the only network that can handle super-fast internet everywhere in Flanders . But because of Proximus’s fiber optic sprint, it must also accelerate to completely ‘glass’ its network. For this purpose, they also want to establish a joint venture with the network operator Fluxys. It is a remarkable construction. But even if it can hold back Proximus, Telenet still has a problem. The significant difference in speed and surfing comfort compared to Proximus or other challengers that worked via the telephone line will largely disappear. It will also need to make lucrative extras such as a speed boost or unlimited data use more standard in fixed internet. It is already working on this in its new formulas. Nor is it the case that the combination of unlimited fixed and mobile internet is a new unique advantage. It is often cheaper for customers to take out fixed internet and a mobile subscription separately. With the alternative players such as Hey! or Mobile Vikings, there are also mobile subscriptions which may not be unlimited, but which offer enough data for the average data eater, at a lower price. The barriers to leaving have become lower and will become even lower. Of course, Telenet doesn’t stand a chance. It is still the pronounced market leader in Flanders. It still has a strong offer and the best network at the moment. Moreover, it has proven in the past that it can conquer new segments with strong marketing efforts. But as the market leader, Telenet will feel the most influence from unpredictable factors in customer behaviour, such as: – How much will households want to save on their telecommunications consumption in times of very high inflation? In contrast to the financial crisis, there are now more opportunities to save and at the same time compensate for the loss of the trusted offer.- How many TV customers will continue to buy digital TV because they do not want to lose the recordings from their decoder?- How many Telenet customers will hesitate to install a competitor’s fiber connection if they try to switch? It usually involves some drilling and a very small amount of administration. As long as such practical objections weigh enough to block a switch to competitors, Telenet has some peace of mind. Even if the customers who continue to swear by a Telenet connection, there is still a danger that they will switch to Orange’s cheaper offer. This already works on Telenet’s fixed network, and Telenet must make a greater effort to retain customers or at least reduce them enough. And the effort becomes even more difficult to win new ones. Thursday’s results further underscored this message.