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Best of Nordics: Telia faces $1.4B settlement bill over Uzbek corruption probe

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View


Best of Nordics: Telia faces $1.4B settlement bill over Uzbek corruption probe

In this monthlyfeature, S&P Global Market Intelligence provides a roundup of recent marketdevelopments in Denmark,Sweden, Norway,Finland and Iceland.

TOP NEWS

* U.S. and Dutch authorities have Telia Co. AB to pay about $1.4 billion to settleinvestigations into supposedly dodgy deals regarding the telco's entry intoUzbekistan in 2007. In a Sept. 15 statement, Telia Chairman Marie Ehrling saidher company is working to clarify the settlement's details before deciding onits next steps in negotiating with the authorities. Telia paid $381 million inbribes to Gulnara Karimova, the daughter of former Uzbek President IslamKarimov, allowing the telco to do business in Uzbekistan, the Organized Crimeand Corruption Reporting Project reported Sept. 15, citing its 2015 report onthe matter. The Swedish operator also reportedly promised additional paymentsof $75 million to Karimova.

M&A

* ComHem said Sept. 30 that it completed the acquisition of digital pay TV operatorBoxer TV-Access AB. The deal enables Boxer to sell fiber-based broadband and TVservices, a move expected by Com Hem to support its goal of reaching 800,000residential customers over the succeeding years.

* The Swedish Competition Authority earlier gave thethumbs up to ComHem's acquisition of Boxer TV-Access, according to a Sept. 22 news release.

* SpotifyLtd. is in advanced discussions to take over Germany-based music streamingrival SoundCloud, the Financial Times(London) reported Sept. 28, citing people briefed on the talks. Terms of thepotential transaction were unclear, as the talks between the two companiescould still fall apart.

INTERNET, OTT ANDMOBILE

* AlphabetInc. unit GoogleInc. on Oct. 4 released its new Pixel smartphone, as well as a newvirtual reality headset dubbed Daydream View that along with the phone createsa mobile VR experience. One of the phone's features is its integration withDaydream VR, a platform that connects the phone with the headset. Daydream Viewalso integrates with Google's own media platforms such as Google Maps, whereusers can launch a VR Street View. Google created 150 VR Street View tours forvarious global destinations including the Taj Mahal in India and the FaroeIslands in Denmark.

* Spotify started offering its music streaming service in Japan, thecompany said Sept. 29. Spotify is initially available in the country on aninvitation-only basis. Users can opt for the free, ad-supported service, orsubscribe to the ad-free Spotify Premium service for ¥980per month. The Swedish company also appointed Ichiro Tamaki, formerlyAmazon.com Inc.Japan's vice president of devices and Kindle content, to run Spotify Japan asits general manager.

* LibertyGlobal plc and CableLabs, a research and development lab for theglobal cable industry, have become part of the MulteFire Alliance, an internationalmember-driven consortium for developing next-generation wireless technology.The alliance is working to adapt 3GPP-based mobile wireless standards forshared and unlicensed spectrum, according to a Sept. 21 news release. Othermembers of the alliance include Ericsson AB, Intel Corp., Nokia Corp. and Qualcomm.

* T-Mobile USInc. is conducting 5G trials in partnership with Ericsson, Nokiaand Samsung Electronics Co.Ltd. In a Sept. 20 company blog post, T-Mobile Chief Technology OfficerNeville Ray said the telco achieved speeds of 12 Gbps and latency of less than2 milliseconds when it streamed four 4K videos simultaneously as part of theearly trials. Meanwhile, Ericsson and Nokia said the same day that they willwork with T-Mobile to deploy a pre-standards 5G network for further lab andfield trials. T-Mobile and Ericsson also tested a voice call between 4G and 5Gnetworks.

* DeutscheTelekom AG unit T-Mobile Netherlands tapped Ericsson to deliver the online video platform forover-the-top service KNIPPR, Ericsson said Sept. 7. Under the multiyearagreement, Ericsson will, among others, provide end-to-end online videoservices such as content management and preparation, digital rights managementand content delivery networks for KNIPPR.

CONTENT, CARRIAGE ANDLICENSING DEALS

* Shanghai-based Twinkle Film Productions the rights to remake Danishanimated film "Ronal the Barbarian," Variety reported Sept. 21. The Chinese film production company isplanning to create a live-action version for Chinese audiences. "Ronal theBarbarian" was completed in 2011 and was sold for distribution to morethan 30 countries.

OTHER NEWS

* Ericsson on Oct. 4 unveiled plans to about 3,900 jobs in Sweden as partof ongoing cost-saving measures. The job cuts will affect the tech firm'soperations in six sites across the country and include about 1,000 positions inproduction, about 800 in research and development, and about 1,200 in othergroup and support functions. Ericsson also wants to cut the number of itsconsultants in Sweden by 900. Meanwhile, Chief Strategy and Technology OfficerUlf Ewaldsson said Ericsson is planning to hire about 1,000 engineers in Swedenover the next three years to support company efforts to develop newtechnologies.

* Google plans to establish a data center in Mumbai by 2017, in a move tocatch up with cloud rivals Microsoft Corp. and Amazon Web Services Inc. in the Indian market, Mintreported Sept. 30. Google also plans to set up new Google Cloud Regions inAustralia, Brazil, Finland, Germany, Singapore, the U.S. and the U.K.

* NetflixInc. Chief Content Officer Ted Sarandos Spotify's board, Recode reportedSept. 27. With Sarandos joining the company's board, Spotify can get help withits plans to eventually move in to video as Sarandos negotiates with moviestudios and TV networks for Netflix.

* Telia has named Pasi Koistinen as its new liaison officer inLatvia, in hopes of resolving issues with the country's government regardingthe ownership of fixed telco Lattelecom Group and mobile operator LMT. The Swedishoperator said Sept. 14 that Koistinen will join LMT's supervisory council.Telia is also considering selling its stake in LMT to its Denmark-based unitTILTS Communications, Telecompaper reported Sept. 13.


Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Highlights

The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

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Q4'18 multichannel video losses propel full-year drop to edge of 4 million

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Q4'18 multiproduct analysis sheds more light on video's fall from grace

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Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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