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Deutsche Telekom eyeing European ISP; Ireland probes Yahoo email scanning

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

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

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

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


Deutsche Telekom eyeing European ISP; Ireland probes Yahoo email scanning

TOP NEWS

*Deutsche Telekom AGand Internet provider UnitedInternet AG are both preparing offers for European internet serviceprovider Host Europe Group, Handelsblattreports,citing insiders. HEG is reportedly being valued at €1.5 billion.

* Ireland'sOffice of the Data Protection Commissioner is looking into a that complied with a demand toscan Yahoo Mail accounts for information given by U.S. intelligence officials,Reuters reports.The regulator said it would view any mass surveillance infringing on EUcitizens' privacy rights as a matter of "considerable concern."

AND IRELAND

*The U.K. Information Commissioner's Office slappeda £400,000 fine on TalkTalkTelecom Group PLC for a security breach in October 2015 that led to the theft of personaldata of nearly 157,000 customers. Information Commissioner Elizabeth Denhamsaid TalkTalk's failure to implement the most basic cyber security measuresallowed hackers to penetrate the telco's systems.

*British Telecom'shead of consumer business John Petter criticized for cutting its broadbandcosts by selecting a slower network repair service, The Daily Telegraph of London reports.Ofcom documents reportedly show that Sky downgraded its contract with BT'sinfrastructure arm Openreach, which resulted in broadband customers getting arepair visit within two days instead of one.

* BTstruck an agreement to consolidate and upgrade network infrastructure for HRservices provider Randstad Group, accordingto a news release. The partnership will see BT provide new IT infrastructurewith cloud connectivity for Randstad's sites in 37 countries.

GERMANY,SWITZERLAND AND AUSTRIA

*Sky Deutschland GmbH,which previously rolled out advertising across its sports broadcasts, alsoadded ads to fictional programming, DWDL reports.Sky Krimi, one of its crime series channels, now airs ads between shows, andsubscribers have shown a "high acceptance" to the disruption,according to the report.

*German public broadcasters ARD and ZDF (DE) secured rights to broadcast all games of theEuropean Football Championship 2020 live, DieWelt reports.The companies reached an agreement with European soccer association UEFAthrough sports rights agency SportA.

*German Minister of Justice Heiko Maas criticized social media platforms such asTwitter Inc. andFacebook Inc. for nottaking enough responsibility when it comes to hate speech, Meedia reports.Maas also suggested that AlphabetInc. unit GoogleInc. should be subjected to cartel investigation over a searchengine monopoly in Germany.

*Sky Deutschland rolled out Sky+ Pro for satellite and cable network customers, accordingto a news release posted on Finanz Nachrichten. In addition, the company willpremiere its first soccer game in Ultra HD quality on Oct. 14 in Germany andAustria.

*French e-commerce company Cdiscount launched Cstream, a new triple-play streaming service,Broadband TV News reports.The service offers music from Spotify Ltd., Deezer SA and FnacJukebox, as well as video, excludingseries, from NetflixInc. and books from Amazon.com Inc.'s Kindle.

*Altice NV said in astatement that it terminated the offer to buy the rest of SFR Group SA, after Frenchmarkets regulator AMF declared the former's bid non-compliant.

*AMF rejected Altice's voluntary public exchange offer for a stake in SFRbecause it considered the offer to be too imprecise and because SFR's minorityshareholders were not sufficiently informed about the terms, Les Echos reports.SFR stock dropped by 7%, representing a decrease of about €600 million inmarket capitalization, at opening of the Paris stock exchange on Oct. 5.

*Orange SA launched a46-channel bundle integrating CanalSat, LesEchos reports.The Famille by Canal offer is available to Orange's 1.2 million fiber subscribersat €29.99 per month for the first year, and €43.99 per month after.

*Vincent Meslet resigned as executive director of national TV channel France 2, Les Echos reports.Meslet is leaving by mutual agreement due to differences of strategy withDelphine Ernotte, president of parent company .

, BELGIUM ANDLUXEMBOURG

*Telegraaf Media Group announced to advertisers that their online video platformTelegraaf VNDG will launch in spring 2017, deVolkskrant reports.The platform will reportedly include a daily news show and other exclusiveproductions, which will be developed in cooperation with production companyTalpa.

*Dutch consumer and market authority ACM and personal data authority AutoriteitPersoonsgegevens claim to issued a warning about insufficient databaseprotection in the Netherlands, months before personal energy consumption dataof 2 million people was stolen from an energy provider in September. Accordingto Tweakers, the authorities specifically ordered energy providers to improvedata security.

*Belgium, the Netherlands and Luxembourg plan to intensify cooperation regardingthe development of a joint digital economy referred to as "a digitalBenelux," Dutch IT-channel reports.On the annual Benelux summit in Schengen, agreements were made on severaltransboundary innovation projects.

*KPN NV launched theKPN Zapper, a new app for business users that can be used to manage telephonecommunications, Telecompaper reports.Zapper, which will be available to subscribers of KPN's standard and premiumbusiness packages, will allow users to control features like forwarding calls,speed dialing, and simultaneous ringing.

NORDIC COUNTRIES

*Nokia Corp. acquiredU.S.-based startup Eta Devices, accordingto a news release. Eta Devices specializes in power amplifier efficiencyproducts for base stations.

* Anumber of Spotify Free users reported that the desktop version of the Swedishmusic service app exposes users' browsers to malicious code throughadvertisements, Svenska Dagbladet reports.Spotify said that it is investigating the matter.

*Swedish gaming company Massive Entertainment, which is owned by , is getting ready tohire 200 additional people, Sydsvenskanreports.In order to have room to grow, the company reportedly bought an entire cityblock in Malmo.

SOUTHERN EUROPE

*Turkish authorities cut off the live broadcast of broadcaster IMC TV during araid on its offices, Al Jazeera reports.IMC TV is among several broadcasters banned by the Turkish government forallegedly spreading terrorist propaganda.

*Vodafone Group Plcunit Vodafone EspañaSAU formed a new unit catering to all billing concerns across allof the company's services. Called Vodafone Servicios, the unit will take chargeof client transactions, which includes tariffs, billing and customer support,Digital TV Europe reports.

*Enel Open Fiber and Italian fiber optic firm Metroweb SpA started the fiberrollout in the cities of Padua and Cagliari, with plans to extend 1 Gbpsfiber-to-the-home connections to 50% of the cities' populations by June 2017and April 2016, respectively, Telecompaper reports.Both parties intend to establish a wholesale fiber optic network to moreItalian cities, according to the report.

EASTERN EUROPE

* BelarusNational State Broadcasting struck a deal with Discovery Communications Inc. for the Olympic Gamescoverage in Belarus. The partnership, financial terms of which were notdisclosed, includes exclusive free-to-air audio visual and non-exclusive radiorights to the upcoming PyeongChang 2018 Olympic Winter Games in South Korea andthe Tokyo 2020 Olympic Games, according to a news release.

*Poland's Onet Group is shuttering its subscription video-on-demand service VoD+due to stiff competition, Broadband TV News reports,citing Wirtualne Media. The company, however, will retain its main VOD platformVoD.pl, according to the report.

*JSC Gazprom-MediaHolding's Russian broadcaster unit Red Media launched Malysh, a newchannel targeting preschool children, Broadband TV News reports.The broadcaster eyes over 1,000 hours of content for Malysh during its firstyear, including cartoon series and educational shows.

FEATURED NEWS

: Areplacement unit for Samsung's recalled Galaxy Note 7 caused the evacuation ofa flight in the U.S., while food delivery startup Foodpanda shut down itsIndonesian business due to competition with similar services from localride-hailing apps.

: Rumors are circulating that Disney is consideringa bid for Netflix or Twitter, but the size and scope of such a deal would bebig.

: A dozen FOX-owned regional sportsnetworks will begin offering in-market streaming of NHL games and programmingand open up a new revenue stream with dynamic advertising insertion thisseason.

: Persistence often pays off in the newspaper industry. But itcan also carry a high cost.

: S&PGlobal Market Intelligence presents a roundup of recent programmingannouncements from various networks and online video platforms, including the2016 New York Comedy Festival and the Oct. 2 debut of "Westworld" onHBO.

: Years of debt-fueled expansion mean pressure is mounting forSpain's Telefónica to address its estimated €52.6 billion debt pile. Analystsare convinced the company is leaning toward an IPO for its O2 unit in the U.K.

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

FEATURED RESEARCH

: With Latin America's local infrastructuresteadily improving, and more flexible payment options becoming available, mostOTT players within the region are turning their attention to providing a morediversified offering.

: Subscription on-demand player iflix uses strategic partnershipswith telcos and device manufacturers to develop its subscriber base.

: SNL Kagan recently completed a Consumer Insightssurvey in South Korea that focused on consumer trends related to home andmobile entertainment, e-commerce, internet-connected devices and othermedia-related activities.

Sylvia EdwardsDavis, Anne Freier, Koen Pijnappels and Esben Svendsen contributed to thisreport. The Daily Dose has an editorial deadline of 7 a.m. London time. Someexternal links may require a subscription.


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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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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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.

Learn more about Market Intelligence
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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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