Meinrad Spenger, an Austrian national and former McKinsey executive, co-founded Másmóvil alongside Christian Nyborg, a Norwegian Ericsson alumnus. The two have set out to disrupt the Spanish market, currently dominated by Telefónica, Vodafone and Orange. Unlike Europe’s leading telcos, they see a strong business opportunity – and serious investment potential – for challengers.
Claire Landon: European telecoms experts are saying they are excited by Másmóvil, a company they had never heard of until recently. Can you tell us about the company’s beginnings, and its ambitious M&A programme?
Meinrad Spenger: Co-founder Christian Nyborg and I created Másmóvil as a way to fix the unsatisfactory experience that both of us had had with existing Spanish telecoms operators. We brought together our experience in the Spanish market to start the company. Spain has the most unsatisfied customers in Europe, according to multiple studies such as EPSI, and one of the most expensive markets. When we founded in the company in 2006, we thought we could provide a better service, at better prices. We grew the company organically until 2013, when we started our M&A programme.
CL: The Spanish telecoms market has shifted dramatically in the last few years, with Vodafone buying Ono and Orange buying Jazztel. Is this what has created an opportunity for what is effectively a new entrant?
MS: Yes. Consolidation has created space for alternative operators in the market. Másmóvil is the fourth player, serving consumers and businesses with a fully converged offering. We want to be a challenger that provides a smart alternative.
CL: Given the trend towards fixed/mobile consolidation, is there still a strong business opportunity for mobile-only players?
MS: We started our M&A programme two years ago to complement our offering with fixed-line and broadband in order to prepare for convergence. Some 60% of sales packages in Spain are now multi-play, and we expect the mobile-only market to decrease by half between now and 2020. At the end of 2014, the number of mobile-only customers was around 27 million, and we expect this to fall to 13 million by 2020, with about half of the lines with prepay services. Apart from demand in some niche markets, we see no significant growth opportunity in mobile-only.
CL: Másmóvil started out as an MVNO but has begun acquiring network assets. What are your views on the benefits of owning a network?
MS: We believe owning the network is beneficial for customers, since we can better control the service and enable multi-play. It also benefits shareholders by increasing profitability and providing an attractive return on our investments in network assets, which we had the opportunity to acquire at very attractive prices. Our profitability will improve further as we acquire broadband clients.
CL: Yoigo turned down the opportunity to buy the fixed-line assets Orange/Jazztel had to dispose of to meet European Commission conditions for the merger, saying they were not high quality enough. How will these assets benefit Másmóvil?
MS: We think the assets are great, especially since broadband assets are very scarce in Spain. Looking at the press coverage on this topic, it seems that Yoigo thought the same for quite some time. The Orange/Jazztel assets give us the opportunity to provide a nationwide broadband offering, which is a very scare asset in Spain. Currently, we can offer 18.3 million homes ADSL, and 750,000 homes fibre. The latter figure is what Vodafone and Orange had before their respective fixed-line deals. We are aiming to cover 2.3 million homes with FTTH by 2013. So for us, our clients and our investors, these are great assets.
CL: Turning back to Yoigo, TeliaSonera put that on the market years ago, but no one has been interested as yet (at the right price). Given the changes in the market, is the asset now more attractive? Would Másmóvil be interested at the right price?
MS: This is a question for its shareholders, since it’s not up to me to determine the value of the asset. I am sorry, but we don’t comment on M&A topics..
CL: You mentioned Másmóvil’s ambition to become Spain’s fourth operator. With most of Europe’s large telcos saying they only want to be in a market if they hold a number one or two position, what is the attraction of being a challenger?
MS: Consumers need us. If Másmóvil didn’t exist, we would have to invent it.
We can be the player that dynamises the market, proving to the customer that we are the most committed partner for them. The traditional operators are all multinationals, offering little differentiation between services. We are the one that cares about the customer and that is why we have the highest client satisfaction ratings. Until now, consumers didn’t have much choice in terms of converged offerings. Now they have. We offer a solid option for consumers, as well as a great value for money positioning.
CL: What are your views on the European Commission’s hardening stance on in-country consolidation?
MS: It’s understandable that the commission looks closely at this based on past four-to-three deals and their impact on consumer prices. We’ve been in a society where prices have been adjusted, and MNOs claim they can’t invest. Comparing Europe, which has hundreds of operators to the US, which has four, their argument seems to make sense.
However, in Spain, we have three huge multinationals, which should be big enough to compete and in telco it’s not so much about size, but efficiency. Network sharing, co-investments and wholesale agreements can help to assure this efficiency, and you don’t necessarily have to be a multinational to be efficient. There is a certain logic in investing jointly to create a network, which could eventually extend to a single national network jointly invested in by all the players.
This approach requires a change in mindset: We have to forget about differentiating offerings only through infrastructure, and look at excellent customer service.
CL: So, are smaller players profitable enough to make continued investments in their networks?
MS: If they make smart investments, small players can be very profitable.
CL: Does the entrance of Zegona, a new investor into the Spanish market following its acquisition of Telecable, hint at further deal opportunities?
MS: Every time there’s a major change in the market, it creates opportunity. And it’s a good sign that foreign investors see value in the market. We in fact have also seen greater interest from international investors, one of which participated in our recent block sale, although I cannot name our investors.
[On 5 November, Másmóvil noted in a filing that a family office and an international investment fund had acquired 4% of shares, bringing the company’s free float up to 50%. The Spanish press had previously reported the company’s leading shareholders as EDM Gestión (3.11%), Santander (2.43%), Gescooperativo, Renta 4 and UBS.]
There are over 200 small telcos in Spain, and we see opportunities for a nationwide converged player such as Másmóvil.
CL: What is Másmóvil’s current M&A strategy?
MS: Our current priority is to launch our nationwide broadband and multi-play offering, and deploy our fibre network. Our M&A activities shall strengthen these strategic priorities.
CL: Másmóvil is reportedly seeking new finance from banks and the market. Can you tell us more?
MS: We will provide FTTH to 2.3 million buildings by the end of 2017, and are currently evaluating different options to finance this, including a bond or vendor financing – we have had approaches from both European and Chinese vendors. Our net debt stands at €20m (US$21.3m). Our bank debt is very low, with some public debt, so there are debt financing opportunities.
CL: Do you have regular financial and legal advisers? Are you interested in approaches from advisers?
MS: We have a strong internal team, which has done a lot of the M&A. Shareholders such as Spanish [venture capital firm] Inveready are also supporting us. But we are very open to holding talks with advisers who would like to work with us.
CL: When will Másmóvil seek a move to the main stock market in Madrid?
MS: We are the largest company on the junior stock exchange, MAB, with a market cap of €270m (US$287.9m). Our intention is to move, most likely during 2016. But we are not in a hurry, since we want to do it well. We are already following the rules of the senior market, with a strong independent board and audit and human resources committees, for example.
CL: What is the potential, if any, for a single entrepreneur or investor to apply a template to transforming number three and four mobile operators across Europe into successful, profitable businesses? Or can this only take place on a country by country basis?
MS: It is not up to me to judge other entrepreneurial initiatives outside of Spain, where I am convinced that Másmóvil is the best alternative. We are now focused on acquiring clients, especially broadband clients, in Spain but are also open to analysing selective international opportunities.
