BUSINESS AND FINANCE

just six months ago when the company said: “Orange and T-Mobile [will] continue to compete as separate brands on the market, each with its own stores … and service centres.” Everything Everywhere’s revenue for

the nine-month period to the end of 2010 fell by 2% year-on-year to £5.3 billion. But the company says it is now reaping the benefits of integrating the two brands in the UK. National roaming across the 2G T-Mobile and Orange networks was introduced in October, and the company says 4.3 million customers had opted in to the scheme by the end of the year. When Orange embarked on rebranding

its Equant and Wanadoo divisions as long ago as 2006, it set aside E200 million over a period of 18 months specifically for the transformation. At the time we reported that in total the company spent E7.8 billion on marketing and related activities during that year, or 15% of its revenues. Today the Orange brand is familiar

worldwide, but it has not all been plain sailing. In particular the company’s broadband operations have struggled to replicate the success of its mobile opera- tions outside of France. Everything Everywhere says its broadband custom- ers—assimilated from Orange—in the

Brand value by country Country

US UK

Japan France Spain

Hong Kong Germany China

Sweden Canada Russia Finland Brazil Italy

Taiwan

Number 106 14 18 7 6

South Korea Mexico

Australia India

South Africa

14 10 32 21 12 24 6 4 5 7

competitive UK market fell to 770,000 by the end of last year from 896,000 a year earlier. The company says it will embark on a renewed sales and marketing focus on broadband starting this quarter. Certainly, successful broadband and

mobile services play a big part in driving the leading telecoms brands. Mobile operators feature heavily in the top 500, but they cannot rest on their laurels. In our article in November we showed how for many operators increased data reve- nues still are not offsetting the continued decline in voice and messaging income (Total Telecom Plus November ). In the Brand Finance ranking, European

companies represent the highest total brand value by region at $206.1 billion (up 8% from last year); North American telcos have a total brand value of $137.1 billion (up 25%); and Asian companies $106.2 billion (up 30%)—see tables below. This year’s data shows the Asia and Pacific regions have risen sharply in terms of brand value (up 30% and 34% respec- tively), while Africa has fallen (by 28%)—although Brand Finance says that is largely due to Vodacom being rebranded to the European brand Vodafone. By country, the US has by far the most companies in the top 500 (106) as well as

the highest brand value ($121.9 million) . The two biggest US companies, AT&T and Verizon, are also two of the biggest brand value risers (AT&T was also the biggest riser in 2010). Now Verizon has its sights firmly set on its rival: In February it started selling Apple’s iPhone, ending AT&T’s exclusive agreement in the US. “Despite the well-documented problems concerning AT&T’s service and recep- tion issues, its appealing iPhone offers have meant that the brand has held onto the number two spot ,” says Bird. “However, its ranking may be threatened in 2011 as Verizon could capitalise on its own reputation as offering better recep- tion/connectivity and attract a higher number of customers coming to the end of their annual iPhone contracts.” Apple’s own SG&A expenses increased

year-on-year by US$608 million to $1.9 billion in the first quarter of 2011 . While that is not all down to spend on brand, the increase was due in large part “to the company’s continued expansion of its retail segment, higher spending on marketing and advertising programs, [and] increased variable costs associated with the growth of the company’s net sales ”. One thing is for certain: you could buy a lot of fish fingers with that sum. n

EXPLANATION OF METHODOLOGY

11 6

12 18 5

Value ($m) 121.918 42.909 33.337 28.166 23.149 21.838 21.491 20.615 16.333 15.205 15.205 14.045 13.195 11.175 11.091 10.888 7.524 7.139 6.551 5.604

Brand value by region Total brand value ($m) 2011

Europe Africa

North America Asia

South America Pacifi c

Central America Middle East Total

The methodology employed in the Brand Finance Telecoms 500 uses a discounted cash fl ow (DCF) technique to discount estimated future royalties, at an appropriate discount rate, to arrive at a net present value (NPV) of the trademark and associated intellectual property: the brand value. The steps in this process are: 1. Obtain brand-specifi c fi nancial and revenue data. 2. Model the market to identify market demand and the position of individual brands in the context of all other market competitors. Three forecast periods were used:

206,068 109,507 8% 137,123

106,156 81,357 30% 8,403

16,679 15,822 5% $513,928 $445,148 5%

14,706 14,943 -2% 13,564 11,229

2010 % rise 109,303 25% 11,610 -28% 10,151 34%

11,455 -2%

● Historical fi nancial results up to 2010. Where 2010 results are not available consensus forecasts are used. ● A fi ve-year forecast period (2011-2015), based on three data sources (consensus forecasts, historic growth and GDP growth). ● Perpetuity growth, based on a combination of growth expectations (GDP and consensus forecasts). 3. Establish the royalty rate for each brand. This is done by: ● Calculating brand strength – on a scale of 0 to 100, according to a number of attributes across three main categories: fi nancial, risk and security, and brand equity. ● Use brand strength to determine ßrandßeta® Index score ● Apply ßrandßeta® Index score to the royalty rate range to determine the royalty rate for the brand. The royalty rate is determined by a combination of the sector of operation, historic royalties paid in that sector and profi tability of the company. 4. Calculate future royalty income stream. 5. Calculate the discount rate specifi c to each brand, taking account of its size, geographical presence, reputation, gearing and brand rating (see below). 6. Discount future royalty stream (explicit forecast and perpetuity periods) to a net present value – ie: the brand value. Royalty Relief Approach Brand Finance uses the royalty relief methodology that determines the value of the brand in relation to the royalty rate that would be payable for its use were it owned by a third party. The royalty rate is applied to future revenue to determine an earnings stream that is attributable to the brand. The brand earnings stream is then discounted back to a net present value. The royalty relief approach is used for three reasons: it is favoured by tax authorities and the courts because it calculates brand values by reference to documented third-party transactions; it can be done based on publicly available fi nancial information and it is compliant to the requirement under the International Valuation Standards Committee (IVSC) to determine Fair Market Value of brands. Brand Ratings These are calculated using Brand Finance’s ßrandßeta® analysis, which benchmarks the strength, risk and future potential of a brand relative to its competitors on a scale ranging from AAA to D. It is conceptually similar to a credit rating. The data used to calculate the ratings comes from various sources including Bloomberg, annual reports and Brand Finance

research. Valuation Date

All brand values in the report are for the end of the year, 31 December 2010.

10

www.totaltele.com March 2011