Telstra and Optus earnings update\ VHA-TPG merger\ Vodafone plods on\ Disney’s digital transition

 

 



Welcome to the Venture Insights newsletter!

In this week’s edition, we look at Telstra and Optus earnings update, Federal Court approves VHA-TPG merger, the performance of Vodafone in the European market and Disney Q1 2020 results. 

CHART OF THE WEEK

Video providers subscriptions, cable and OTT, international (m)



Source: COMPANY REPORTS, ENDERS ANALYSIS ESTIMATES

Telstra and Optus: Falling ARPUs, increase in price-sensitive market and Enterprise declines

Mobile ARPUs decline



Source: OPTUS 3QFY20 EARNINGS ANNOUNCEMENT AND PRESENTATION, TELSTRA 1H20 EARNINGS ANNOUNCEMENT AND PRESENTATION

Telstra and Optus reported earnings on 13th February 2020. The market outlook for the next 1-2 years remains subdued as competitive intensity in both fixed and mobile will put pressure on ARPUs which will in turn means a strong focus on keeping costs under control to maintain profitability. Even though both Optus and Telstra have increased their subscriber numbers for both fixed and mobile, this hasn’t always translated into revenue growth due to decline in ARPUs. Interestingly, Telstra noted an increased activity in the price sensitive end of the market with strong performance in Belong and Wholesale. Whilst this supports Telstra’s multi brand strategy, it also leads to a decline in ARPU from a higher mix of Belong customers. 5G will be a key battleground for Australian telcos in the near future and leadership in 5G rollout can equate to additional subscribers driven by churn from other operators. For more details, including Optus’s and Telstra’s media and gaming strategy, Enterprise revenues, Wholesale market and others, click through to read our report.

Click to read report

Federal Court approves VHA-TPG Merger



On 13 February 2020, the Federal Court voted in favour of the proposed VHA and TPG merger which had previously been opposed by the ACCC.  The ACCC believed that in the absence of the merger, TPG was likely to continue to roll out its own mobile network and become a disruptive player in the Australian mobile market.  Venture Insights’ analysis also showed that given TPGs significant investment in spectrum then it would also be likely TPG would find another network vendor and continue its build into either mobile and/or fixed wireless solutions.  However, both the merger and no merger tests relied on forward looking views of market behaviour with Justice Middleton relying on the views of the merger parties that TPG was unlikely to build a retail mobile network and that the merger would create stronger competition.  In response, ACCC Chair Rod Sims stated that ‘Australian consumers have lost a once-in-a-generation opportunity for stronger competition and cheaper mobile telecommunications services’. We are now waiting to see whether the ACCC will appeal the decision. Absent an appeal, the clear goal for VHA and TPG is to successfully take market share from Telstra and Optus. How this will impact prices at both the retail and wholesale (MVNO) layers will be an interesting test for competition post the merger decision. For our analysis of the merger see Venture’s last report covering the complexities of the Federal Court case.

Click to read report

Vodafone plods on

Operating metrics for fixed for Optus and Telstra



Source: ENDERS ANALYSIS BASED ON COMPANY REPORTS

Vodafone’s revenue performance remains decidedly lacklustre. Italy and Spain are struggling to bounce back, Germany is still languishing, and the UK’s 0.6% service revenue growth is the highlight of the quarter. Liberty Global’s assets are disappointing both in terms of opening financials (revenues and EBITDA 8% and 12% lower than expected respectively) and outlook (now growing at half the rate at the time of deal announcement and guidance for Germany as a whole to be ‘flattish’). Vodafone’s guidance for a pickup in revenue growth to more than 1% in Q4 is encouraging but these are very tentative steps forward in challenging times. For a more detailed look at the performance of Vodafone in the European market, click through to read a report from our UK research partner, Enders Analysis.

Click to read report

Disney’s digital transition

Disney revenue trends by source ($m)†



Source: ENDERS ANALYSIS FROM DISNEY

Recruiting 29 million subscribers in twelve weeks, Disney+ has stormed the US market. Furthermore, the two million gain achieved after the holidays and the completion of The Mandalorian, relatively high ARPU, and rising Hulu and ESPN+ subscriptions bode well. Conversely, booming (but expected) losses of direct-to-consumer platforms—due to increase as Disney+ launches in Europe in March—are undermining group profitability. But, with a total of 64 million direct subscribers Disney can now claim a size and momentum that puts it in the league of the pure digital platforms—crucially backing its stock market narrative. For a more detailed look at Q1 2020 results from Disney, click through to read a report from our UK research partner, Enders Analysis.  

Click to read report