Report Overview

A hint of growth: UK mobile market in Q1 2022

Contents

Executive summary: a hint of growth

UK mobile market: a taste of growth

Competitive performances: Vodafone boosted by roaming and MVNO gain

Net adds: aggressive pricing boosts EE

Mobility boost resurges for the last time

Churn: H3G’s focus pays off

Data traffic growth slows

April in-contract price rises average 8%

Service revenue uplift up to 5ppts higher than in 2021

B2B an emerging headwind (for some)

Increasing calls for consolidation: MNOs optimistic, Ofcom’s position largely unchanged

VMO2 standing alone on EU roaming charges

Ofcom acknowledges investment challenges and softens stance on consumer regulation

Big Tech could enter mobile connectivity market…

…with concerning implications for the MNOs

‘Fairness agenda’ to be the last consumer price regulation for now

Split contracts and SIM-only now dominate

Pricing: order restored

Unlimited packages: rising prices in spite of inflation-linked increases

Financial performance: EBITDA boosted by MVNO shifts

Financial performance: H3G’s capex boost extended into 2022, hitting cashflows

Convergence in flux

Clever convergence from VMO2 with the launch of Volt

5G spectrum auction: all change on the capacity front

Ofcom now consulting on revisiting ALFs post-auction

Open RAN: be careful what you wish for

UK tower companies: increasing activity in a complex market

UK towers outlook: limited growth opportunities, merger potential long-term

IFRS 15 reporting note

ROCE calculations: Enders Analysis vs Ofcom’s approach

ROCE analysis results are similar, with Vodafone the exception

Shared Rural Network agreement

5G rollout much less aggressive than 4G—for good reason

COVID-19 creates longer-term challenges…and opportunities

ARPU visibility reduced

Assessing performance: neither service nor total revenue growth are perfect measures

IFRS 15 and means of distribution as a driver of revenue trends

Zero-rating

Previous contract price increases for existing customers

Spectrum ownership

Disclaimer

Tables and Figures

Reported mobile service revenue growth

UK MNO mobile market net adds (000s)

Reported mobile service revenue growth by operator

Reported total mobile revenue growth by operator

Contract net additions (000s)

Virgin Media O2 contract net adds breakdown

UK mobility by month vs baseline mobility in January 2020

Flights to, from and within the UK, versus prior year and 2019

Annualised contract churn

Timeline of COVID-related lockdowns

Data traffic growth

Data traffic per subscriber and share of traffic

MNO price increases in 2022

Weighted average price increases 2019-2022

Short-term impact of price increases on service revenue

B2B as a proportion of operators’ mobile service revenue

ROCE using spectrum at current value and market shares

Monthly fair usage limits on EU roaming

Effective daily cost of roaming passes

Tech giants as MVNO/gatekeepers

Current and potential distribution systems

Bundled customers out of contract and average overpayment

SIM-only out-of-contract customers

Monthly cost of iPhone 13 + unlimited data by contract length (£)

Split of mobile contracts by type

‘Sweet spot’ bundle with iPhone 11/12/13

SIM-only pricing by data allowance (GB)—November 2021

SIM-only pricing by data allowance (GB)—May 2022

12-month, SIM-only unlimited data bundle pricing (£/month)

18-24-month, SIM-only unlimited data pricing (£/month)

EBITDA margin, last 12 months

EBITDA growth, last six months

EBITDA, last six months (£m)

Cashflow, last six months (£m)

Capex, last six months (£m)

Cashflow (EBITDA less capex) margin, last 12 months (£m)

O2 mobile churn

Vodafone convergence versus churn in top 4 markets, 2018-2021

Potential spin-down saving on Virgin Media dual-play packages

Potential spin-down saving on O2 30-day airtime data bundles

Spectrum holding by operator (MHz)

Operator shares of capacity

Spectrum allocation in the 3.4-3.8 GHz band

Selected OpenRAN trials and commitments

UK mobile networks and infrastructure

Enders ROCE using spectrum at current value, 2020

Ofcom economic ROCE, 2020

UK mobile coverage (% of landmass)

Estimated 5G coverage by operator, November 2021

4G (dotted line) versus estimated 5G (dots) coverage by operator

UK underlying service revenue vs GDP growth

 Blended ARPU growth

Contract ARPU growth

BT/EE total revenue and service revenue growth

Virgin Media O2 total revenue and service revenue growth

Vodafone total revenue and service revenue growth

 H3G total revenue and service revenue growth

IFRS 15 effect of indirect and direct mobile contract distribution

UK zero-rated data offers

Select previous MNO price increases

Mobile network operator spectrum ownership (both up and down MHz)