The sector was hit harder than expected by COVID-19 with service revenues declining by 7% overall vs a decline of just 1.6% in the previous quarter. Many telecoms operators across Europe have become more negative on the near-term outlook than they were a couple of months ago with full year guidance now downgraded by almost all players

Contents

Executive Summary

Market and competitive trends

• UK mobile market: COVID hits
• Competitive performances: H3G bucks the trend, distribution and COVID the drivers
• Assessing performance: neither service nor total revenue growth are perfect measures
• Significant COVID-19 impacts but likely to lessen overall next quarter
• Net adds: B2B boost for some; H3G uses indirect distribution to good effect
• Churn dipped sharply but likely to bounce back
• ARPU hit hard for most
• Pricing: EE more aggressive on bundles
• Unlimited pricing: H3G discounting again
• Financial performance: H3G’s eye-catching EBITDA trend
• Mobile network performance resilient in the face of COVID-19
• Telecom operators more cautious in June than they were in March
• COVID-19 creates longer term challenges…and opportunities
• Huawei now banned from 2027 at great cost to the sector
• 5G rollout likely impacted by COVID and Huawei decision
• 5G spectrum auction pushed back to January—legal challenges might delay it further
• Spectrum auction rules discourage H3G involvement
• O2/Virgin Media: a merger of convenience
• End-of-contract legislation now in force with the option to pause during COVID
• Automatic discounts hit first, but only for some
• Timing of out-of-contract initiatives will vary
• Carphone Warehouse scale-back is a positive for the operators
• Shared Rural Network agreement finalised

Headwinds annualising out

• Nearing the end of the headwinds
• Out-of-bundle pressure now steady
• Contract price rises outlook better for some
• Higher ALFs drag on EBITDA to disappear for all but H3G
• Cut to intra-EU call pricing to fully annualise next quarter

Appendix

List of charts/tables

Reported mobile service revenue growth

UK mobile market net adds (000s)

Reported mobile service revenue growth by operator

Reported total mobile revenue growth by operator

BT/EE total revenue and service revenue growth (IFRS 15)

O2 total revenue and service revenue growth (IFRS 15)

Vodafone total revenue and service revenue growth (IFRS 15)

H3G total revenue and service revenue growth (IFRS 15)

COVID-19 impacts by operator in Q2 and outlook

Contract net additions (000s)

Annualised contract churn

Contract ARPU growth

SIM-only share of contract subscriptions

‘Sweet spot’ bundle with iPhone 6s/7/8/XR/11

SIM-only pricing by data allowance (GB)

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

Capex, last 6 months (£m)

EBITDA margin, last 12 months

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

Europe average mobile network speeds (Mbps)

Peak complaints per 15 minutes by mobile operator

COVID-19 related financial guidance changes

UK underlying service revenue vs GDP growth

Huawei’s market shares

5G launch dates and plans

Spare capacity per operator (PB per year)

Timeline of UK mobile capacity

Spectrum holding by operator (MHz)

Residential market shares (including pay TV)

Total market shares (including pay TV)

Potential drag from loss of ‘sleepers’

Discounts offered by each operator to with-handset customers out of contract for more than three months

Estimated drag from proposed discounts

Timing and impact of out-of-contract notifications and discounts

UK mobile coverage (% of landmass)

Outlook for change in mobile trends in 2019 by operator

Operators’ restrictions on out-of-bundle spending before new regulation

MNO price increases in 2020

RPI-linked price increases in 2018, 2019, and 2020

Annual licence fees (£m per MHz per annum)

EBITDA drag from ALF change (excluding H3G 5G spectrum)

 Bolt-on offers for international calls from mobiles

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)