UK mobile service revenue growth was -0.1% in Q4, a 0.6ppt improvement from the previous quarter. This was helped by some modest price firming, continued strong data growth, and some inflation in handset prices.
EE was the strongest growing operator after being the weakest just 12 months ago, with its efforts to improve customer service, network performance and perceptions of network performance starting to pay off. H3G had a strong H2, with strong customer additions while not sacrificing ARPU, although it is still clearly taking steps to manage capacity demand. O2 had another solid performance with a modest improvement in service revenue growth, and Vodafone suffered from weak ARPU primarily due to pricing pressure in the business market.
H3G’s acquisition of UK Broadband changes the medium term dynamics of spectrum ownership, with it now having a very strong position in spectrum bands earmarked for 5G, but it does nothing for its short term spectrum dearth as this spectrum will not be usable in popular handsets for 3 to 4 years. The clear solution for this is the soon-to-be-auctioned 2.3GHz band which is immediately usable, with Ofcom still to decide on the auction rules and timetable.
In the medium term, H3G has plenty of 3.4-3.8GHz 5G spectrum, but the others will have to battle it out, with no guarantee that the distribution will have any degree of evenness. Given that more sites will be required to take full advantage of this spectrum and that most current sites’ economics benefit from sharing between at least two operators, this creates compound uncertainty over the future roll out of 5G.
In the shorter term, the outlook for market service revenue growth is fairly positive, with ARPU-enhancing pricing moves in evidence, supported by continuing strong data volume growth, and existing customer price increases due to take effect from Q2 2017.