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  • May 24, 2016

    Onwards and upwards: TalkTalk Group Q4 2015/16 results

    TalkTalk Q4 2015/16 results firmly indicated that operations had moved on from the cyber-attack; record low churn and strong mobile (+90k) and fibre (+72k) traction with stable gross adds were all in line with the revised strategy announced last quarter and marked the best net adds performance for the year. Wholesale subscriber net adds (+49k) were critical to on-net base stability against retail net losses (-49k), highlighting the short term value of wholesaling as a hedge against heightened (and expensive) retail competition although long term sustainability will rely on traction in retail. FY17 guidance targets EBITDA of £320-360m, with an implied 17-20% margin (+3-6ppts on FY16), which is accessible from MTTS projections, lost costs from revised trading plans, and lower CPAs before counting revenue growth contributions. The operating cost impact from blinkbox, York fibre and other new cost structures appears benign for the moment.
  • May 24, 2016

    Vodafone Q4 2015/16 results: Positive growth in Europe

    Vodafone Europe’s service revenue growth reached positive territory in the March quarter, having recovered from a long term decline that it has suffered since 2009, thanks mainly to market stabilisation within the countries where it operates. The company’s service revenues are now growing in Germany, Italy and Spain, with the UK now the laggard, having suffered from recent billing migration issues. With Europe’s major mobile markets now stabilised, Vodafone’s continued high investment levels gives it an opportunity to develop a competitive advantage and outperform its competitors, rather than just keeping up with them.

  • May 17, 2016

    Expanding and upgrading: Virgin Media Q1 2016 results

    Virgin Media broadband net adds of 70k were the highest in 6 years, with record market net adds share of 35% in a slowing broadband market, and the strongest consumer cable revenue growth in over a year. Project Lightning roll-out and strong marketing were the key drivers and are expected to continue over the year. Recent momentum has been largely dual play driven but TV investments, including exclusive on demand content, and a software upgrade and refreshed set top box to be launched in H2 2016, should help with ongoing TV net losses particularly as cost pressures mount from wholesale sports content. Project Lightning updates informed that of the 4m total premises budgeted for network expansion to 2020, at least 25% of these will be connected via FTTP, signalling increased infrastructure competition with Openreach whose G.fast roll-out plans potentially diminish the current cable network speed advantage (though further cable upgrades are both possible and would recover this).
  • May 13, 2016

    BT Q4 2015/16 results: Sound investment-driven growth strategy

    BT Group’s revenue growth slipped back to 1.3% in Q4, but this reflected the reversal of various one-off boosts in the previous quarter, with underlying trends still solid across the group, with Consumer and Openreach still the standout performers. We do not think that BT’s approach of keeping the BT and EE consumer brands separate will maximize the cross-selling opportunity, but we consider this opportunity to be modest at best in any case, and therefore not worth the risk of a disruptive integration. On both fixed and mobile, BT is using cost savings to invest in faster speeds, better coverage and improved service to drive competitive advantage and price premia, a very sound strategy in our view.
  • April 20, 2016

    Sky’s German breakeven hangs on Bundesliga auction

    At present, Sky exclusively holds all pay-TV domestic live rights to Germany’s top football league. The 2017-2021 rights auction will conclude in early June. It contains a new soft ‘no single buyer’ clause referring solely to online rights. Sky’s real threat comes from potential bids for the main TV packages by deep-pocketed telecom or digital platforms. This could see Sky losing games and shouldering significant cost increases. We think Sky’s German operations will break even by fiscal 2017. Beyond this, profitability is heavily dependent on the auction’s outcome. If it were to retain all live rights, Sky could afford to increase Bundesliga costs by up to 40% over the four-year period. Anything beyond this would lead to Sky making losses.

  • April 12, 2016

    Media & Telecoms – 2016 & Beyond

    Enders Analysis co-hosted its annual conference in conjunction with Deloitte, Moelis & Company, Linklaters and LionTree, in London on 8 March 2016. The event featured talks from 22 of the most influential figures in media and telecoms, and was chaired by Sir Peter Bazalgette. This report provides edited transcripts of the talks, and you will find accompanying slides for some of the presentations here.

  • April 12, 2016

    European mobile in Q4 2015 – The challengers’ challenge

    European mobile service revenue growth was flat at -0.8%, while underlying country movements were somewhat more dramatic. The key highlights were Italy returning to positive growth driven by pricing stability, and France showing worsening growth decline for the first time in over two years impacted by challenger telco pricing cuts. An assessment of these challenger telcos highlights a somewhat precarious position, as continued price aggression yields diminishing incremental gains, and they all remain some way from gaining the scale to achieve profitability. The only incentive for challengers to remain aggressive is as an encouragement for their competitors to buy them; increasing regulatory hurdles to consolidation would remove even this incentive, leaving price increases as their only rational route to profitability.
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  • April 7, 2016

    UK broadband, telephony and pay TV trends Q4 2015: Diversified gr [...]

    The UK residential communications market maintained strong growth of 6% in Q4, helped by overlapping price increases at BT and TalkTalk, albeit mitigated by weaker volume growth as a result of the TalkTalk cyber-attack.

    This strong growth level benefits from multiple factors, including continually growing broadband adoption, broadband ARPU being boosted by the shift to superfast, price increases across line rental, calls and premium pay TV, and additional pay TV adoption at the lower end.

    We expect a modest dip in market revenue growth moving into 2016 as various one-off boosts drop out, but the underlying drivers of growth are sufficiently diversified to give us confidence that further downside is limited.

  • March 31, 2016

    UK mobile market Q4 2015: Growth softly softens

    UK mobile service revenue growth dipped down in Q4, but at least remained still just positive at 0.3%. The dip was driven by contract ARPU weakness at the largest three operators, mitigated by strong ARPU growth at the smallest operator H3G. Looking forward, the sources of weakness (growth of SIM-only and tariff policy adjustments) look more temporary than the sources of growth (data volume growth filling up capacity). SIM-only is likely to hit a natural ceiling, whereas data volume growth has no ceiling in sight and the scope for network capacity expansion is limited. With CK Hutchison currently negotiating with the European Commission in regards to the fate of the H3G and O2 merger, there is a high level of uncertainty on the future of the structure of the UK mobile market. Merging the two networks would generate extra capacity and capability, likely increasing competitive intensity, but the precise form this would take is unclear, as is the future of the brands and the identity of the capacity MVNO recipient(s).
  • Mobile Google: beyond the smartphone
    Mobile Google: beyond the smartphone
    March 30, 2016

    Ofcom’s Digital Communications Review: Blessed are the investo [...]

    Ofcom is encouraging competitive investment in local access networks using BT’s ducts and poles; in our view this is very unlikely to happen on a large scale, due to both the lack of spare capacity in existing plant and the generally poor prospective economics of a third local access network in the UK. Ofcom’s favoured model for Openreach is an enhanced version of the current structural separation model, and this is most likely to be reached via a negotiated settlement with BT; this and a number of other proposed measures, if implemented, will increase Openreach’s costs, and these costs will be re-charged to both BT’s retail division and its DSL competitors. Ofcom remains keen to retain four mobile network operators, in spite of clear evidence that at most three are viable at current retail price levels, and it is keen to implement a number of interventionist consumer protection measures that suggest it is keen on competition in theory, but not so much in practice.
  • March 23, 2016

    Apple’s iPhone bargain

    More attractively priced than previous entry level iPhones, the new SE extends Apple’s smartphone lineup down towards the mid-price segment to better compete with Android over price-sensitive users. At a time of investor concern over slowing down iPhone unit sales, the SE marks the first shift in Apple’s strategic calculus for the iPhone from gross margins to unit volumes. SE supports the iOS ecosystem in a crucial period of growth for mobile payment services, making the entire iPhone roster Apple Pay compatible.

  • March 11, 2016

    H3G and O2: Merging thoughts

    H3G and O2 are planning for their UK merger to create a mobile-only operator that leads the market in network quality and capacity, taking a contrary approach to the current trend of fixed/mobile convergent strategies. The merger would ease the severe spectral capacity constraints currently faced by both operators, and ease the scale disadvantage suffered by H3G ever since its launch in 2003, allowing a much stronger long term competitor. Post-merger, the UK mobile market will likely end up just as competitive as it is now, with pricing pressure actually more likely to continue into the medium term, and plenty of opportunities and threats for all the main players as the environment re-aligns.

  • Australian MVNOs – ‘Peak MVNO’ is here…
    Australian MVNOs – ‘Peak MVNO’ is here…
    February 26, 2016

    Australian MVNOs – ‘Peak MVNO’ is here…

    MVNOs have seen their market share grow in the last few years. However, we believe that we are now at ‘Peak MVNO’, thanks to rising costs, a declining price differential with MNOs and Vodafone’s return to growth. We forecast MVNO’s share to decline to 6.6% in 2020 from 8.3% currently, even as TPG outperforms by gaining share.
  • February 23, 2016

    Lightning strikes: Virgin Media Q4 2015 results

    Project Lightning is showing clear signs of success, running ahead of new premises targets with ARPU and penetration levels in line with expectations, which helped deliver the strongest organic RGU performance in over seven years, and could add c1% to revenue growth in 2016. Recent performance, though strong, was not immune to the rivalry of Sky and BT, with efforts to manage profitability in the face of inflated sports content rights costs in turn yielding tension at the subscriber level; we anticipate round two when the 2016/17 Premier League kicks off in August. Mobile revenue growth was relatively weak and quad play penetration fell, but the H3G/O2 merger in the UK may provide an option to improve its mobile wholesale deal, and the cable/mobile JV in the Netherlands with Vodafone points to a possible similar deal in the UK in the longer term.
  • February 22, 2016

    EE Q4 2015 results: Slowing revenue, accelerating profits

    EE reported solid contract net adds, but weakening contract ARPU, which drove mobile service revenue growth down to -2.5%. However, EBITDA growth was spectacular at 15% in H2, suggesting that much of the subscriber growth is in low revenue high margin segments such as SIM-only and B2B, as well as cost control being strong. EE’s new parent BT is likely to be able to drive further progress in these areas, and the outlook is robust even if quad play demand remains low in the consumer market.
  • February 16, 2016

    Millennials, mobile and traditional media

    Millennials are the mobile generation, and their preoccupation with mobile erodes time spent with other media, but also offers new opportunities for traditional media brands. Millennials have a different relationship with traditional media; mobile has provided them with control over what they consume and the convenience to access content where and how they like. New content forms such as very short videos have added to the mobile experience, creating social discovery opportunities for media to reach millennials.
  • February 11, 2016

    UK advertising expenditure forecast 2016-2018

    2014 and 2015 have seen outstanding real growth of 13% in display advertising spend. Although we cannot rule out a recessionary downturn, we project further 11% growth during 2016-2018, but at a slowing rate as display spend continues to benefit from relatively benign economic conditions. A sizeable chunk of the display growth reflects a shift from non-display. However, the most dramatic change in the present decade is the total reversal of the balance in display market share between press and the internet: 75% press/25% internet in 2010; 25% press/75% internet in 2018. Nor will the shift be over in 2018. Meanwhile, we expect other display categories – television, out of home, radio and cinema – to see advertising spend grow at close to the market average. As yet, we have seen no signs of television advertising spend suffering due to the decline in viewing among younger age groups and emergence of digital video. If anything, evidence points to the contrary.

  • February 10, 2016

    Vodafone Q3 2015/16 results: Almost stable

    Vodafone Europe’s service revenue growth continued its trend of gradual improvement, helped by solid contract net adds and sustained high data traffic growth, and is now almost stable. Project Spring network metrics performed strongly in the quarter, and there is some evidence of this translating into better operating performance in Italy, which enjoyed positive mobile service revenue growth for the first time since 2010. Problems remain for the company in its other key mobile markets however, all of which remain in decline. Although these issues may prove temporary, and Project Spring may yet offer them a boost, further pressure is on the horizon due to competitor consolidation and associated regulatory remedies.
  • February 9, 2016

    Cyber blues: TalkTalk Group Q3 2015/16 results

    Damage from the cyber-attack was revealed to be a 2% impact to the on-net subscriber growth, a 3% impact to Group revenue growth and a combined EBITDA and exceptionals cost impact of £75-80m, roughly double the previous guidance. An updated FY17 trading strategy promises “more conservative” price increases and greater focus on upselling mobile/fibre/TV to existing customers, while maintaining rather than growing the consumer base. FY17 guidance has been updated to account for cyber-attack related setbacks and trading strategy adjustments, now aiming for modest revenue growth and EBITDA of £320-360m and an implied margin of 17-20%.

  • February 5, 2016

    BT Q3 2015/16 results: Fibre-driven accelerating revenue

    BT Group’s revenue growth accelerated to 4.7% in Q3; while this was helped by some beneficial one-offs, including the TalkTalk cyber-attack, the underlying trends also looked strong across all divisions. Fibre adoption had a record quarter, with growth particularly apparent at BT’s DSL competitors, helping to drive Openreach’s external revenue growth to 7%. BT completed the purchase of EE at the end of January, and BT will keep EE separate for consumer but fully integrate for business. We are sceptical of consumer-side revenue synergies, but the business side and cost synergies will significantly benefit going forward.
  • January 15, 2016

    Will the young of today ever turn to trad TV?

    The steep year-on-year decline in TV viewing among younger age groups has continued in 2015, with reported TV viewing by children 4-15 and adults 16-24 approaching 30% down on the peak of 2010. The downward trends notwithstanding, there are good grounds for believing that some of the new media consumption behaviours will fall away as today’s millennials move-up the lifestage ladder. In addition, half-yearly comparisons reveal a big slow-down in the rate of decline during H2 2015, suggesting that the explosive impact of smartphones, tablets, apps and social networks has almost reached its limits, while further change will occur at a much slower pace.

  • December 17, 2015

    European mobile in Q3 2015 – Consolidation before convergen [...]

    European mobile service revenue growth again improved, albeit marginally, with the quarter’s gain driven by declines easing further in what nevertheless remain the three weakest markets: France, Italy and Spain. Generally stabilising pricing environments were a key factor although ARPUs in these markets remain largely in decline, under continued pressure from strong out-of-bundle revenue declines. In a post-consolidation world, H3G/O2 in the UK and Yoigo in Spain will be the only mobile-only MNOs in the top five European mobile markets, effectively cementing a convergence based future. Consolidation trends might point to the prospect of greater price stabilisation but a fresh land grab for the converged market could derail this. Overall, in spite of healthy underlying data trends, we continue to see medium term growth recovery prospects capped at around 1% given precedent from both the UK, where a healthy economy, healthy pricing environment and strong data trends have failed to exceed this level, and Germany, where post-consolidation revenue growth has reverted to negative territory, both due to competition and consolidation.
  • NBN RSP Outlook –Australia’s next oligopoly
    NBN RSP Outlook –Australia’s next oligopoly
    December 15, 2015

    NBN RSP Outlook –Australia’s next oligopoly

    The NBN was supposed to increase retail competition, but it is driving consolidation of the top 3-4 Retail Service Providers (RSPs). The margins of off-net players (ie M2, the old iiNet) will benefit, but on-net players and/or those over-weight Voice (ie Telstra, TPG) will be negatively impacted. We therefore believe the NBN journey is far from over with the risk that RSPs compete directly with the NBN.

  • December 10, 2015

    UK mobile market Q3 2015: Stuck at 1%

    UK mobile service revenue growth remained at 0.9% in Q3, but on an underlying basis growth increased 0.1ppts to 1.4%. This continues a trend of very gradual improvement in underlying growth over the past year, while reported growth has stayed constant at around 1% due to the re-introduction of regulated MTR cuts on 1 May 2015. Within the market, performances were mixed. O2 remains a service revenue growth star performer thanks to strong sustained contract net adds and stable contract ARPU while Vodafone’s service revenue growth fell back into decline as its contract ARPU suffered due to a sharp fall in out-of-bundle revenue. EE’s contract net adds were strong, but its contract ARPU growth remains weak, partly due to its renewed contract net adds performance being supported by low ARPU data devices and B2B. Since the end of the quarter, on 28 October, the CMA provisionally approved the BT/EE acquisition without conditions, and on 30 October, the EC opened an in-depth investigation into H3G/O2. Both acquirers would be wise in our view to be wary of making any rapid changes to branding and/or channel strategy, given that EE and O2 account for nearly 60% of UK gross subscriber additions between them and disrupting these sales will have a significant impact on subscriber growth, as EE’s experience since dropping Orange and T-Mobile has shown.