October 23, 2015 Reports
While we expect the NBN rollout to be delayed by 2-3 years, we forecast NBN revenues to grow at a 65% CAGR to reach A$2.0b by 2020. We believe revenues will be driven by subs growth (56% CAGR) with ARPU remaining flat, as we expect CVC charges to decrease in spite of internet traffic growth of 24% CAGR through to 2020. This report provides a deep dive into our NBN forecasts and assesses the key trends and drivers that are emerging as the NBN rollout gathers momentum.
While we expect the NBN rollout to be delayed by 2-3 years, we forecast NBN revenues to grow at a 65% CAGR to reach A$2.0b by 2020. [...]
October 14, 2015 Reports
European mobile service revenue growth improved to the highest in over four years driven by improvements in the three slowest growing markets of late. Out-of-bundle revenues are still declining at a rate of over 10% but data revenue growth trends point to underlying strengths in the revenue profile. Looking at the longer term picture begs the question as to whether the quarter’s improvement can be repeated over the next 18 months, transforming the industry into one with extremely healthy revenue growth of 5%-10%; on balance we are not very optimistic. Two major in-mobile transactions are yet to be approved by the EC, namely H3G/O2 in the UK and an H3G/Wind JV in Italy. The recent precedent from Denmark is somewhat discouraging, although the Danish consolidation was unusual in some respects. Nonetheless comments from the new competition commissioner Margrethe Vestager suggest that regulatory caution towards 4-to-3 mergers is still high. Progress towards convergence is continuing with few operators in a post-consolidation world being either 100% fixed or 100% mobile. Convergence has to date been discount-led and damaging to market revenues, but post-consolidation, operator rhetoric has been reassuringly more focused on intentions for increased investment in both LTE mobile networks and high speed fixed networks.
European mobile service revenue growth improved to the highest in over four years driven by improvements in the three slowest growi [...]
September 24, 2015 Reports
While we don’t expect the overall size of the Telco market to change materially, we do expect product share to change over the next five years. We expect Fixed Voice to decline to 7% of the overall market from 15% currently driven by challengers offering VOIP style plans to take share from Telstra. We are in the midst of a material change in how Telco products are delivered and consumed, this report assesses these changes and provides our market outlook.
While we don’t expect the overall size of the Telco market to change materially, we do expect product share to change over the ne [...]
September 16, 2015 Reports
New ‘s’ versions of the iPhone 6 and 6Plus will help to maintain Apple’s grip on the high-end smartphone market. A notebook-sized iPad Pro and revamped Apple TV round out this year’s iOS device upgrade. iPhone sales may be further boosted by a new leasing plan, initially US-only, allowing users to upgrade handsets each year more easily, which also should enable the company to take a share of the used iPhone market, and could even be a precursor to an Apple MVNO. While the new iPad and Apple TV are unlikely to have a material impact on profits in the near term, they should be seen in the context of the wider battle for control of the connected office and home.
New ‘s’ versions of the iPhone 6 and 6Plus will help to maintain Apple’s grip on the high-end smartphone market. A notebook-s [...]
September 3, 2015 Reports
The UK’s love affair with the smartphone continued in Q2: 85% of adults under 55 and a third of over-55s now have smartphones, which are becoming the primary method of accessing the internet, accounting for over 40% of time online. Among teens and younger adults internet usage is now higher than TV viewing, though this is still offset overall by the massed ranks of older viewers who remain glued to their TV sets. Commercial revenues derived from mobile devices still trail their share of internet usage but the gap is closing fast: in Q2, smartphones and tablets generated nearly half of consumer e-commerce transactions, while mobile ads represented 34% of internet search and display advertising.
The UK’s love affair with the smartphone continued in Q2: 85% of adults under 55 and a third of over-55s now have smartphones, wh [...]
September 2, 2015 Reports
Ten months after the acquisition of France’s SFR by Numericable, cost cutting targets appear likely to be exceeded, but the promised resumption of revenue growth may still take time to materialise as downward price pressures persist and the subscriber base has yet to stabilise. Profitability has increased faster than expected, while debt ratios look sustainable and set to decline. The challenge is to relaunch marketing while achieving the guided ambitious EBITDA margin growth. Investments, even if lower than planned, may be enough to sustain network competitiveness. The rationale for consolidation between Numericable, Bouygues and/or Iliad remains strong. But Numericable’s model looks sustainable without this. Side investments in media may at best bring political clout. The main risk stands with parent company’s Altice’s debt-finance expansion.
Ten months after the acquisition of France’s SFR by Numericable, cost cutting targets appear likely to be exceeded, but the promi [...]
August 27, 2015 Reports
The UK is now a smartphone society: by the end of this year smartphone users will exceed the PC internet audience and by 2020 we project penetration will reach 83%. The average smartphone user now spends an hour and three quarters a day online, significantly more than the equivalent for PC and tablet, and phones already account for nearly half of all time online. We are positive on tablet user numbers, and think PCs will be resilient, especially for work users. All in all we expect connected time in 2020 to be 21 billion hours higher than in 2015, up over 35%. Commercial revenues via smartphones and tablets still lag their share of internet usage, but the monetisation gap versus the PC is closing fast: the newer devices accounted for 27% of internet search and display advertising last year, up 8ppts versus 2013, and 36% of e-commerce transactions, up from a quarter a year earlier. Consumers are already thinking mobile-first; businesses will have to follow.
The UK is now a smartphone society: by the end of this year smartphone users will exceed the PC internet audien [...]August 26, 2015 Reports
UK mobile service revenue growth dipped a touch in Q2, falling to 0.9% from 1.0% in the previous quarter, although all of the dip and more was due to the reintroduction of mobile termination rate cuts in the quarter, with underlying growth rising to 1.3%. O2 is now the fastest growing operator in both contract net adds and service revenue growth terms, exceeding even the much smaller H3G, and its revenue growth lead over EE and Vodafone expanded during the quarter. BT’s consumer mobile launch was relatively successful from BT’s perspective, with it garnering 100k subscribers in the first three months, but this appeared to have no impact at all on the mobile operators, which had a relatively strong quarter for contract net adds in spite of this. We conclude that much of the fixed line MVNO base growth is coming from impulsively upgrading prepay users, consumers wanting a spare SIM and other MVNO customer bases – sources that do not threaten the MNOs.
UK mobile service revenue growth dipped a touch in Q2, falling to 0.9% from 1.0% in the previous quarter, altho [...]August 21, 2015 Reports
UK residential communications market revenue growth accelerated to 5.8% in Q3, from 5.0% in the previous quarter, helped by an overlapping price rise at BT, and supported by firm pricing and accelerating high speed adoption elsewhere. In contrast, volume growth in the core three products continues to slow, with little sign that this will ever re-accelerate. In the longer term we cannot see ARPU growth acceleration continuing to fully compensate, and market revenue growth might also have peaked. With Virgin Media’s continuing network extension and improving pay TV service putting pressure on the other operators, Sky and TalkTalk are protecting themselves by aggressively marketing high speed broadband. Correspondingly, this quarter marks the first time that Openreach’s high speed net adds were mostly derived outside of BT’s retail divisions.
UK residential communications market revenue growth accelerated to 5.8% in Q3, from 5.0% in the previous quarter, helped by an over [...]August 11, 2015 Reports
Virgin Media’s subscriber figures bounced back in Q2 after a weak Q1, and consumer revenue growth also improved to a respectable 3% despite continued headwinds from VAT changes. The UK broadband market remains tough, and BT Sport Europe’s launch in Q3 will not make it any easier, but Virgin Media’s access to this and all other sports channels means that it should be able to remain above the fray. The network extension program is likely to give further growth impetus from 2016, and the company is laying the groundwork for network speed upgrades which will maintain its speed advantage for at least the medium term.
Virgin Media’s subscriber figures bounced back in Q2 after a weak Q1, and consumer revenue growth also improved to a respectable [...]August 6, 2015 Reports
The first set of annual results to include all three Sky pay-TV operations in Europe shows Sky plc to be off to a very good start: subscriber growth up by 5%, churn everywhere below 10%, adjusted group revenues up 5% and operating profit up 18%. Excellent though the start has been, each of the pay-TV operations faces its own specific challenges – be they to do with ARPU growth in Germany & Austria, subscriber growth in Italy, or football in some shape or form across all three markets and nowhere more so than in UK & Ireland. Most importantly for the Sky European merger, the latest results indicate that Sky is well on course with its target annual run-rate of £200 million in synergies by 2017; but with the UK model to act as a template, it is the fast-growing connected space that catches the eye.
The first set of annual results to include all three Sky pay-TV operations in Europe shows Sky plc to be off to a very good start: [...]August 6, 2015 Reports
EE remains the slowest growing of the ‘big 4’ UK MNOs or the only one in decline with service revenue growth at -1.8%, a touch lower in reported terms despite a slight underlying improvement. Adjusted EBITDA margin improved to a record 26.6%, a somewhat fortunate compromise on the loss of gross adds share since the demise of Phones 4U – and associated reduction in (expensive) third-party gross adds. In a seasonally low broadband quarter, EE actually gained net adds share, showing resilience to heightened marketing from Sky and underscoring the merits of EE’s in-store cross-selling strategy.
EE remains the slowest growing of the ‘big 4’ UK MNOs or the only one in decline with service revenue growth at -1.8%, a touch [...]August 5, 2015 Reports
Vodafone Europe’s slow but steady improvement in service revenue growth continued into the June quarter to reach -1.5% from -2.6% in the previous quarter, and -8.2% just one year ago. This was driven in roughly equal parts by subscriber growth improvements and ARPU, with both likely benefiting from Vodafone’s Project Spring investment, rapidly growing mobile data and an easing of competitive aggression. Mobile service revenue is still declining at 2-3%, making margin stabilisation still challenging for now, but there remains room for further improvement, and revenue stabilisation is at last in sight
Vodafone Europe’s slow but steady improvement in service revenue growth continued into the June quarter to reach -1.5% from -2.6% [...]August 4, 2015 Reports
BT had a solid all round Q1, with broadband share robust, fibre growth still strong, revenue growth bouncing up a little on the business side and cost control robust.
BT Sport Europe launches this quarter, and will boost revenues but raise costs by more; we continue to believe that the extra net costs can easily be covered by group-wide costs savings to allow group EBITDA to continue growing over the full financial year.
The broadband market is increasingly characterised by high headline pricing coupled with heavy promotional discounting, and BT’s early headline price rise scheduled for September continues this trend.
BT had a solid all round Q1, with broadband share robust, fibre growth still strong, revenue growth bouncing up a little on the bus [...]July 29, 2015 Reports
Video is critical for NZ telcos growth prospects. While there is an attractive opportunity for a direct strategy, we believe telcos best strategy is to be an enabler of video by partnering with video operators whether OTT and increasingly traditional. We view Spark as the exception to a partner strategy, but can it get scale?
Video is critical for NZ telcos growth prospects. While there is an attractive opportunity for a direct strategy, we believe telcos [...]July 27, 2015 Reports
TalkTalk’s June quarter delivered Group revenue growth of 3.5% with a modest slowdown in consumer, impacted by acquisitions and disposals, and a sharper drop in business. In a competitive trading environment, organic growth was likely suppressed, with the company’s focus being more on integrating the acquired bases of Virgin Media and Tesco. Guidance was reiterated with clear routes towards revenue growth targets of 5% in FY16 and confidence in the (challenging) medium term goal of 25% EBITDA margin in FY17.
TalkTalk’s June quarter delivered Group revenue growth of 3.5% with a modest slowdown in consumer, impacted by acquisitions and d [...]July 24, 2015 Reports
Apple delivered strong results in Q3 2015, selling a record number of iPhones for the June quarter, though iPad sales slid dramatically as consumers switch to ‘phablets’ and the company did not provide any detail on early sales of Watch, its biggest product launch since 2010. We remain bullish both on the iPhone and the Watch’s long term potential, though the latter remains a work in progress and, like many of Apple’s existing customers, we await the next iteration with interest; by contrast the iPad may have peaked already. Rising revenue from App Store, up 24% year-on-year, as well as new products like Apple Music and Apple Pay, should continue to boost the contribution from Services, and we expect this to evolve into a more material part of the business, but ultimately it’s still all about the iPhone.
Apple delivered strong results in Q3 2015, selling a record number of iPhones for the June quarter, though iPad sales slid dramatic [...]July 16, 2015 Reports
We believe Telstra has stolen a lead on its competitors with the launch of Air. We believe this network will be hard to replicate and will therefore drive customer retention and acquisition benefits for Telstra. WiFi is also increasingly important to help manage network capacity pressure while providing new revenue opportunities to telcos (critical given the pressure on core telco revenue).
We believe Telstra has stolen a lead on its competitors with the launch of Air. We believe this network will be hard to replicate a [...]July 1, 2015 Reports
News Corp’s original bid for full ownership of BSkyB was withdrawn because of the phone hacking scandal. It was never blocked by regulators. Had it not been for the scandal, the bid would almost certainly have been approved. With the phone hacking scandal fallout largely over and the election of a friendly government, the climate is now much more favourable to a renewed bid. With undertakings, we believe it would be approved by regulators. The increasingly global scale of TV and film distribution means the commercial case for the bid is, if anything, stronger now than in 2010. The questions are simply whether the right price can be agreed, and how high up it is on James Murdoch’s list of priorities.
News Corp’s original bid for full ownership of BSkyB was withdrawn because of the phone hacking scandal. It was never blocked by [...]June 30, 2015 Reports
BT will soon for the first time charge the majority of viewers for their own channels with the launch of the BT Sport Pack. The Pack includes BT Sport Europe, home to UEFA’s European football tournaments from this August, the rights to which BT are paying £299 million a year. Viewing figures for the big European tournaments are not as high as one might expect given their prominence. Consumer demand for the new channel will also be highly dependent on the success of British teams, notably lacking in recent seasons. We therefore do not expect a dramatic impact on BT Sport (or BT broadband) subscribers, and the widening losses will put pressure on BT’s margin squeeze test regulation, although they are easily absorbable at BT Group level.
BT will soon for the first time charge the majority of viewers for their own channels with the launch of the BT Sport Pack. The Pac [...]June 25, 2015 Reports
European mobile service revenue growth improved once more in Q1, rising 1.1ppts to -1.6%, continuing a trend of underlying growth improvement that started in Q3 2014. The improvement was mainly driven by easing declines in France and Italy but deteriorating performance in Spain meant that Europe-wide growth did not improve by as much as in the last two quarters. Pricing stabilisation appears again to be the main driver of recovery (in those countries that are recovering) with more rational pricing allowing operators to monetise rapid data usage growth. However, more price cut moves have been made in France since the end of the quarter, Italy remains an inherently unstable market and Spain again suffered this quarter from convergence discounts. As data usage continues to grow rapidly, customer concern for high quality data networks increases, which makes investment in superior 4G networks a clearer differentiator for operators to convey to customers. The UK market leads the EU5 in this regard, and has taken advantage through rationally priced tiered data plans, but this effect spreading to the rest of the EU5 is a source of optimism as 4G roll-outs continue across Europe.
European mobile service revenue growth improved once more in Q1, rising 1.1ppts to -1.6%, continuing a trend of underlying growth i [...]June 24, 2015 Reports
The UK broadband market remained strong in Q1 2015, backed up by healthy volumes, with a modest weakness in ARPU causing revenue growth to slow to 4.5% from 5.7% in the previous quarter. ARPU growth was particularly weak at BT and Virgin Media, with part of this due to one-off factors, but part due to the dilutive effect of increased promotional activity. Broadband volumes continued to modestly accelerate, pay TV volumes modestly decelerated and line rental growth levelled off. The highlight was high speed broadband, with market net adds continuing to rise, driven by increased marketing and BT’s roll-out reaching more rural areas where the speed improvement is more marked. Since the end of the quarter, Vodafone launched a new consumer dual play product. Launch pricing is at the bottom end of the current price curve, but not well below it, suggesting that it is wisely imitating EE’s approach of cross-selling a profitable product as opposed to deep discounting on broadband to build mobile market share
The UK broadband market remained strong in Q1 2015, backed up by healthy volumes, with a modest weakness in ARPU causing revenue gr [...]June 18, 2015 Reports
Apple has confirmed the launch of Apple Music, its streaming music service, available on iOS devices by the end of June, and later on Android. Priced at the same level as Spotify’s premium tier and lacking a free ad-supported offer, much hinges on the appeal of its curation tools. Other key announcements included a news app, the roll-out of Apple Pay to the UK, improvements to maps, and new operating systems for Mac, iPhone/iPad and Watch. The main theme was one of increasing intelligence in services, with Music and News both being curated and the software getting better at understanding and predicting user needs. This is a necessary step to prepare for the next wave of consumer technology: wearables and connected devices.
Apple has confirmed the launch of Apple Music, its streaming music service, available on iOS devices by the end of June, and later [...]June 17, 2015 Reports
UK mobile service revenue growth continued to improve, rising to 1.2% in Q1, a modest figure but still the best of the five largest European mobile markets, albeit weaker than the UK consumer fixed line market (4%-5%). O2 continued to be the strongest grower of the ‘big 3’, and maintained over 40% share of contract net adds. Both Vodafone and EE appear to have suffered from the demise of Phones 4U, having been its biggest (and latterly its only) network operator suppliers. EE is also suffering from the gradual withdrawal of its Orange and T-Mobile brands, which is forcing it to work harder to both attract and retain customers. Vodafone launched a competitively priced consumer fixed broadband offer on 10 June. EE has shown that there is an opportunity for Vodafone to have some limited success cross-selling broadband through its shops, but O2's mobile-only success and EE's struggles in its mobile business suggest that this will not drive improved mobile performance
UK mobile service revenue growth continued to improve, rising to 1.2% in Q1, a modest figure but still the best of the five largest [...]