Telecom

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  • February 18, 2019

    Telstra and Optus – nbn pain, falling ARPUs and the fight for 5 [...]

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    On 14th February 2019 Optus and Telstra announced their latest earnings. Both revenue and earnings remained subdued as subscriber growth was offset by a slowdown in NBN migration payments, and continuing pressure on mobile ARPUs. 5G and Fixed Wireless remain key growth areas going forward.
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  • February 12, 2019

    Wobbles ahead for TalkTalk’s fine balancing act

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    TalkTalk is delivering on its subscriber and revenue growth targets but is straining to get there. Price rises such as a £4 ‘TV access fee’ look increasingly risky. Whilst migrating to discounted high-speed helps to deliver top-line growth, margins are c. 40% lower; an unwelcome dent to already negative cashflow and stressed leverage. Both TalkTalk’s focus on revenue growth in a tight market and fibre rollout plans look increasingly unaffordable; a more modest ambition of stable revenues might allow a healthier business model to unfold.
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  • February 7, 2019

    TPGs merger strategy must focus on potential merger undertakings [...]

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    The ACCC has extended its decision time for the proposed TPG-VHA merger and has raised preliminary concerns that it will lead to a substantial lessening of competition. TPG has announced that it has ceased the rollout of its mobile network. Our report looks at the likelihood of whether the TPG/VHA merger will be approved given the potential no-merger test options which the ACCC could consider. 
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  • February 6, 2019

    New Zealand Mobile Market Outlook

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    The New Zealand mobile market had been traditionally characterised as an oligopoly that is dominated by the prepaid segment with high prices, lack of product differentiation and low usage. However, this market is about to see a rise in competitive intensity driven by 2degrees’ move to gain share in the lucrative postpaid and business mobile segments. We believe Vodafone NZ is most at risk and could lose approximately 3% of its subscriber market share by 2022. The emergence of utility companies offering mobile products will also increase competition and create more “sticky” consumers. We forecast the mobile market will remain the largest segment in the telco market with NZ$3.2bn revenue by 2022.
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  • February 4, 2019

    Sky UK Q4 2018 results: accelerating growth

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    Sky’s revenue growth under Comcast appears to have accelerated since it last reported as an independent company, largely driven by sports rights expansion in Italy, which also drove bumper subscriber growth in Q3 2018. Sky UK likely enjoyed a steadier performance, helped by accelerating high speed adoption, a price rise in April, increased international sales, and improving premium channel adoption on third-party platforms. Comcast expects continued acceleration into 2019, with profitability taking a hit from increased sports rights in Italy in H1, but this is more than compensated for by reduced English Premier League rights costs in H2.
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  • January 31, 2019

    Grappling for green shoots at Vodafone UK

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    Vodafone’s revenue trends took another step backwards this quarter (down almost 3% on our estimates) with its strongest markets (UK and Germany) weakening unexpectedly. The reiteration of their financial guidance and commitment to cost-reduction provides some reassurance although nothing in the results provides grounds for optimism; churn is not really falling and is not correlated to convergence. With the UK mobile market delivering its strongest growth in 7 years last quarter, these results may be a precursor for a more challenging outlook with Vodafone citing pressure from business pricing and out-of-bundle limits, and the outlook for RPI-linked price increases diminishing.
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  • January 30, 2019

    Netcomm Wireless: From modems to m2m to fixed wireless and 5G

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    In the past six years, NetComm Wireless has transformed itself from internet modem manufacturer to a leading telco equipment supplier in a range of complex wireless and fixed line technologies to Tier 1 telcos across the world. With 5G just around the corner, NetComm is investing heavily to leverage its experience in fixed wireless and position itself as a leading supplier of fixed wireless technology to major telcos across the world.
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  • January 30, 2019

    TPG’s mobile announcement will shift focus to the ongoing compe [...]

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    TPGs decision to cease its mobile rollout reduces the prospects for a 4th mobile operator in Australia. The MVNO market is highly competitive in metro regions and looks set to become stronger. We expect the ACCC to turn its focus on the ongoing competitiveness of the MVNO market.
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  • January 22, 2019

    New Zealand Telco Market Outlook

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    We expect the overall retail telco market to remain flat (2018-2022 CAGR 0.0%) with mobile growth driven by a move to post-paid plans and 4G/5G to offset the structural decline in fixed voice.  Total retail revenues will reach NZ$5.4bn in 2022. With UFB deployment well on track and increasing 4G penetration, we expect a rise in competitive intensity as players look to capture share across a broader set of product offerings. Fixed voice continues its structural decline as subscribers shun the landline and migrate away from standalone fixed voice services to mobile bundles and broadband + VOIP bundles. The UFB rollout is on track to reach 80% of the population by the end of 2019 and has been recently extended by the Government to cover up to 87% of the population by 2022. The NZ Government recently announced a set of reforms including a move towards utility-style regulation, copper deregulation in areas where UFB is available, and increased oversight over quality and reliability of broadband services.
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  • European mobile in Q4 2016
    European mobile in Q4 2016
    January 10, 2019

    UK broadband, telephony and pay TV trends Q3 2018

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    Broadband market volume growth resumed its downward trend in the September quarter after a blip in the previous quarter that was likely caused by a wholesale transfer distorting the figures. Revenue growth, however, perked up to 1.9% from 1.7% in the previous quarter, an encouraging recovery especially given that it was not primarily driven by the timing of a price increase. ARPU growth improved across all four of the major operators, countering recent trends, with a focus on higher value offerings a common theme. High speed broadband adoption accelerated in the quarter across most operators, encouraged by Openreach’s volume discount offer, although this was partially driven by keener high speed pricing. Revenue growth at Virgin Media, Sky and TalkTalk converged at around 3%, with BT Consumer lagging at -1%. However, excluding the effect of BT’s shrinking telephony-only base and smoothing the sporadic boost of its 9-monthly price rise, BT Consumer’s revenue is in the middle of the pack at 3.0%      
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  • January 9, 2019

    European mobile in Q3 2018

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    European mobile service revenue growth slipped again this quarter to -1.0% as the UK and Germany disappointed and the Southern European countries worsened. The gap in service revenue growth rates between the Southern European countries and the UK and Germany increased again to a spectacular 5.5ppts. Spain was perhaps the biggest surprise this quarter with service revenue growth deteriorating by more than 3ppts; primarily due to Vodafone who posted a dire performance on all fronts. Next quarter, a somewhat delayed improvement in trend from the annualisation of roaming tariff cuts in the UK and Germany is possible, competitive intensity in France looks set to intensify as Iliad renews its aggression in the face of slowing momentum. Although there may be some reprieve on the rate of subscriber loss in Italy, Iliad is likely to continue to impose significant ARPU pressure on all operators.
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  • December 19, 2018

    DAZN: lofty ambitions in OTT sports

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    With sport at the heart of the pay-TV ecosystem, dedicated online-only streaming services could emerge as a threat to leading players like Sky. The liveliest newcomer, DAZN, launched in 2016 with mostly second-tier sports. Now in seven markets and counting, it has recently made bold moves into top-flight competitions, notably in Italy, albeit as a secondary player. History has not been kind to those challenging pay-TV incumbents by selling sports unbundled—particularly in Europe, as Setanta, ESPN, beIN SPORTS and Mediaset can testify. If DAZN can stick to secondary positions in premium rights, or simply less-expensive sports, perhaps it will fare better.  
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  • December 14, 2018

    Iliad running out of luck

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    Once on the winning side of strategic French telecoms price wars thanks to a struggling SFR, Iliad now looks wounded, and a possible prey, suffering from declining fixed and mobile KPIs – we expect cash flow losses of €617 million this year. Broadband, in a capex-heavy migration to higher margin fibre, may stabilise revenue with (somewhat) differentiating new ‘Freeboxes’ bundled with Netflix. Mobile (€2.3 billion burned since launch) hopes rest on on-net transition fostering profitability, but the 5G capex race looms. The new Italian mobile venture is explicitly and surprisingly behind the French legacy: it is already delivering a worse performance, and carrying much higher outlays (after 5G auctions spiralled). We believe Iliad has to revamp its model in France and consider differentiation with content to escape the discount brand trap.
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  • December 14, 2018

    UK mobile market Q3 2018

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    UK mobile market service revenue grew by 2.4% in Q3, a level not seen since early 2011. However, this 0.6ppt improvement on the growth rate in Q2 was very disappointing in the context of an expected 2-3ppt revenue growth bolster from the annualisation of roaming tariff cuts. EE and O2 shared the top spot for growth, more than double the growth rate of H3G and far ahead of Vodafone which remains in negative territory and had only the slightest uptick this quarter. O2 is likely to be hit by its well-publicised network blackout in December, but experience from a similar problem back in 2012 suggests this will be modest and temporary, and it is otherwise performing well.
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  • December 11, 2018

    5G Update December 2018 – Telstra leading the race to 5G

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    Q4 2018 has been a busy time for 5G players with the government auctioning valuable spectrum bands and an update on Telstra’s progress on 5G. Australia is tracking well to have initial 5G services in 2019. This will enable strong growth in devices and mobile data consumption.
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  • December 7, 2018

    Virgin Media UK Q3 2018 results: Cautiously accelerating growth

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    Virgin Media’s revenue growth accelerated in Q3, off the back of improved subscriber ARPU and triple play growth, but actual customer and broadband figures slowed in line with the weakening market. Network roll-out was still (deliberately) slow, with the rate now well below the previous year, and the company indicating that it is not expecting to accelerate, although it is still the fastest new network builder in the UK by some margin. Both the ARPU focus and slow roll-out point to a cautious approach, with the company happier to ensure its existing customers offer good yields than to seek significant market share growth at this stage, which is probably wise.
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  • December 6, 2018

    Refocus imperative at Vodafone UK

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    Vodafone’s deteriorating financial performance is as much due to an increasing margin of underperformance relative to its peers as to challenging markets such as Italy. A strategic refocus on operational performance is long overdue and seems largely sensible, save for the continued push for discount-led convergence products which are driving underperformance. Although Vodafone posted 3% organic EBITDA growth for H1 of this year and is guiding to same for the full year, we view this definition as overly flattering with true EBITDA performance flat and revenues in decline.        
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  • December 5, 2018

    TalkTalk stabilising, but strong growth evasive

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    TalkTalk had very solid Q2 and H1 results, with broadband net adds staying positive, high speed net adds accelerating, revenue growth above 3% and EBITDA rebounding back to growth. This was helped at the revenue line by a price increase in the quarter and in EBITDA terms by steep Openreach price reductions, with strong revenue growth and any EBITDA growth hard to replicate once these effects have annualised out. The company has nonetheless stabilised its subscriber base, revenue and profitability after some erratic years, with cost-cutting providing some potential for growth going forward.
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  • December 3, 2018

    O2 UK: scope for outperformance near-term, solid results thereaft [...]

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    O2 has managed to deliver a solid financial performance over the past several quarters in spite of network constraints which are now resolved. With signs that they are becoming more assertive in the market, and with continued brand strength and low churn, there is scope for that performance to hasten from here. Over the medium to long term, turnaround plans from the other MNOs could thwart outperformance by O2 but with an holistic culture of leading-edge marketing and innovation, we expect at least sustained solid results.
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  • November 30, 2018

    UK HFSS TV watershed idea should be put to bed

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    The ban on pre-9pm TV ads for HFSS (high in fat, salt or sugar) products being considered by the Government would not play a constructive or quantifiable role in reversing the UK’s rising childhood obesity rates. The ban on HFSS product ads since 2008 around children’s programming has not impeded the inexorable rise of childhood obesity. In 2010, Ofcom termed an HFSS watershed ban ‘disproportionate’ and ‘ineffective’. In 2018, a watershed ban would be even less effective. Children’s linear broadcast TV viewing is down by half since 2010, mainly to YouTube’s advantage, which benefits from light-touch HFSS regulation.
  • November 20, 2018

    BT Q2 2018/19 results: Beating expectations, guidance still look [...]

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    BT’s Q2 results were well ahead of both its full year guidance run-rate and financial market expectations, with revenue flat and EBITDA up 3% versus guidance and consensus at -2% for both metrics. Operating metrics were more mixed, with broadband churn high and (our estimate of) net adds low, but fixed ARPU was solid, backed up by rapid adoption of BT Plus, fibre adoption re-accelerated and mobile was strong across all metrics. While part of the outperformance was likely due to H1/H2 phasing, it also reflects fairly conservative expectations and a solid operating performance, and hence full year guidance still looks very beatable, with a positive outlook beyond this.
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  • November 19, 2018

    Australian Mobile Telco Market Outlook

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    The Australian mobile market has been traditionally characterised as a mature market with steady growth driven by population growth and mobile broadband. However, this market is about to see strong innovation (5G) and disruption (TPG-Vodafone merger) in the next few years. We forecast the mobile market will remain the largest segment in the overall telco market with A$22.3bn in revenue by 2022. With the merger between TPG and Vodafone to form a third full service telco in the market, we expect the competitive intensity to increase with incumbents facing pricing and margin pressure from 2018-19 onwards. However, despite TPG’s aggressive initial pricing and service offering, at this stage we have been conservative in our estimates with respect to TPG-Vodafone’s impact on incumbent market shares as we expect a gradual subscriber take-up of the network over 2018-2022. The arrival of 5G and emergence of wireless access to the Internet as an alternative to fixed broadband means that the mobile market will continue to experience strong growth, with ARPUs steadying. Venture Insights believes that 5G coupled with IoT will enable the transition from a connectivity based revenue model to a services based revenue model for mobile operators.
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  • November 16, 2018

    UK PSB SVOD

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    The Public Service Broadcasters (PSBs) have been mulling a possible SVOD service, a decade after their ad-supported Project Kangaroo was blocked on competition grounds. Even if a reboot between the BBC and ITV were this time to be approved, we do not think Kangaroo 2 can succeed as a significant SVOD entrant in its home turf of the UK, above all because it’s too late. Other flaws in the offer are that it would be too small, non-premium, too old (archive), and too old (viewing profile), plus lacking sufficient financial resource to produce a pipeline of unique series.
  • November 15, 2018

    UBS Australasia Conference – 5G’s accelerating progress

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    Venture Insights attended the annual UBS Investors Conference for 2018 on 12th and 13th November, with a number of interesting panels across the two days. The participants of the 5G panel moderated by Venture Insights commented on the positive effects 5G will have on not just the telco industry but also verticals such as healthcare, transportation and manufacturing.
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