Enders Analysis

Ofcom’s consultation document on the UK wholesale local access market proposes a number of additional remedies for fixed access network operators with significant market power, but looks unlikely to have a major impact on the ability of either BT or competing players to make money from next generation access

The consultation is one element in a subtle power struggle between BT and the major competing service providers over the terms under which Openreach provides wholesale NGA products

There were approximately 18.4 million fixed broadband lines in the UK at the end of Q4 2009 including those used by small and medium enterprises (SMEs)

Subscriber growth over the past year has continued to drop but the rate of decline has slowed to the lowest ever. Year-on-year subscriber growth in Q4 was 5.7%, only slightly down on Q3

VMed’s Q4 results were again strong; the May 2009 price increases continued to lift revenue and operating cash flow, as expected

There are continuing grounds for optimism, including further price hikes, cost reduction and modest turnarounds at Mobile and Business

There was no news regarding content M&A, but a sale some time this year appears likely and should have a significant positive impact on the company’s financial position

The Conservative policy for broadband involves replacing
Labour’s proposed line rental tax with a portion of the TV licence fee, together with measures to encourage passive access to BT’s network and the use of alternative infrastructure

The policy sounds negative for BT, equivocal for VMed and
positive for Sky and TTG, but is unlikely to have a significant direct impact in the near term in the event of a Conservative government

BT Retail has announced its intention to launch residential
40 Mbit/s broadband at similar price points to its existing two higher tier
broadband offers. While this looks unlikely on its own to create significant
additional shareholder value, it could eventually help BT retain existing value

The move is unlikely to seriously inconvenience other
players for the next year or so, but could encourage TTG and Sky to sign
wholesale deals with BT for higher speed broadband and, ultimately, make it
more likely that a demerged TTG is acquired by another player

O2’s plan to launch competitively-priced ‘home phone’ offers in March should help sustain its current growth in fixed broadband, but is unlikely on its own to transform O2 into a significant player in UK fixed telecoms

The company’s fixed line foray is unlikely to reduce its mobile churn significantly, but nor does it look likely to increase it, with any residual net effect muted by the relatively small scale of O2’s fixed business

France Télécom’s Orange TV premium strategy presents an interesting example of diversification into low cost ‘light’ pay-TV offers by an incumbent telecoms operator. Orange Sport and Orange Cinéma Séries are offered exclusively to Orange's 2.55 million TV subscribers, and five quarters after launch, adoption is 20%. This report draws several lessons on this type of venture for other incumbent operators

BT’s Q2 results, and improved guidance for the year to March 2010 provided further encouraging evidence of the new management team’s ability to take cost out of the business

However, the group is in a phase of revenue decline, primarily due to recession, but also strong competition

We continue to view limited deployment of next generation access as a worthwhile defensive move, but remain sceptical regarding the potential for uplift to shareholder value

The international business (CWI) has been hit by a sharp downturn in tourism, but performance at the UK-based business (Worldwide) remains on course, despite declining revenue

The initial announcement of an intention to demerge Worldwide from CWI will be followed by more details by the end of November