Format: Aug 2019
Sector(s) Datesort ascending
Oftel Report on Broadband

This brief note concerns further evidence of strong price sensitivity to broadband prices, as provided by Oftel's recent qualitative research. Since we expect an announcement from BT Group on February 26th regarding reduction of DSL wholesale prices to levels consistent with retail pricing of £30/month or slightly less, this is topical. In addition, we point to BTopenworld's very high market share (75% plus) in residential DSL installations so far.

Media, Telecoms 7 February 2002
Mobile Operators - The Pricing of Calls to Mobiles

The charges imposed by the mobile operators for handling incoming calls are a very important part of their revenue stream. The UK telecoms regulator is attempting to force the networks to reduce their prices significantly. The row has just been referred to the UK competition authorities. We look at the arguments used by Oftel to justify its harsh stance. We conclude that the evidence supports the regulator's view that incoming call charges are held artificially high. As a result, analysts should expect that the UK networks will fail to see the charge cap reversed. The impact on revenue will be about 7% in the next four-year period. This will flow straight to the profit line. Increases in fixed to mobile call volumes, as a result of the lower prices, will partly offset this.

Wanadoo's aim of being the #2 broadband ISP in Europe (behind T-Online, way ahead) was adversely affected in Q1 2002 by the decision of the French Competition Commission to halt the marketing of the company's product through the network of France Telecom, so other ISPs can also have a chance to establish a foothold. Wanadoo has had to resort to other, more expensive, marketing platforms, and sales are running at about 70% of the pace before the decision. Wanadoo is also looking for a strong showing on broadband from Freeserve, just entering the market now: 70,000 broadband subscribers by year-end, and a quarter million by mid-2003. We are sceptical whether the brand can shake its reputation for cheap Internet service, which continues to attract a large PAYG base.



Telecoms, Mobile 22 January 2002
Cable vs DSL?

This report is a companion to Broadband Europe (2002-02), issued concurrently, and looks more closely at cable’s ability to compete with incumbents on marketing broadband. Key points include:

The outlook for the industry is further enhanced by the impact of much lower paper costs, allied with cost measures on print usage, and reduction in expenditure on online ventures. The industry is increasingly benefiting from best practice although anomalies remain in margins that indicate further room for improvement. Editorial investment has not alas managed to halt continuing slow declines in circulation that are inevitable in our opinion.

Telecoms 16 January 2002
Broadband Europe

The potential for residential broadband connectivity in France, Germany and the UK depends on the availability of low-priced broadband products (hardware, installation and monthly subscriptions) and a narrow pricing gap with existing Internet access packages. Unless monthly subscriptions fall below €30 (from current comparable levels of €45 and up) and hassle-free self-installation is ubiquitous, consumers will not migrate from narrowband, even if they appreciate the faster surfing and download speeds of broadband. But regulators are guarding against any price declines from the incumbents, having put their faith in infrastructure-based competition through local loop unbundling (LLU) and upgrading of cable infrastructure. We believe that expectations of alternative supply of broadband through either of these routes in France and Germany are misplaced; in the UK, broadband cable will make more headway due to specific historical and regulatory factors, while there will be no effective alternative supply of residential DSL through LLU.

In its projections supporting its £3.2 billion debt financing, H3G projects 172,000 subs in 2002, 1.2 million by end 2003 and 9 million by end 2010.

Combined with projected ARPU of £40/month (or about current contract ARPU in the UK), H3G’s revenue projections come to £2 billion in 2005 (note UK mobile market in total = £10 billion today).

Telecoms 16 January 2002
Alleged 25% Drop in ITV Viewing

The flow of news about ITV is going from bad to worse. But we think that the market may have misunderstood the real story behind last week's bombshell that ITV viewing has fallen by 25% in a year. This figure could have been predicted from existing data.

  • ITV
Media 15 January 2002
UK Internet Trends

15 million UK adults regularly (at least once a month) accessed the Internet from home in Q3 2001, the same as in Q2 2001. This stagnation is due to mainly seasonal factors and we expect growth of the home Internet population to be renewed in the autumn and winter.

Our lower forecasts are derived from an analysis of the numbers of households and small businesses that are apparently prepared to buy ADSL at current price levels, but also driven by concerns about this particular product. Users will have to acquire new email addresses and pay for a new email service. We do not think the product will work in networked multi-PC homes or offer ISDN users a real alternative. We see tremendous confusion in the marketplace from two competing BT Broadband offerings from BT Retail and BTopenworld.

Media 21 December 2001
French TV Market

This report contains our analysis of the French TV market. France, like the UK, is a difficult market for pay-TV and, recently, for some analogue terrestrial channels as well. We look at the analogies and differences between the two countries. In both places, excess competition and declining advertising revenues are beginning to create cracks in the noble edifices of the major TV groups. As in the UK, we conclude that analogue commercial TV may be less affected by digitalisation and pay-TV than most analysts expect.

We conclude that the economics of both free and premium digital terrestrial television are so unattractive that no rational bidder would enter the race for the licence. Likely advertising revenue on free channels will barely cover the transmission costs, while pay services will be crippled by astronomical subscriber management costs and low, or negative, margins on channels provided by BSkyB.

Media 20 December 2001
Mobile Operators - ARPU Trends

In this note we summarise the available evidence on trends in ARPU among European mobile operators. We demonstrate the increasing trend towards stable or increasing revenue per subscriber in key markets. The end to the long downward trend in voice ARPU is clearly in sight. This new stability is derived from increasingly firm call charges and slow growth in minutes of use. Local competitive conditions may disrupt this pattern in individual countries – and we demonstrate the countervailing trend in Finland – but, overall, the pattern is clear and will probably become more so in the next few months.

More important, perhaps, the current economics look acceptable both for BT's Wholesale and Openworld divisions - this note includes some detailed financial analysis. But even at the lower price levels, we remain unconvinced whether subscriber numbers will grow as rapidly as BT predicts. (BT is now saying that ADSL subscribers will be more numerous in 2005 than unmetered customers are today!)



Telecoms, Mobile 19 December 2001
Regional Newspapers

The regional newspaper business in the UK is a mature industry with improved operating management and a small number of powerful players.

The bulk of the report examines in detail the structural forces determining the growth of ISPs in Wanadoo's main territories - France and the UK. It looks at the scope for raising revenues through broadband growth, increased advertising or e-commerce revenues. We look at market shares, and the factors that drive growth and decline.

Media 18 December 2001
Microsoft Windows XP

Microsoft XP has wider significance than most analysts appreciate. While the operating system is, in itself, not a huge advance on existing products - particularly Windows 2000 - its true significance lies in its value as a Trojan Horse for Microsoft .NET. As we indicated in the spring of this year, we think .NET moves Microsoft into direct competition with businesses as diverse as ISPs, mobile network operators and home electronics companies. Widespread adoption of XP makes the eventual success of .NET more secure



Media, Internet 14 December 2001
Mobile Handset Market - Q3 Update

Nokia's recent guidance suggested a modest recovery in handset sales in 2002, followed by a strong resurgence thereafter. We think the position will be different and look for unit sales of about 450m next year, with only 3-7% growth in the years 2003-2005.




Telecoms, Mobile 10 December 2001
Mobile Handset Market - New Handset Trends

In this short note, we look at trends in mobile design and features. We show that the steady decline in size and weight is now over, and manufacturers are focusing on adding new functions, such as digital cameras, and even, in one case, a thermometer.

In this issue, Toby looks at recent evidence on UK multichannel viewing, particularly in the period immediately prior to the start of the new BARB audience panel.



Telecoms, Mobile 29 November 2001
Mobile Handset Market

Mobile operators’ marketing strategies are the primary determinant of the size of the market for handsets. The level of handset subsidy dramatically affects retailer sales. In this brief note, we look at the changes in retail subsidies in the UK during the past 6 months. We show how the emphasis on the acquisition of contract customers has meant higher levels of subsidy for the phones taken by these customers. By contrast, pre-pay subsidies have fallen.




Telecoms, Mobile 23 November 2001
UK Digital TV Trends

This report provides an update on the major trends in the UK digital TV market. We use a variety of consumer market research data, which all offer a consistent picture of trends in the business.

Sky is doing well. But the evidence of the last quarter’s results suggests that it is not out of the wood yet.

Media 21 November 2001
Pay-TV Penetration

The most recent quarterly operating statistics for the UK pay-TV providers point to the continued rapid slow-down in consumer subscriptions. This short note analyses the figures and offers a forecast for subscriber numbers over the next decade.

Business mobile data may be different. Mobile professionals are not major users of SMS, and will be prepared to pay for mobile access to networks. But we still have trouble seeing data accounting for more than 25% of operators’ revenues by the last years of the decade. Much of this revenue will still be derived from plain vanilla SMS, provided the regulators don't sink their teeth into the networks first.

Media 20 November 2001
NTL Liquidity Position

Yesterday's third quarter results were broadly in line with market expectations. Analysts have noted that subscriber numbers are stagnant and that ARPU for domestic subscribers was essentially flat, quarter-on-quarter. The growth in broadband subscribers has been a real achievement - but the revenue benefit of adding even 35,000 new subscribers is less than £10m a year. This does not go very far in paying back debts over a thousand times as large.

To the potential US investors in NTL's equity, such as AOL and Liberty, this number must seem absurdly low. Cable businesses of a roughly comparable size in the States are worth tens of billions. We point to the key difference between the US and the UK. Overall ARPU levels are roughly comparable in the States, and capex levels are similar. The crucial difference is probably the systematically higher gross margins on cable TV in the States. This seems to explain most of the difference in cash generating capacity. Can the cable guys from the US increase gross margins on TV programming to US levels and thus make the equity in NTL worth something? We think it is most unlikely - even Sky makes less than a 50% gross margin, far less than a US cable company.

Media 14 November 2001
ITV Digital - The Shareholders' Logic

The issues surrounding ITV Digital are complex and unclear. This report tries to unpick the tangled threads. It looks at the main financial issues and the manoeuvres with the BBC, the Office of Fair Trading and the set-top box manufacturers.

  • ITV
Media 2 November 2001
Consumer Payment Companies

In this short note Chris Goodall looks at consumer payment technologies. He says that the banks and credit card companies are under no immediate threat from new technologies. Do not be confused by the wizard new technologies coming out of Nokia; technical advances are not going to change payment systems much in the next five years. Rather, he suggests, observers should focus on three interesting companies which use low technology solutions to solve particular payments problems. These companies support, rather than undermine, existing players in the consumer payments industry.

Media, Telecoms 25 October 2001
UK Internet Trends

This note provides an update on UK Internet trends covering the post-Christmas period. It covers usage, shopping and other online activities of the 17.7 million connected adults. The note highlights the feminisation of the UK online population and its impact on shopping behaviour.

Broadband cable suffers from several technical performance problems, including installation, actual performance and the costs of providing content, in particular to gamers.

In Germany, less than 5% of cable homes have been upgraded to digital, suggesting that Deutsche Telekom’s DSL push has irresistible momentum.

Media 23 October 2001
European Telecoms Incumbents

In our recent report on the prospects for BT, we looked at the pressures on the company resulting from declining prices, static call volumes and increased competition from mobile.

In France, mass marketing by France Télécom and Wanadoo, lack of availability of unmetered, and ubiquitous self-installation have allowed DSL to increase its market share from circa 40% in mid-2001 to an estimated 70% by end 2001 (300,000 DSL connections plus). We expect cable operators’ market share of the broadband market to continue to decline to circa 15% by 2005. We assume that the current European Commission investigation into Wanadoo’s DSL pricing will lead to maintenance of current prices (circa €45/month) through 2003. In our opinion, lack of sustained price declines to €30/month or less will limit the French broadband market to 2.5 million connections by 2005 (25% penetration of Internet households).

Telecoms 19 October 2001