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This report looks at the UK broadband and telephony market up to Q2 2009. The key trend is that the steep reduction in UK broadband net additions continued in Q2 2009, to 176,100

According to recent speculation, Sky stands to benefit materially in the short-term from the replacement of Setanta by ESPN, but could suffer from rights inflation and worse in the longer term should ESPN become really successful

ESPN’s commitment to a pure wholesale channel distribution model across all platforms and lower outlay on rights gives a real chance of building a viable business where Setanta failed

But, profits will take time to build and there is little to suggest that Sky will either materially benefit from having ESPN rather than Setanta as a customer, or that ESPN will emerge as a serious threat to Sky’s own core premium sports business in the next three to four years

H3G’s H1 2009 results showed some improvement on revenue growth and profitability on a very weak H2 2008, but it is still growing very slowly while barely EBITDA positive

The company has at last admitted that it will not be EBIT positive in 2009, and without some major changes we doubt it ever will be

For the UK business, there are a number of factors which may turn in its favour over the coming two years, allowing a more concerted marketing push to scale; for Italy and the smaller European operation, consolidation appears the only answer

Core female readers appear to be leaving the consumer magazine market, or at least not purchasing multiple titles to the degree they have done in the past, raising concerns that the scale of the industry is starting to spiral downwards

Men’s titles continue to fall and titles targeted at young readers are in freefall as these demos drift online for content and social network services, or in some cases adopt more adult titles from a younger age

If circulation decline continues at the 2008/09 rate, the sector risks losing the confidence of the supermarket giants that generate more than 50% of magazine sales, an outcome with unthinkable consequences for many large and medium sized publishers

Vodafone has launched a suite of internet services, platforms and handsets under the ‘Vodafone 360’ umbrella brand

Our views are mixed: we applaud the contacts back-up service that will be available across a wide range of handsets, provided it proves user friendly, but are puzzled by the point of a Vodafone-designed user interface built onto a fairly obscure smartphone operating system

Overall, if Vodafone 360 can stimulate data usage amongst low- to mid-end handset users, Vodafone would profit in both revenue and loyalty terms, but competing at the high end with the likes of Apple, RIM and Google strikes us as both needless and futile

In this presentation we show our analysis of revenue growth trends for mobile operators in the top five European markets (UK, Germany, France, Italy and Spain)

Overall reported year-on-year growth for the top 5 European markets fell sharply again, with a drop of 1.0ppts following on from the drop of 1.7ppts in the last quarter, with growth now -2.0%. Part of the drop can be accounted for by increasing regulation on termination rates in the UK and Germany –however, underlying growth still fell by 0.5%

Overall reported year-on-year growth for the top 5 European markets fell sharply again, with a drop of 1.0ppts following on from the drop of 1.7ppts in the last quarter, with growth now -2.0%. Part of the drop can be accounted for by increasing regulation on termination rates in the UK and Germany –however, underlying growth still fell by 0.5%

The continued fall in underlying growth is slightly worrying as GDP declines appear to have reached their nadir, with the Q2 average year-on-year decline of 4.9% the same as in Q1, raising the possibility that lagging effects of the downturn (such as rising unemployment) may keep downward pressure on mobile revenues beyond the point of inflection of GDP itself

The impending Competition Commission announcement of its provisional decision concerning the Contract Rights Renewal (CRR) remedy is expected to make little change beyond extending CRR to cover variants of ITV1, such as ITV1 +1 and ITV1 HD

Extending CRR to cover ITV1 variants should benefit ITV NAR (Net Advertising Revenue) by improving ITV1’s overall audience share, but does nothing to ease the deflationary pressures now gripping the TV advertising medium, where CRR works hand in hand with the requirement on the commercial PSB channels to sell 100% of their advertising inventories

The current goings on underline the dichotomy between competition and public broadcasting policy objectives

By 29th September, all submissions on the government’s anti-piracy proposals will need to be in to the Department of Business Innovation and Skills (BIS), with furious lobbying taking place in the lead up to the tabling of the draft Digital Economy bill in November

Under the proposals, content owners are to identify IP addresses of file-sharers and communicate them to their ISPs, which would be required to write letters to the account holders, and also release this information to content owners in the event of continued file-sharing activity to allow legal proceedings to be initiated

Opportunities for retreat abound, but if the proposals become law (rather than shelved for the next government), the UK’s new online piracy regime will generate economic benefits for the content owners (and the creative industries), which will share costs with the ISPs under the government’s latest proposal

Recession has hit internet advertising, with spend down 1% YoY in H1 2009, but the collapse in advertising on traditional media helped push online to 23% share, up 4 percentage points versus H1 2008

Based on IABUK/PwC data, we estimate that spending on search rose 2% YoY in H1, whilst display was down 5% and classified fell by 4%, the latter supported by unexpected growth in non-recruitment listings

We have adjusted our forecast for online advertising up slightly to flat for the year, but whilst the internet has now overtaken TV in absolute terms, TV remains very much the king of display