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Karen Egan, head of mobile at Enders Analysis, described the telecoms group as “highly levered”.
She added: “In a world of low rates it made absolute sense to lever everything up as much as you could get away with. With rates now rising, the tolerance for that level of leverage is lower.”
While altnets continued their strong expansion in 2023, a slowdown in 2024 is looking very likely, with financing drying up due to tougher financial conditions and disappointing operating performances from some.
Consolidation is the obvious answer, and the altnets could consolidate into a pure wholesaler (via CityFibre), a retail/wholesale player, or could be absorbed into VMO2/nexfibre.
Which of these routes is taken, and how quickly, will have a profound impact on the structure of the industry, and all players should be careful what they wish for, with long-term outcomes hard to reliably predict in such a complex marketplace.
UK consumers bought £123 billion of goods online in 2023, up 63% on 2019 (vs 7% for offline). Online sales of non-store retailers, such as Amazon (and Temu, Shein, Next), reached £60 billion in 2023, of which Amazon—a nascent online advertiser in the UK—accounts for about £43 billion
The pandemic’s structural boost to the online channels of store retailers—which operate on the open internet, outside online walled gardens—lifted sales to £63 billion in 2023, up a huge 78% on 2019. With more competition for spend in straitened times, they are using advertising more aggressively
The open internet is also the domain for online-transacted services: the return to in-person experiences drove the biggest ecommerce gains since 2022, as consumers purchased services online worth an estimated £291 billion in 2023 and rising
Other witnesses in the committee’s evidence session, including Enders Analysis, have played down concerns about price rises, saying research had not found a correlation between pricing levels and the number of network operators.
VMO2 ended 2023 with strong ARPU and EBITDA growth, meeting its (revised) guidance for the full year, but saw receding subscriber momentum across both fixed and mobile.
2024 will be much tougher across the industry and for VMO2 in particular, with its revenue expected to be flat at best, and waning boosts from price rises and synergies coupled with a series of technical factors shrinking EBITDA.
The company has promised new commercial initiatives in 2024, and thereafter we see strong potential in it maximizing the use of its network and retail arms via breaking the long-standing lock between them, although the formation of NetCo is neither a necessary nor sufficient step for this.
Reports of the "death of the metaverse" are greatly exaggerated. The scope of investment across metaverse-friendly technologies and experiences remains robust, although aggressive global competition in the AI sector could cause speed bumps.
VR, XR, and spatial computing will see a renaissance in 2024, renewing interest from developers as well as major media and entertainment. Gaming continues to be a major driver of the metaverse, with clear opportunity for new major services to compete against Fortnite and Roblox.
The building blocks are therefore all in place for the next consumer growth phase. Scaling the metaverse will be dependent on consistent and sustained trials, and more engagement from media and entertainment beyond games.
Prepared for The Metaverse Society by Enders Analysis.
Joseph Teasdale, head of tech at Enders Analysis, said that shorter videos ultimately support a lower ad load overall, and that the vertical scrolling nature of most short-form video products is a less advertising-friendly environment. “It may be that we’re just earlier along the monetisation curve, but my guess would be that it never makes as much money as long-form,” said Teasdale. A recent report from Enders recommended that news publishers should view activity on TikTok as a “strategic cost” to build brand awareness, rather than a revenue source.
The trouble is, publishers need every penny they can get right now. Publishing groups are announcing layoffs every week at the moment. Short-form struggles aren’t the biggest problem for publishers right now – Enders’ Joseph Teasdale said it “pales in comparison” to the more fundamental issue that they by-and-large haven’t found a business model that works for digital media.
Karen Egan, a senior telecoms analyst at Enders Analysis, said Liberty Global had been “very wily” investors in the past but there was “less coherence” to its current investments.
“Given that uncertainty about the value they are adding, it is somewhat inevitable that the shares would trade at a discount,” she added. “There’s a whole lot of complexity in their holdings, including debt at the company level and cash at the parent level, and investors will apply a discount when it requires them to put a whole lot of effort in to understand the whole.”
“There is a console-specific problem in the games industry: nobody is buying an Xbox, PS5 has peaked at the cost of significant discounting and everyone is waiting for Switch 2.0,” said Gareth Sutcliffe at Enders Analysis. “Consoles have proven that they are not a growth model for gaming — they top out at a very clear number.”