TalkTalk: Post-lockdown challenges and opportunities
TalkTalk started its new financial year with revenue growth declining to -8% in Q1, although this is partly lockdown-related, and costs have also declined as churn plummeted.
While backbook pricing continues to be a challenge, new customer pricing continues to firm, which makes its expectation of stable/growing EBITDA for FY2020/21 possible albeit still difficult.
The company expects to launch full fibre products from Openreach imminently, and from CityFibre before the end of the year, with the adoption and eventual economics of these crucial to its medium and long-term future.
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Premium sports subscriptions are the primary sector weakness in the current crisis, and they look set to drive fixed operator revenues down 10% next quarter and Sky’s EBITDA down by 60%.
As lockdown eases, latent broadband demand can be more easily sated, and sports subscriptions will bounce back from the September quarter. A surge in working-from-home is likely to increase both the quantity and quality of home broadband demand, with ‘failover’ mobile backup also likely to be of greater interest.
Openreach will benefit from accelerated demand for full fibre, converged operators will be best-placed to offer mobile backup for broadband, and operators with a strong corporate presence will most easily target demand for home-working products.
TalkTalk grew EBITDA by 10% in 2019/20, an impressive cost cutting driven result, with revenue and gross margin falling as the company struggles with the move to high speed.
The company is cautious on 2020/21, indicating only stable EBITDA citing CV-19 related pressures, although the lockdown has also brought much lower churn and an improving price environment.
The move to full fibre could prove challenging in the longer term, but it also brings an opportunity to rebrand away from a pure price focus, the source of much of TalkTalk’s challenges.
Virgin Media: Fibre questions remain
26 May 2020Virgin Media’s Q1 financial performance was in line with its subdued outlook, with its key problem being a lack of demand (yet) for the ultrafast services that only it can widely provide.
CV-19 has delayed the marketing of ultrafast services from competitors, likely suppressing demand more generally; in the longer term however, the working-from-home experience will likely help drive adoption.
Virgin Media still has to solve the problem of alleviating the long-term threat of full fibre builds negating its network advantage; we believe that the best answer is to expand to a nationwide service via wholesale, and the merger with the nationwide O2 reinforces this.
BT: Fibre up, dividends down
18 May 2020BT’s March quarter appeared to have been going reasonably well until COVID-19 hit, with full year guidance still being broadly met, but the new financial year will be hit harder, with BT Sport, SME and new fibre connection revenue particularly vulnerable.
BT’s full fibre roll-out has been temporarily slowed by COVID-19, but it is accelerating its ambitions regardless increasing both its 12-month (4.0m to 4.5m) and longer term (15m to 20m) coverage targets.
BT is suspending and then rebasing its dividend, in part to cover the above costs. While we regard BT’s fibre investment as a good one, investors and analysts alike have been frustrated by a lack of clear multi-year guidance of the benefits, perhaps as a result of BT not wanting to reveal its negotiating hand to the regulator, government and retail partners.
COVID-19 telecoms impact: Resilience in the short term, but maintaining may be challenging
27 March 2020Demand for telecoms capacity is booming, and the networks can (broadly) cope, with the increase primarily in off-peak demand. However, as the crisis continues, maintaining resilience becomes more challenging.
In the short term, the demand for ample, reliable connectivity coupled with reduced churn will add resilience to operator financials, although there may be significant weak spots especially in business markets.
However, as the crisis goes on, the pressure on capacity and network maintenance may grow, and the impact of the dramatic economic slowdown on consumers and businesses will also put pressure on financials.
Football and COVID-19: Avoiding meltdown
26 March 2020In a likely scenario, the suspended football season could be concluded in empty stadiums in a June and July rush, nevertheless with severe financial consequences.
Pay-TV incumbents like Sky face limited risk—at worst they lose four months of subscription revenue for games already paid for. No-contract services such as DAZN must anticipate a more severe shock.
To limit disruption, pain will have to be shared across the supply-chain with players’ pay first in line. But fast coordination in a continent-wide, multi-layered industry is challenging; in places, the issue may turn political.
Winners and losers as the UK fibres up
28 January 2020The speeds made possible by full fibre build are unnecessary for most users in the short term, giving limited commercial advantage to those that can offer them, but are likely to prove essential in the medium/long term.
The economics of full-scale, independent alternative networks look very challenging in our view – especially without the support of Sky – although there are some limited arbitrage/cherry-picking opportunities.
The Openreach full fibre model makes economic sense under Ofcom’s proposed regulatory framework, provided it retains the lion’s share of the market, although considerable risks remain.
Premium sports subscriptions are the primary sector weakness in the current crisis, and they look set to drive fixed operator revenues down 10% next quarter and Sky’s EBITDA down by 60%.
As lockdown eases, latent broadband demand can be more easily sated, and sports subscriptions will bounce back from the September quarter. A surge in working-from-home is likely to increase both the quantity and quality of home broadband demand, with ‘failover’ mobile backup also likely to be of greater interest.
Openreach will benefit from accelerated demand for full fibre, converged operators will be best-placed to offer mobile backup for broadband, and operators with a strong corporate presence will most easily target demand for home-working products.
TalkTalk grew EBITDA by 10% in 2019/20, an impressive cost cutting driven result, with revenue and gross margin falling as the company struggles with the move to high speed.
The company is cautious on 2020/21, indicating only stable EBITDA citing CV-19 related pressures, although the lockdown has also brought much lower churn and an improving price environment.
The move to full fibre could prove challenging in the longer term, but it also brings an opportunity to rebrand away from a pure price focus, the source of much of TalkTalk’s challenges.
Virgin Media: Fibre questions remain
26 May 2020Virgin Media’s Q1 financial performance was in line with its subdued outlook, with its key problem being a lack of demand (yet) for the ultrafast services that only it can widely provide.
CV-19 has delayed the marketing of ultrafast services from competitors, likely suppressing demand more generally; in the longer term however, the working-from-home experience will likely help drive adoption.
Virgin Media still has to solve the problem of alleviating the long-term threat of full fibre builds negating its network advantage; we believe that the best answer is to expand to a nationwide service via wholesale, and the merger with the nationwide O2 reinforces this.
BT: Fibre up, dividends down
18 May 2020BT’s March quarter appeared to have been going reasonably well until COVID-19 hit, with full year guidance still being broadly met, but the new financial year will be hit harder, with BT Sport, SME and new fibre connection revenue particularly vulnerable.
BT’s full fibre roll-out has been temporarily slowed by COVID-19, but it is accelerating its ambitions regardless increasing both its 12-month (4.0m to 4.5m) and longer term (15m to 20m) coverage targets.
BT is suspending and then rebasing its dividend, in part to cover the above costs. While we regard BT’s fibre investment as a good one, investors and analysts alike have been frustrated by a lack of clear multi-year guidance of the benefits, perhaps as a result of BT not wanting to reveal its negotiating hand to the regulator, government and retail partners.
COVID-19 telecoms impact: Resilience in the short term, but maintaining may be challenging
27 March 2020Demand for telecoms capacity is booming, and the networks can (broadly) cope, with the increase primarily in off-peak demand. However, as the crisis continues, maintaining resilience becomes more challenging.
In the short term, the demand for ample, reliable connectivity coupled with reduced churn will add resilience to operator financials, although there may be significant weak spots especially in business markets.
However, as the crisis goes on, the pressure on capacity and network maintenance may grow, and the impact of the dramatic economic slowdown on consumers and businesses will also put pressure on financials.
Football and COVID-19: Avoiding meltdown
26 March 2020In a likely scenario, the suspended football season could be concluded in empty stadiums in a June and July rush, nevertheless with severe financial consequences.
Pay-TV incumbents like Sky face limited risk—at worst they lose four months of subscription revenue for games already paid for. No-contract services such as DAZN must anticipate a more severe shock.
To limit disruption, pain will have to be shared across the supply-chain with players’ pay first in line. But fast coordination in a continent-wide, multi-layered industry is challenging; in places, the issue may turn political.
Winners and losers as the UK fibres up
28 January 2020The speeds made possible by full fibre build are unnecessary for most users in the short term, giving limited commercial advantage to those that can offer them, but are likely to prove essential in the medium/long term.
The economics of full-scale, independent alternative networks look very challenging in our view – especially without the support of Sky – although there are some limited arbitrage/cherry-picking opportunities.
The Openreach full fibre model makes economic sense under Ofcom’s proposed regulatory framework, provided it retains the lion’s share of the market, although considerable risks remain.