Market revenue growth continued to accelerate in Q2 to reach 3%, but broadband growth worryingly dipped as the lockdown boost waned.
Differing pricing dynamics (among other factors) led to very different outcomes for the main players, with BT’s growth surging to 7% while VMO2’s revenue stayed in decline.
Underlying trends of weakening broadband growth, keener pricing and customer bargain seeking point to slower growth ahead … until the next price increase.
With the publication of the Media Bill (expected to include details of the sale of Channel 4) seemingly delayed to at least after the recess (September), privatisation appears to now be on ice.
2021 was another demonstration of Channel 4’s resilience—showing record-breaking revenues, high content spend and encouraging rates of digital transition—setting a credible platform upon which the broadcaster's PSB credentials can be placed.
Some queries remain: Channel 4’s main viewing drivers are ageing, with fewer new shows being commissioned to replace them. Online engagement isn’t a substitute for declining linear viewing, while digital advertising growth may get harder with more players, such as ITV and the streamers, entering the space in earnest.
Press reports suggest that VMO2 is in the early stages of negotiating a deal to buy TalkTalk, which has reportedly been for sale since April.
There is strong industrial logic to the deal, with a sub-brand useful and significant synergies from moving the TalkTalk base to VMO2’s network, with the latter gain at Openreach’s expense.
The main hurdle for the deal would be regulatory clearance, with there being major issues for the CMA—from a range of angles—for such a large in-market merger.
With the cost-of-living crisis expected to worsen over the coming months, the telecoms operators must walk a fine line—support customers but protect their financial performance in the face of a likely recession and rising costs.
We are likely to see weakness on the B2B side and consumers will look for ways to reduce out-of-bundle spend, seek retention discounts and spin down to lower speed tiers and data bundles, but we expect that dropping services completely will hold limited appeal.
Proactive retention activity and promotional pricing is likely to pay off more than slashing headline prices, and will help to avoid a damaging price war—a far bigger risk to their revenues than spin-down.
European mobile service revenue growth was positive for the first time in five years this quarter as a resurgent mobility boost combined with the return of roaming revenues.
Q2 is set to be a mixed bag, with inflation-plus price increases expected in the UK, an elevated boost from the roaming recovery, but also some weakness in the B2B market.
We are also seeing the early impact from end-of-contract notification rules, particularly in Germany, and we expect ARPU pressure and churn to pick up elsewhere as the impact becomes more widespread.
Mobile service revenue nudged into growth territory for the first time since the pandemic as a resurgent mobility boost combined with returning roaming revenues.
Q2 looks set to deliver a more convincing growth filip with inflation-linked price rises boosting by 2-5ppts, and a stronger roaming bounce for seasonal reasons.
The picture is not entirely rosy, however, with already discernible B2B headwinds and inevitable consumer bargain-hunting on the horizon.
The market looked superficially healthy in Q1, with revenue and broadband volume growth both maintained at 2%.
However, net adds trends suggest that consumers are becoming more bargain seeking, and prices have become more competitive into Q2.
The April price increases will support growth in the short term, but this boost may not last long if the cost-of-living crisis persists.
On 12 May 2022, Enders Analysis co-hosted the annual Media and Telecoms 2022 & Beyond Conference with Deloitte, sponsored by Barclays, Financial Times, Meta, and Deloitte Legal
With up to 500 attendees and over 40 speakers from the TMT sector, including leading executives, policy leaders, and industry experts, the conference focused on regulation, infrastructure, and how new technologies will impact the future of the industry
These are edited transcripts of Sessions 1-3 covering: regulation and legislation, PSB renewal, and clarity in the age of non-linear transmission. Videos of the presentations are also available on the conference website
While VMO2’s Q1 results were strong, its subscriber additions were weak, particularly on the broadband side, with a seemingly somewhat deliberate go-slow as the year began, but cost-of-living crisis and fibre overbuild may also be factors.
We see considerable scope to ramp up commercial aggression from here given the sizeable tailwinds from price increases, synergy benefits and the migration of the Virgin Mobile MVNO from Vodafone.
We remain sceptical of VMO2’s further network extension ambitions and hope that no news on securing a financial partner is good news, increasing the odds of it pursuing the less risky strategy of expanding its footprint through wholesale.