The UK residential communications sector again had a strong quarter for revenue growth, with reported growth from the top four operators at 5%, or around 4% excluding the one-off impact of extra BT Sport related revenues

Unfortunately cost growth was even stronger, with margins dropping at three of the four largest operators. The aggressive launch of BT Sport has driven up content costs, marketing costs or both for all of the operators

The main issue going forward will continue to be actual and potential disruption relating to BT Sport. Content and marketing costs have likely been set at a new higher level, with further increases possible up to and following mid-2015, when the next Premier League auction is due and BT takes over the Champions League rights

France’s Canal+ faces an increasingly challenging domestic market, due to IPTV expansion, competition from Al-Jazeera’s beIN Sport and the threat of a Netflix launch – on top of sluggish consumer demand in a dull economy

Inflated promotional activity has brought rising churn and failed to stop subscriber base erosion, while denting profitability. Headline revenue growth comes from international channels, film production and FTA TV

Anxious to avoid interference from its owner Vivendi, Canal+ has followed a conservative investment policy that may have undermined growth. The spin-off of SFR and possible dissolution of the conglomerate would leave Canal+ free to contemplate more aggressive moves, in IPTV, set-top boxes and possibly through acquisitions

TalkTalk maintained recent momentum despite increased competition in the quarter, delivering 5k broadband net adds and 167k pay TV net adds, although increased churn required higher marketing spend to achieve this

TalkTalk restructured its pricing towards the end of the quarter, increasing certain prices, introducing a lower cost broadband option and bringing pay TV to its (now) mid-tier plan; the net impact appears as if it will be positive

TalkTalk is fairly well insulated from the ongoing BT/Sky battle, with little enthusiasm for sports content within its base, and pricing that is already very competitive, but extra marketing costs may still weigh going forward

Virgin Media had a very solid quarter, with cable households returning to growth, cable revenue up 4%, underlying group revenue up 2%, and underlying OCF up 3% despite extra content costs weighing

Subscriber net adds were not as strong as last year, when DSL competitors were weakened by supply constraints, but there is little sign of a substantial impact from BT Sport or TalkTalk and BT’s YouView-based TV offerings

BT’s foray into sport has however had an effect on profitability, as it has with BT itself and Sky, with Virgin Media’s premium content costs rising from both BT and Sky

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). The historical analysis is based on the published results of the operators, although they include our estimates where their data is inconsistent or not complete. A copy of the underlying data in spreadsheet format is available to our subscription clients on request

Virgin Media and Netflix have agreed on a ground breaking trial that blurs the traditional distinction between pay-TV platforms and OTT services by permitting TiVo customers direct access to Netflix via their set-top boxes The deal promises to benefit both parties as Netflix enhances the Virgin Media content offer to its TiVo customers with minimal risks of cord-shaving, while availability on Virgin Media TiVo offers Netflix the prospect of incremental subscription growth The question is whether other pay-TV platforms will follow suit, including Sky with its competitive interests in film rights acquisition, but where the Netflix value to UK viewers is increasingly seen to lie in its TV content

UK residential communications revenue growth was again strong in Q2 2013 at 4% supported by strong unit volume growth (despite seasonal factors in the quarter) and firming ARPU, helped by firm pricing and high speed broadband take up

High speed broadband adoption continued apace at BT and Virgin Media, but much more slowly at the other operators. This may start to change in the second half of the year, as Sky and TalkTalk market the product more aggressively, and a wires-only self-install version becomes available

Overall the market outlook remains very healthy, with two potential areas of market disruption – BT Sport and regulated pricing – looking like they will resolve without prompting a damaging price war

TalkTalk’s broadband net adds held up well in the June quarter despite weak seasonality and an aggressive competitive push by BT

ARPU growth was steady, which allowed rising subscriber growth to drive consumer revenue growth up to just over 2%, and growth at the group level rose to just under 2%

With the BT Sport impact appearing slight, and regulatory outcomes looking reasonably benign, the outlook is much less uncertain than before

UK residential communications revenue growth was very strong in Q1 2013, rising to 4.6% from 2.1% in the previous quarter with most of the improvement driven by improved unit ARPU growth, which turned positive for the first time since early 2011

We expect unit volume growth to remain strong for the rest of the year, although ARPU growth is likely to moderate as overlapping price increases drop out, but it is still likely to be firmer than 2012 given the continued growth of high speed broadband (at least at BT and Virgin Media) and firm pricing in general

The outlook for market shares is less certain, with a number of difficult-to-predict factors coming into play, and while we do not expect dramatic changes in market share to result from any of these factors, they do create a risk of pushing operators to adopt more aggressive pricing strategies, which would disrupt an otherwise very healthy outlook

Following a return to broadband subscriber growth last quarter, TalkTalk has now returned to overall revenue growth for the first time since acquiring Tiscali in 2009

Pay TV net adds nearly doubled to 150k; the associated SACs weighed on EBITDA, but TV did support the upper tier ‘Plus’ base returning to solid growth

TTG’s outlook is positive, save for uncertainties over regulation, and the unpredictable impact of BT Sport on broadband market shares