Fixed line revenue growth continued to decline excluding the impact of Tiscali UK, but at a manageable rate, and profitability continued to improve strongly. TalkTalk Group is performing well in the run-up to demerger, and management is sounding very confident. But there are some clouds on the horizon, not least the relaunch of Tesco Telecom

Sky+ HD is now manifestly the centre point of a three-pronged operational strategy that focuses on driving customer growth, selling more products into the customer base and seeking efficiencies in fixed costs

Sky 3D, due for residential launch in H2 2010, fits in well with the core Sky+ HD proposition and the satellite operator looks well placed to combat growing retail competition from other platforms, assuming Ofcom implements its wholesale pay-TV proposals for Sky premium subscription films and sports some time in spring 2010

Annual market growth is dropping in line with our predictions over the past two years, despite some significant quarterly blips.We continue to project growth in 2009 to be significant, but much lower than in the past, with net additions of 1 million

We expect annual net additions in 2010 to drop by another 20% to 800,000 as the market becomes ever more saturated

We project 19.8 million broadband households by 2014 and have slightly increased our projections from 2010 to take into account the likely impact of higher growth in the number of households as recently predicted by the Office for National Statistics (ONS)

Three years into its pay-TV investigation, we expect Ofcom to impose a wholesale must-offer obligation with regulated prices on the Sky premium films and sports channels in its final statement scheduled for Q1 2010

The WMO could take effect by the middle of 2010. It appears unlikely that Sky will be granted a stay of implementation whilst its appeals against the lawfulness and substance of the WMO remedy are being heard

Assuming the WMO proceeds, its impact on the pay-TV market is likely to be small in the first three to five years, but could become significant in the long-term; the core issue throughout being the rate-card prices set by the regulator, Ofcom

VMed’s Q3 results were strong, with the impact of the May price increases feeding through almost directly into growth in revenue and cash flow. Cable volume performance was solid, given difficult market conditions and the focus on higher value customers

VMed’s plans for HD are becoming increasingly important. In this regard, the outcome of Ofcom’s pay-TV investigation could prove crucial

The cost reduction programme is delivering ahead of expectations, and we remain optimistic that revenue growth will continue, in combination with reductions in operating costs, to generate further significant growth in cash flow

Latest fiscal Q1 2010 results show continuation of the strong subscriber and revenue growth trends, but as Sky forges ahead of its rival pay-TV operators so attention is turning to competition issues

It is still unclear whether Ofcom will succeed in introducing a wholesale ‘must offer’ remedy with regulated pricing for Sky’s premium subscription films and sports channels; a proposal that Sky vehemently contests but, if put into place during 2010, this could have a significant influence over the longer term structure of the UK pay-TV market

Results for the telecoms business continued to improve, albeit on a more modest scale than in Q4 2009, with the cost base beginning to show signs of greater stability

Just-launched Sky Songs offers a ‘new’ online music model, combining on- demand streaming with credit towards DRM-free downloads, for a single monthly payment

Sky Songs combines the best features of Spotify and iTunes, with lower average per track prices for in-bundle downloads, which will appeal to the music purchaser, and drive industry revenues provided regular use is made of the service

Sky Songs is backed by the power of Sky’s brand, serving the UK’s most entertainment-conscious clientele, with initial promotions targeting Sky’s 2.2 million broadband customers

At TalkTalk Group (TTG) net broadband additions at TalkTalk/AOL UK were unexpectedly strong, with low cannibalisation of Tiscali subscribers particularly good news

At the newly acquired Tiscali UK, the inevitable skeletons are starting to emerge from their cupboards. Management appears well prepared for the challenges, although it is early days

Carphone Warehouse’s distribution business grew connections at 2.1% during the quarter, another very creditable performance in a declining market, and it remains well positioned for the market recovery

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

VMed’s Q2 results were again mixed but, on balance, encouraging, with the impact of the May price increases feeding through into revenue growth

Cable volume performance was poor but, with the exception of broadband, no worse than expected, and is not expected to deteriorate further relative to the market

We remain optimistic that management will succeed in combining revenue growth with reductions in operating costs to generate sustained growth in cash flow from autumn 2009