Broadband market volume growth resumed its downward trend in the September quarter after a blip in the previous quarter that was likely caused by a wholesale transfer distorting the figures. Revenue growth, however, perked up to 1.9% from 1.7% in the previous quarter, an encouraging recovery especially given that it was not primarily driven by the timing of a price increase

ARPU growth improved across all four of the major operators, countering recent trends, with a focus on higher value offerings a common theme. High speed broadband adoption accelerated in the quarter across most operators, encouraged by Openreach’s volume discount offer, although this was partially driven by keener high speed pricing

Revenue growth at Virgin Media, Sky and TalkTalk converged at around 3%, with BT Consumer lagging at -1%. However, excluding the effect of BT’s shrinking telephony-only base and smoothing the sporadic boost of its 9-monthly price rise, BT Consumer’s revenue is in the middle of the pack at 3.0% 

With sport at the heart of the pay-TV ecosystem, dedicated online-only streaming services could emerge as a threat to leading players like Sky 

The liveliest newcomer, DAZN, launched in 2016 with mostly second-tier sports. Now in seven markets and counting, it has recently made bold moves into top-flight competitions, notably in Italy, albeit as a secondary player 

History has not been kind to those challenging pay-TV incumbents by selling sports unbundled—particularly in Europe, as Setanta, ESPN, beIN SPORTS and Mediaset can testify. If DAZN can stick to secondary positions in premium rights, or simply less-expensive sports, perhaps it will fare better 

When its acquisition of 21st Century Fox closes, Disney will own 60% of Hulu. If it bought Comcast’s 30% stake (and WarnerMedia’s 10%), it could fully leverage the platform for its US direct-to-consumer strategy

Comcast’s Hulu stake has little strategic value to it. We argue it should sell to Disney in exchange for long-term supply deals for ESPN, as well as for the upcoming Disney+ and Hulu, similar to its recent pacts with Amazon Prime and Netflix

This could naturally be extended to Sky in Europe depending on whether Disney decides to launch all direct-to-consumer or sticks with pay-TV in certain markets

There is a belief in some quarters that there is space for a myriad of large SVOD services in the UK. We question whether there is room for more than the current three pacesetters; Netflix, Amazon and NOW TV

Like the UK, the US market is dominated by three services, and there is evidence of an appetite for further offerings. But the US market is conspicuously different to the UK's, with the forces behind cord-cutting in the States less apparent this side of the Atlantic

Potential domestic UK services would struggle to compete with the resources—supported by debt-funded and loss-leading models—that foreign tech giants can marshal

Virgin Media’s revenue growth accelerated in Q3, off the back of improved subscriber ARPU and triple play growth, but actual customer and broadband figures slowed in line with the weakening market

Network roll-out was still (deliberately) slow, with the rate now well below the previous year, and the company indicating that it is not expecting to accelerate, although it is still the fastest new network builder in the UK by some margin

Both the ARPU focus and slow roll-out point to a cautious approach, with the company happier to ensure its existing customers offer good yields than to seek significant market share growth at this stage, which is probably wise

UK broadband subscriptions re-accelerated in Q2, bucking a three-year downward trend, but market revenue growth still fell as BT’s overlapping price increase dropped out and all of the operators continued to struggle to meaningfully grow ARPU

Regular existing customer price increases and continued (but slowing) migration to high speed are being cancelled out by flat-to-down new customer pricing, and the frequent need to discount existing customers down to these levels to retain them

High speed net adds disappointed despite Openreach’s price cut, with many consumers unwilling to pay even a modest price premium for extra speed, a sobering thought as aggressive full fibre network roll-outs are being considered

Sky maintained strong revenue growth of 5% in 2017/18, with EBITDA and operating profit both bouncing back into strong positive territory after the UK Premier League rights hit of 2016/17

The UK grew revenue well and profits better; Italy performed well and should improve much further given the retreat of its principal competitor; Germany is more challenged, but extra content investment may aid sustained growth

Sky is proving adept at managing content costs and revenue in a changing environment, with investment, cost control and monetisation all being put to effective use as the content type demands it

Virgin Media had a mixed quarter, with subscriber ARPU growth maintained, partly driven by a triple play focus with pay TV and telephony adds much improved, but subscriber and broadband net adds unchanged

Cable revenue growth did slow from 3.6% to 3.1%, mainly due to the previous quarter’s net adds slowdown working through, and it is still growing the fastest of the big operators in a slow-growth market that still suffers from pricing pressure at the low end

Its network roll-out was slower than last year and only just above the weather-impacted previous quarter, which appears to be deliberate, and which may at least partly relate to an uncertain regulatory and commercial climate over ‘full fibre’ roll-out by others

Many European telecoms operators are pursuing a fixed/mobile convergence strategy on the pretext that the addition of mobile reduces churn. We see no evidence of churn reduction from this strategy

Discounts required to encourage take-up of fixed/mobile services are often value-destructive, even before competitor reaction: a 10% bundle discount necessitates a 2ppt improvement in churn to wash its face economically. M&A premia on the basis of convergence synergies raise the hurdle even higher

Most UK operators offer very limited discounts on fixed/mobile bundles for now, sensibly focusing on enhanced services. Vodafone is the most aggressive, albeit less so than it is elsewhere. All UK players should hope that it stays this way

Despite significant changes in people’s video viewing habits over the last few years, the TV platform landscape has appeared to have reached an equilibrium.

We expect pay-TV to retain its utility status for most existing customers. At the margins, movement from Sky and Virgin Media to free-to-air or pay-lite services will be mitigated by population growth.

The excitable growth phases for Netflix and Amazon are likely to be over, but they have carved out prominent positions in the market. Meanwhile, the uncomplicated allure of free TV remains strong for half the UK.