Press reports that Sky is in advanced talks to co-invest in Virgin Media O2’s upgrade of its cable network to full fibre are something of a surprise, with a host of issues for both parties to carefully consider

The muted deal would be somewhat negative for BT (although limited by Sky’s c.15% market share in VMO2 areas and regulatory protections/upsides). It is, however, a stark reminder of the precarious economics of alternative networks such as CityFibre

Whether this makes VMO2 more likely to extend its network further is a more critical issue, certainly for BT

European mobile growth was essentially zero year-on-year—a significant improvement thanks to annualisation of the pandemic but there is little evidence of the reversal of its negative impacts.

Italy saw the biggest improvement in its underlying trend as the pandemic continued to suppress Iliad’s momentum, while elevated competitive tension in Spain and France ate into their annualisation boost.

Mobility and flight data suggests that Q3 will evidence a bigger boost from renewed travel than in Q2—positive for roaming revenues—but that the improvement in mobility will be weaker than in the June quarter.

The two-part nature of the UK 5G auctions has thrown up various issues, with non-contiguous spectrum blocks proving the most challenging to resolve.

The Annual Licence Fees (ALFs) attached to H3G’s spectrum are the crucial stumbling block in spectrum trading negotiations, creating a level of uncertainty which is not conducive to striking a sensible deal.

Ofcom has a crucial role to play in securing an efficient outcome and time is very much of the essence.

The government is intent on privatising Channel 4, largely as is, with some potential shifts to the remit and a re-evaluation of the Terms of Trade and the publisher/broadcaster model

We note a valuation range of between £600m and £1.5bn, depending on the scenario and the buyer’s ability to create cost-savings. The counterfactual—a competitor buying Channel 4—could be motivating, while many broadcasters could benefit from the sale given that the government will have to provide the buyer with surety around uncertainties like prominence, licences and gambling/HFSS advertising

Given the potential and incentive for a profit-oriented owner to game Channel 4’s current woolly remit, if the government wants to guarantee a continuation of the benefits C4 presents onscreen and to the economy, much consideration need be placed on making the obligations more quantifiable and trackable

The bounceback from COVID is yet to be evidenced in UK mobile as there was no improvement in service revenue trends this quarter beyond the simple annualisation of the pandemic hit.

More mobility and international travel will be crucial tailwinds. Q3 travel rates are only slightly higher than a year ago, limiting the near-term upside. Some pandemic boosts such as lower churn and higher B2B demand will also unwind somewhat.

Spring 2022 looks set to be a turning point for the sector with price increases of 6-7% in the offing on the basis of recent inflation rates, and the potential for renewed roaming revenues, even from Europe.

Market revenue growth bounced back to 4% in Q2, the first positive growth for the sector since 2019 .

Most of the improvement was however temporary sports channel bounceback, with underlying growth still negative.

Prospects are nonetheless healthy, with price increases now regular, backbook pressure annualising out, and ultrafast boosts growing.

VMO2’s inaugural results reinforced the company’s focus on profitability with EBITDA growth of 6% and record margins. Flat revenues year-on-year benefited from the annualisation of the COVID-19 hit but incorporated little by way of rebound.

Much remains to be seen in terms of strategy but indications thus far are reassuring with B2B a clear focus for revenue growth, and the benefits of direct distribution feeding through to profitability.

The company’s decision to build an overlay full fibre network is a bold, but smart, move—allaying justified obsolescence fears about its network, enhancing strategic flexibility, and reducing its cost base.

Post Brexit, Vodafone has followed EE's lead in reintroducing roaming fees for some mobile packages. We expect Virgin Media O2 and the MVNOs to follow suit, with H3G's approach more uncertain.

This move is somewhat inevitable as current arrangements leave operators exposed to up to €75 of monthly wholesale charges, and even more as legacy EU wholesale deals expire.

We don't envisage a return to the days of super-normal returns from roaming, but it is nonetheless conducive to much-needed price inflation in the sector.

ITV’s H1 advertising revenues were up 29% YoY—and up 2% compared to 2019—to £866 million, with the Euros and an improving market ushering in the biggest June ever for the broadcaster. Studios revenues rose 26% (to £798 million), which was 5% better than 2019

ITV’s new deal with Sky provides clarity around the relationship between the two companies, with ITV soon able to dynamically serve ads on both downloaded content and linear channels (but apparently not via Sky Adsmart) on Sky Q. By the end of 2022, the full ITV Hub app will be available on Sky Q

BritBox—which was not part of the Sky deal—has shown muted growth in the UK (adding 55k in H1 to 555k subscribers), while over the same period, international subscriptions lifted 18% (to 2 million)

Vodafone’s growth this quarter was a touch disappointing; the annualistion of the COVID hit was a clear boost but no evidence of any tailwinds. The 1.1% growth in the European markets should be the real focus for investors.

We see some evidence of positive initiatives from Vodafone such as its new EVO tariffs in the UK but it still has much to prove on operating momentum, especially in Germany.

There are signs that Vodafone is slow-pedalling in some markets and with demanding EBITDA targets and with leverage still finely balanced, we expect this focus on profitability to continue. The UK may be a special case.