Mobile service revenue growth finally got close to the rate of inflation this quarter, doubling to 7.5% as the operators benefitted from mid-teen price rises.
Growth will wane from here with expected revenue growth of 6% this calendar year and 3% next, with ongoing cost-inflation pressures.
H3G looks set to fare better than others on the top-line in 2024 but its profitability is looking somewhat irredeemable, with negative cashflow even with more normalised capex.
While VMO2's fixed price rises this year were always going to be quite tricky, the 1ppt boost to revenue growth was nonetheless disappointing on the back of price rises of 14%.
Both mobile and EBITDA performances were better, but H2 EBITDA growth will need to be considerably stronger to get to guidance levels, which will be all the more challenging with the loss of the Lycamobile MVNO.
With the erosion of VMO2's differentiators of split contracts and broadband speeds, growth at VMO2 will require addressing new parts of the market—both geographically and across the customer range.
Vodafone's headline revenue growth of +3.7% is actually a small decline once Rest of World exchange depreciation is accounted for. Europe, however, delivered an improving revenue trend to +0.4%, as signalled at Vodafone's FY results announcement.
The mix and operating trends are less positive, with growth driven by low-margin B2B, and subscriber losses accelerating in German fixed. Investors will be weighing up whether these results are green shoots of a recovery or another false dawn.
Although the company may reach its guided EBITDA on assumed exchange rates, it looks set to fall short in euro terms, which has implications for FCF and dividend cover.
Vodafone and H3G have finally announced their long-trailed merger plans, with weaker-than-expected financials and the focus squarely on the superiority of a combined network.
We view the hailed synergy estimates of £700m per year as achievable but the merged entity will need to deliver other positive financial filips to get returns above its cost of capital.
The approval case for the merger is that: it makes the operators a stronger competitive force; prices won't rise; a combined network will be superior, and that the status quo is unsustainable in any case.
VMO2 had a subdued Q1, with EBITDA growth only just positive—this was pre-warned due to tougher comparables and the mid-teens price rise not due to take effect until April/May.
KPIs were mixed: fixed was fairly strong and mobile was slightly weak, with there being realistic hope that the former is a trend and the latter a blip, although more work is required to fully turn around fixed.
Guidance for mid-single-digit EBITDA growth for 2023 has been maintained. This now excludes the nexfibre construction margin benefit, thus is in a sense an upgrade, and still looks eminently achievable.
Service revenue growth was flat at 1.9% this quarter—a reasonable performance considering waning boosts from roaming and UK price rises, and a challenging macroeconomic backdrop.
Looking ahead, operators in most markets are now implementing price rises, providing a welcome (albeit transitory) tailwind to revenue growth—although EBITDA momentum remains subdued.
We expect a consolidation deal to be announced between Vodafone UK and H3G in the coming weeks and a decision from the EC on the Orange/MásMóvil deal in August—crucial issues for the sector’s prospects.
Headline inflation-busting price increases of 14% mask effective increases averaging a sub-inflation 8%, due to their limited scope across the customer base and over time.
The high headline increases have led to attacks from political and consumer groups, we would argue unfairly, and may yet drive reputational damage.
Looking forward, inflationary increases may be banned, but we would expect higher fixed increases to replace them, and micro-regulating pricing structures does tend to result in unintended consequences.
Providing home broadband connections via a mobile network (FWA) is gaining traction in certain markets where local conditions make it a viable alternative to fibre, such as New Zealand, Italy and the US.
FWA is a time-limited opportunity for most, with mobile traffic growth absorbing capacity for it and fixed traffic growth depleting the economic case. An ultimate shift to fibre is the best exit strategy.
In the UK, H3G's spare capacity could support up to 1 million FWA customers on a ten-year view—enough for a meaningful revenue fillip for H3G, but not enough to seriously disrupt the fixed market.
Telcos are pressing the EU to force big tech to make a ‘fair contribution’ to their network costs, although this has drawn opposition from telecoms regulators, who rightly fear risks to the wider ecosystem
There are valid concerns to address however, with content providers not currently incentivised to deliver traffic efficiently, and telcos constrained by net neutrality rules from doing anything about it, resulting in unnecessary costs and service degradation
However, there may be better ways to address these, through reforming the implementation of existing rules to encourage more efficient content delivery, and allowing the telcos to provide enhanced delivery routes of their own, with Ofcom’s approach in the UK a step in this direction, but perhaps not a step far enough
The post-pandemic recovery has lifted vacancies to a high of 1.27 million, at critical levels in hospitality and health—sectors impacted by the exodus of EU workers. We expect recruitment advertising for private sector roles to have risen 13% in 2022 to £746 million (noting base effects from lockdown in H1 2021), and will decline c.4% in 2023.
LinkedIn dominates recruitment advertising directed at professionals, leveraging its free global networking service. Indeed anchors the other end of the skills spectrum, which is low value and high volume, aggregating openings to create a scale proposition for jobseekers, using technology to target and match them with employers.
Specialists are surviving Indeed’s technology-driven business model by relying on human expertise and ancillary HR services to differentiate. Agencies continue to specialise in supplying workers to large employers for temporary positions. News publishers have retained a small but dwindling slice of recruitment advertising.