Vodafone's promise of growth from FY26 has credibility given some headwinds specific to FY25 and some tailwinds emerging thereafter. 

In the meantime, the issues over the coming year extend beyond TV losses—with fixed in Germany proving difficult to turn around and the challenge from diminishing in-contract price increases is a significant one (for many telcos). 

Currency movements continue to absorb all notional growth (and some) and look set to continue to do so next year. With the company's FCF just half what it was two years ago, it is little wonder that Vodafone halved its dividend payout.

Service revenue took a dip in Q4 to 1.5% as a waning price rise impact in the UK combined with the loss of positive one-offs in Germany.

We expect growth to slow further through 2024 as many operators implement lower index-linked price rises which are also coming under increasing regulatory scrutiny.

Vodafone has made progress on its turnaround plan—striking deals for its Italian and Spanish units—but it is not yet out of the woods, with ongoing challenges in Germany and approval still uncertain in the UK.

Vodafone has confirmed that it is in discussions to sell its Italian business to Swisscom for €8bn having rebuffed a higher offer from Iliad for an Italian JV in December.

The Spanish and Italian deals should be reassuring to investors, are helpful to the growth profile of the company, and may help to reduce any conglomerate discount in the share price.

The all-important free cashflow impact of the deals remains to be seen with potential for buybacks of up to €10bn compensating for the direct dilution of the deals and softening the blow of any dividend downgrade in May.

Many telcos are surprisingly advanced in exploring GenAI opportunities, mainly in gleaning cost efficiencies in managing their complex systems, but it may also provide a revenue boost.

European telco CEOs made a heartfelt—if not entirely convincing—plea for regulatory/policy help via a ‘new deal’ to help support future investment, highlighting a genuine lack of price/investment balance in European telecoms.

The most convincing specific regulatory/policy solution is in-market consolidation, with other steps either less effective, or unlikely to happen, but a general shift in regulatory attitude could prove helpful in many small ways.

As viewing moves online, broadcasters’ on-demand players make up a growing proportion of viewing, becoming central to their future strategies.

However, even though SVOD viewing might have begun to plateau, BVOD growth cannot yet balance the decline of linear broadcast.

Of this shrinking pie, 2023 saw most of the major broadcast players increase their viewing shares.

European mobile revenues remain decidedly in decline this quarter at -2% – a slight worsening since Q2 as the full force of cuts to intra-EU calls hits 

There are signs that dual-brand strategies may be reaching their useful limit as erstwhile premium customers shift to value

There is scope for some trends to slowly improve from here, although end-of-contract notifications will impact all markets before the end of 2020, with the UK first off the blocks in Q1
 

New SVOD entrants are prioritising reach over revenue in the US with extensive ‘free’ offers, including Apple TV+ (to hardware buyers), Disney+ (to Verizon customers), HBO Max (to HBO subscribers) and Comcast’s Peacock (to basic cable homes)

This is the latest development in an unfolding global story of partnerships, continuing on from multiple Netflix and Amazon distribution deals with platforms, bringing benefits to both parties

In Europe, Sky faces price pressure, but it has secured its HBO partnership and can now talk to Disney from a position of strength

With a raft of new streaming services about to hit, there remains a question as to the appetite for multiple subscriptions

Pay-TV subscribers continue to be more likely to take SVOD services—especially when they are distributed on their set-top boxes—however the average number of services per household is well below one

Greater variety and quality of services will likely increase the average number of subscriptions but given the siloing nature of these services, Netflix’s incumbency, library and distribution are its strength; new entrants will battle for a supplementary role

Broadcaster video on demand (BVOD) advertising is in demand with an £89m rise in 2018 spend to £391m, and is predicted to double within the next six years

The rise of on-demand viewing has created a scaled advertising proposition with a strong 16-34 profile – a relief for both broadcasters and advertisers, given the long-term decline in linear TV impacts for younger audiences

Big challenges remain: linear TV ad loads look excessive in on-demand, BVOD CPTs can be off-puttingly high, and measurement is still unresolved. BVOD is a welcome bright spot which faces online video competition head-on, but it won’t be able to turn broadcasters’ fortunes around alone

The UK TV advertising market, in decline since mid-2016, could benefit from a liberalisation of advertising minutage if Ofcom reviews COSTA and decides to make changes

Broadcasters could gain from the flexibility to devote up to 20% of peaktime minutes to advertising under the EU’s revised Audiovisual Media Services Directive (AVMSD)

Ofcom could also level the playing field between PSB and non-PSB channels, although more minutes of advertising on TV is unlikely to inverse the medium’s decline