The boost from annualising the COVID-19 hit dissipated this quarter with service revenues flat-lining at –2.5%. The year-on-year mobility boost weakened and pandemic upsides of lower churn, cost savings and B2B demand unwound.

Q4 looks mixed with an improving year-on-year mobility boost but further unwinding of some pandemic upsides. Spring 2022 has the potential to be the long-awaited panacea with price rises of up to 8% and the prospect of renewed roaming revenues.

The operators continue to seek sources of market repair through price rises (to compensate for regulatory intervention elsewhere) and consolidation—but with little visible support from policymakers as yet.

Sky has started to reap benefits from its substantial reduction in sports rights costs in Italy and Germany, helping to grow group EBITDA by 76% in Q3, despite a slight drop in revenue

With this change in strategy, the business model in Italy is undergoing an upheaval. Meanwhile, the UK continues to perform well, with further promise on the horizon thanks to the bold launch of Sky Glass

This streaming TV is a future-proofing leap forwards in Sky’s ever-more-central aggregation strategy, starting the business down the long path to retiring satellite, though this is probably still over a decade away

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.

Sky’s revenue was up 15% in Q2, back to pre-COVID levels despite some lingering pandemic effects such as most pubs and clubs remaining closed. EBITDA fell by a third, driven by higher costs from sports rights, since very few live sports events took place in Q2 2020

The impact of “resetting” football rights is already evident in Germany and Italy, with 248k net customer losses across the group despite growth in the UK. However, Sky will make substantial savings, and we expect this will more than offset lost revenues

Meanwhile, Sky continues to strike deals with other content providers, solidifying its position as the leading household entertainment gatekeeper. In time, apps for NBCU’s Peacock, ViacomCBS’ Paramount+, ITV Hub, and, in Germany, RTL TV Now and DAZN, will all be aggregated within Sky Q

As we expected, UK mobile operators are beginning to introduce EU roaming tariffs, with EE taking the first major leap in the hope that others will follow.

This move is somewhat inevitable as current arrangements leave operators exposed to up to €75 of monthly wholesale charges.

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.

The last lockdown caused service revenues to dip again to -7% in spite of some easing of roaming pressure and the annualisation of some early pandemic weakness.

The heralded, elevated in-contract price rises will fail to drive higher growth this year due to lower inflation—we estimate zero impact at BT/EE relative to 2020 and a reduction in revenue momentum of around 0.5ppts for each of the other operators.

The annualisation of the first lockdown is the most meaningful upside from here with a boost of around 5-7ppts possible. However, some pandemic upsides will also unwind, notably lower churn and enhanced B2B demand with the latter vulnerable to the end of furlough support and the economy.

After a strong post-pandemic rebound, Sky has the opportunity to leverage its strong reputation with consumers to meet the challenge posed by new competitors and the studios’ direct-to-consumer transition, establishing Sky Q as the ultimate gatekeeper of video subscription homes.

Sports rights costs in Germany and Italy have been cut significantly, while Sky’s spend on UK Premier League rights will decrease in real terms. Savings will ease the financing of the shift to original content, which, associated with owner Comcast’s NBCU output, anchors the aggregation strategy.

Fibre deployment in the UK and Italy presents a subscriber and revenue growth opportunity, and underpins the gradual shift away from satellite to online content distribution.

Advertising income has been the lifeblood of commercial TV for decades, but declining linear audiences—combined with digital video alternatives—mean the TV advertising model must evolve to ensure it remains as potent a medium for brands as ever.

Lack of effective audience measurement and somewhat opaque advertiser/agency/sales house relationships are hampering linear TV advertising revenues. Both issues need resolving to underpin a healthier ecosystem overall.

Flexibility is key to this evolution. A move to audience buys across most linear and BVOD inventory would provide greater flexibility and targeting for advertisers, and would sit alongside some premium context buys. A greater onus on volume deals would give broadcasters more certainty to invest in content and their advertising propositions.

Spectrum auction assignment stages are normally fairly dull and routine, but due to the two-part nature of the 5G auctions, and the critical importance of proximity and contiguity, this is not the case with 5G.

The assignments won, combined with the Vodafone/O2 deal, ensures that all the operators enjoy at least 80MHz of (essential) proximity, but only O2 gets (nice-to-have) contiguity.

Further swaps could ensure contiguity for all, but this requires H3G to co-operate, which is in its absolute, but not relative, best interests.

The sector rebounded slightly in the quarter to December thanks to a seasonal improvement in the roaming drag, although the partial lockdown tempered the recovery.

We await imminent news on spectrum trading, and there may also be some licence fee reductions as a consequence of the lower prices in the recent 5G auction.

While the sector is likely to continue to struggle into Q1, the outlook is much brighter thereafter thanks to the annualisation and even reversal of some lockdown effects, and to higher price increases from the spring.