Market revenue growth accelerated to 3% in Q4, but it might never reach this level again, being helped by a never-to-be-repeated BT overlapping price rise

With price rises becoming more challenging in general, and superfast pricing under pressure in particular, maintaining/increasing ARPUs is becoming more difficult despite superfast volumes surging

Openreach’s ultrafast roll-out has accelerated, challenging Virgin Media and bringing the prospect of further price premia, but perhaps too late to be of significant benefit in 2019

After strong underlying 2018 results, the more subdued outlook for 2019 is an important shift, driven by regulatory pressure on mobile, higher programming costs, one-offs and softening demand

Lightning is continuing to drive market share gains in new build areas, and should provide a 2ppt tailwind to revenue growth in 2019, but enhanced visibility on the economics of rollout suggests that its conservative approach is a wise one

In existing build areas, Virgin Media is facing-off pricing pressure from TalkTalk on high speed, and potentially from BT on even higher ultrafast speeds, with it moderating pricing and launching a market-beating 500Mbps product in Spring 2019 in response

Governments and operators have come under increasing pressure to exclude Huawei’s 5G equipment from national networks, with justifications usually kept vague and wide-ranging rather than specific, and no evidence provided.

Given the role of Huawei’s 5G equipment in the network and the extent of existing testing and checking, realistic security risks that apply to Huawei and not to all other equipment suppliers are hard to conceive.

The risks of any ban are however very real; with Huawei one of only three global-scale telecoms equipment suppliers, and the preferred early choice for 5G radio equipment in the UK, removing this choice will massively increase costs and delay roll-outs of cutting-edge connectivity.

The combination of 5G, AI, IoT and big data were evangelised at MWC as generating massive scope for the transformation of multiple industries. 

That much is probably true, but it is the tech and consultancy companies who will likely receive the benefits, with connectivity revenue likely to be modest.

For the operators, 5G brings more capacity much needed for hungry smartphone users, and perhaps the opportunity to transform themselves into a leaner operating model.
 

Across the EU4, pay-TV is proving resilient in the face of fast growing Netflix (with Amazon trailing), confirming the catalysts of cord-cutting in the US are not present on this side of the Atlantic. Domestic SVOD has little traction so far.

France's pay-TV market seems likely to see consolidation. Meanwhile, Germany's OTT sector is ebullient, with incumbents bringing an array of new or enhanced offers to market.

Italy has been left with a sole major pay-TV platform—Sky—following Mediaset's withdrawal, while Spain's providers, by and large, are enjoying continued growth in subscriptions driven by converged bundles and discounts.

TalkTalk is delivering on its subscriber and revenue growth targets but is straining to get there. Price rises such as a £4 ‘TV access fee’ look increasingly risky

Whilst migrating to discounted high-speed helps to deliver top-line growth, margins are c. 40% lower; an unwelcome dent to already negative cashflow and stressed leverage

Both TalkTalk’s focus on revenue growth in a tight market and fibre rollout plans look increasingly unaffordable; a more modest ambition of stable revenues might allow a healthier business model to unfold
 

In this presentation we show our analysis of revenue growth trends for mobile operators in the top five European markets (UK, Germany, France, Italy and Spain). The historical analysis is based on the published results of the operators, although they include our estimates where their data is inconsistent or not complete. A copy of the underlying data in spreadsheet format is available to our subscription clients on request

The UK residential communications sector again had a strong quarter for revenue growth, with reported growth from the top four operators at 5%, or around 4% excluding the one-off impact of extra BT Sport related revenues

Unfortunately cost growth was even stronger, with margins dropping at three of the four largest operators. The aggressive launch of BT Sport has driven up content costs, marketing costs or both for all of the operators

The main issue going forward will continue to be actual and potential disruption relating to BT Sport. Content and marketing costs have likely been set at a new higher level, with further increases possible up to and following mid-2015, when the next Premier League auction is due and BT takes over the Champions League rights

TalkTalk maintained recent momentum despite increased competition in the quarter, delivering 5k broadband net adds and 167k pay TV net adds, although increased churn required higher marketing spend to achieve this

TalkTalk restructured its pricing towards the end of the quarter, increasing certain prices, introducing a lower cost broadband option and bringing pay TV to its (now) mid-tier plan; the net impact appears as if it will be positive

TalkTalk is fairly well insulated from the ongoing BT/Sky battle, with little enthusiasm for sports content within its base, and pricing that is already very competitive, but extra marketing costs may still weigh going forward

The Vivendi empire is shrinking in revenues, cash flow and also in debt: Activision Blizzard and Maroc Télécom were sold in 2013, SFR will be spun off

We expect SFR’s topline revenue decline to halt in H1 2014, ending the pain from the disruptive launch of Free Mobile in 2012. With SFR and Bouygues Telecom intending to conclude a network-sharing agreement outside urban areas by the end of 2013, SFR should have a more positive story to tell investors when it comes to the Paris stock market in late 2014

With SFR spun off, Vivendi 3.0 will own just Canal+, Universal Music Group (UMG) and GVT (telecoms operator in Brazil), three companies without visible synergies. The end point appears to be the full dissolution of the Vivendi conglomerate