The digital transition is almost complete in France, five years after the launch of DTT. After undergoing an audience share decline, TF1's share is stabilising. In contrast, M6 improved its audience share during the transition. Both groups are likely to remain dominant in the FTA TV market, thanks to the partial withdrawal of public TV from advertising sales

The advertising recovery in 2010 was strong. Thanks to its diversification, M6 is less exposed to the cycle than TF1, which is rebounding more strongly. M6 is also structurally more profitable

Pay-TV platform growth has stalled, with subscription decline at Canal+ somewhat balanced by growth of low cost packages of IPTV providers. Canal+ will benefit from the withdrawal of Orange from premium TV and a new distribution deal with Orange. Combined with the roll out of new set-tops with PVRs, we are moderately optimistic on Canal+ prospects

In this short presentation we show our analysis of trends in UK broadband and telephony to September 2010, based on the published results of the major service providers and Ofcom telephony data. We include our own estimates where reported data is incomplete. This quarter’s edition includes a revision to some historical trends resulting from our own interpretation of BT’s recent adjustment to the volume of unbundled lines.

Highlights in the quarter included exceptionally strong growth in broadband net additions at Sky and the resumption of the long term rate of decline in broadband market growth by volume.

European mobile revenue growth improved by 0.8ppts in Q3 to reach -0.3%, but all of this improvement and more was due to easing regulatory pressures, with underlying growth actually declining marginally

GDP growth continues to improve year-on-year, but in the current low confidence environment underlying mobile revenue growth is not (yet) responding. Smartphone sales are surging, but their net impact on revenue is hard to discern

Looking forward, the regulatory impact is likely to turn negative again for the next few quarters, so some underlying growth catch-up is required for revenue growth to stay at around zero

TalkTalk Group (TTG) revenue growth for the six months to September was flat on a like-for-like basis; broadband net additions were affected by heavy churn among former Tiscali customers as the migration process got under way

Guidance for broadband net adds to March has been reduced by two thirds, but the prospect of improved efficiency from migrations and strong ARPU growth has enabled financial guidance for the full year to be maintained

Management has laid out ambitious plans to improve performance further by cutting costs. The plans look feasible, but controlling churn will be a long haul

Vivendi is close to being in a cash position to buy out minority shareholdings in SFR and Canal+, shedding the image of a ‘conglomerate’ of partly owned and diverse assets, which has weighed on valuation Acquiring Vodafone’s 44% stake in SFR (now only a question of price) would allow Vivendi to rebrand itself as a telecoms story, serving France, with Maroc Télécom and mainly Brazil’s GVT supplying the upside To fully acquire Canal+, Vivendi’s offer will need to consider Lagardère’s option of floating its 20% stake. Owning 100% of Canal+ and SFR opens the narrative of a ‘French media/telecoms champion’ – which we find less credible

VMed’s Q3 results showed continuing strength in the face of heavy marketing by BT Retail and BSkyB, although cable churn increased significantly

There are plenty of further challenges on the horizon, including a downturn in consumer confidence and later, the launch of YouView and wider deployment by BT of next generation access

The broad based nature of the company’s growth and its plans for further product development in TV and broadband continue to give us confidence in the potential for further growth in cash flow, albeit at a more modest pace

Ofcom’s decision not to investigate Project Canvas under the Competition Act removes one more regulatory obstacle to the launch of the broadband connected TV service with the brand name YouView

It looks increasingly as if the YouView launch will experience further delay, with autumn 2011 looking steadily more likely as disputes continue over the satisfactoriness of the technical specifications released by YouView for meeting manufacturer needs

Although backed by powerful broadcast and ISP interests, YouView faces stiff challenges to achieving widespread adoption among ‘Freeverse’ homes, with much depending on YouView’s ability both to deliver consistent product quality and to get its message across

The decline in UK residential broadband market growth has paused due to accelerating adoption by older householders and increased household formation. We expect 970,000 net additions in 2010 and 20.5 million broadband households by 2015. However we expect growth will continue to decline from 2011 as the impact of the government spending review feeds into consumer confidence and the market becomes increasingly saturated

As BT’s next generation access network is deployed, there is likely to be accelerated improvement in DSL price/performance, with DSL customers migrating to a 40 Mbit/s headline speed as it becomes available. The impact of this is likely to be compounded by Virgin Media up-rating its broadband portfolio from speeds of 10, 20 and 50 Mbit/s to 20, 50 and 100 Mbit/s

In the absence of further consolidation, in market share terms the industry appears set to remain divided into three strategic segments: the ‘big three’, brand extenders, and Sky. We expect residential broadband market revenue (excluding content) to continue to decline gradually, stabilising by 2015 as the impact of market share gain by lower priced ISPs attenuates due to a combination of a maturing market and reduced price differentials caused by NGA

 

Everything Everywhere’s maiden investor day presentation was soured by the disappointing results it reported for Q2 2010, with service revenue growth underperforming its UK competitors by 7 percentage points. At current relative growth rates, O2 will retake its lead by June 2011

The synergy savings targets have been maintained, but focused more towards back office functions and away from front line assets such as shops and network base station sites, with the brands being kept separate for the time being. This is a sensible enough approach, and the cost savings still look eminently achievable

Going forward, the company will have the advantage of a better network but the disadvantage of disruptive integration for the next few years. Its main challenge will be to reverse the current negative revenue momentum, which puts both its revenue and margin targets at risk

 

Late entrant Bouygues Telecom is gaining broadband market share via the quad play. Orange and SFR have now also launched quad plays, but Iliad’s mobile offers will be ready only in 2012

Iliad hopes to use its new Freebox to energise recruitment around new IPTV services in Q4 2010. SFR will also launch a new box

Led by a likely VAT hike for triple play bundled IPTV services in 2011, triple play pricing is set to rise after many years, from €30 to €35/month. FTTH upgrades in urban areas will be gaining visibility this winter