Service revenue growth was up just 0.1ppts to 2.0% this quarter, as price rises in the UK and the peak of the roaming boost offset weakness elsewhere.

Price increases to combat inflationary cost pressures are gathering momentum—a potential revenue cushion as roaming tailwinds diminish and challenging economic conditions weigh.

Vodafone is battling strategic issues in most of its main markets—significant change in strategy will be required from the new leadership.
 

Market revenue growth of 2% in Q3 was slightly lower than the previous quarter, but remained firmly positive at least.

The dual impacts of slowing broadband volume growth and consumer price sensitivity will likely hit volumes and ARPU even harder over the tough winter to come.

Inflation-linked price increases will give some operators a boost next year, but their very high levels (c.15%) will be hard to manage during a cost-of-living squeeze.

With major studios arguably over-indexed on SVOD, the stickier experiences of interactive entertainment and the metaverse will eventually form a critical pillar of studio D2C strategy, boosting subscription services and tying in closely with consumer products and theme parks.

Disney’s appointment of a Chief Metaverse Officer is good first step, demonstrating a strategic interest in the space. But other major studios remain cautious and distracted, with limited capability beyond licensing to engage in the metaverse for the next 24 months and possibly longer.

Meta will need to provide a strong guiding hand creatively and technically to ensure its new partnership with NBCUniversal is a success, and to evangelise the metaverse and its revenue model across the Hollywood studio content space.

Whether to allow a Vodafone/H3G merger is essentially a trade-off between range of consumer choice and costs of network duplication. With the need for the former diminishing and the latter increasing, the case for approval is strengthened.

H3G is in a negative spiral of small scale, low investment, and low returns. A merger would allow it to form part of a more credible competitor with a transformed returns profile—without rising prices or reduced industry investment levels.

The CMA’s aversion to mergers has been very stringent of late—an approach that risks deterring investment and compromising competitiveness. Consolidation in UK mobile is unlikely to happen without a change of mindset.

European mobile service revenue growth increased by 1ppt to +1.6% this quarter, with this improvement largely driven by higher-than-inflation price increases in the UK.

The outlook for Q3 is mixed with an increased roaming boost expected, but the B2B sector will remain challenging and the impact of the rollout of out-of-contract notifications in EU countries will mount.

There are signs of some upward pricing movement beyond the UK, particularly in Spain as the operators seek to cushion the blow of rising costs and inevitable economic pressure.

Meta suffered its first year-on-year revenue decline in Q2, as long-standing challenges crystalise and an economic slowdown in the US dents display ad spend. 

In response, Meta is retooling its products to neutralise threats from post-social competitors like TikTok, and trying to minimise the impact of data restrictions. 

The long-term pivot to the metaverse is Zuckerberg's next big bet, but funding it depends on core business strength. 

Market revenue growth continued to accelerate in Q2 to reach 3%, but broadband growth worryingly dipped as the lockdown boost waned.

Differing pricing dynamics (among other factors) led to very different outcomes for the main players, with BT’s growth surging to 7% while VMO2’s revenue stayed in decline.

Underlying trends of weakening broadband growth, keener pricing and customer bargain seeking point to slower growth ahead … until the next price increase.

YouTube’s tepid quarter signals a two-track online ad economy with advertisers protecting search spend as an essential cost of sales while cutting online display.

YouTube faces a challenge to strengthen its brand and direct response ad products while sacrificing some income to Shorts, its answer to competition from TikTok, which we estimate added three times as much ad revenue as YouTube in H1.

Beyond the short term, brands need to generate new demand, and that cannot be accomplished at the bottom of the funnel.

Press reports suggest that VMO2 is in the early stages of negotiating a deal to buy TalkTalk, which has reportedly been for sale since April.

There is strong industrial logic to the deal, with a sub-brand useful and significant synergies from moving the TalkTalk base to VMO2’s network, with the latter gain at Openreach’s expense.

The main hurdle for the deal would be regulatory clearance, with there being major issues for the CMA—from a range of angles—for such a large in-market merger.

With the cost-of-living crisis expected to worsen over the coming months, the telecoms operators must walk a fine line—support customers but protect their financial performance in the face of a likely recession and rising costs.

We are likely to see weakness on the B2B side and consumers will look for ways to reduce out-of-bundle spend, seek retention discounts and spin down to lower speed tiers and data bundles, but we expect that dropping services completely will hold limited appeal.

Proactive retention activity and promotional pricing is likely to pay off more than slashing headline prices, and will help to avoid a damaging price war—a far bigger risk to their revenues than spin-down.