TalkTalk had another strong quarter for broadband net adds, adding 80k versus its full year target of 150k+. All of this was due to strong wholesale, with retail net adds slightly negative, although in the market and seasonal context even this retail performance is quite respectable

On-net revenue growth improved strongly to around 4%, with its ARPU decline moderating to 2%, and ARPU should be helped further by price increases for existing and new customers alike in July

TalkTalk therefore looks well placed to hit full year targets, albeit with considerable help from its wholesale customers and some aggressive price increases. The focus back onto ARPU and away from (expensively) chasing retail subscriber growth is nonetheless to be applauded

UK residential communications market revenue growth fell again to 1.2%, with weakening ARPU growth the main driver. New customer pricing remains flat to down, and existing customers are being increasingly discounted, fuelling the ARPU weakness

High speed broadband adoption is proceeding apace, but the high speed premium is fairly thin, muting the impact on ARPU. Regulated wholesale price cuts from Openreach finalised today and due in April 2018 will not help

Looking forward, the March quarter will benefit from price timing effects at BT and Virgin Media, but we fear that the rest of 2018 will follow the current downward trend and the operators will need to adjust to an ex-growth environment

TalkTalk sustained positive broadband net adds in the June quarter, adding 20k to its base, largely driven by reduced churn, which was largely driven by re-contracting a large proportion of existing customers onto its new cheaper bundles

Unfortunately, this had a negative effect on revenue growth, with Group revenue growth (ex-carrier) dropping to -3.2%, as the new cheaper bundle adoption diluted ARPU, but the company remains confident that revenue growth will turn positive for the full financial year as the ARPU dilution effect annualises out

The company recently announced a price rise due in August of around 5-6% for customers not on its new cheaper bundles (around 38% of its total broadband base), which will help with the ARPU turnaround, but may make maintaining positive broadband net adds more challenging

UK residential communications market revenue growth dipped 0.6ppts in Q1, from 3.3% in the previous quarter. This was mainly driven by ARPU weakness arising due to the timings of Sky and Virgin Media’s price rises, but weakness also stemmed from the sustained decline in broadband volume growth and continued new customer price competition

In competitive terms, BT and Sky suffered as a result of communicating price rises in the quarter, Virgin Media had a strong quarter if not quite as good as it was expecting, and TalkTalk manged to recover to positive retail broadband net adds at the expense of high marketing costs

BT, Liberty Global and TalkTalk issued profit warnings in the quarter, all of which were at least loosely related to increasing pressures in the consumer market. We expect these pressures – a slowing broadband market, an expanding Virgin Media, and a stabilising TalkTalk – to continue