This report looks at the UK broadband and telephony market up to Q2 2009. The key trend is that the steep reduction in UK broadband net additions continued in Q2 2009, to 176,100

Fiscal FY 2009 closed on a very strong note, with record Sky+ HD additions contributing to Q4 net growth of 124,000, the highest Q4 increase since 2003, and opening up the opportunity for a large increase in TV operating margins after absorption of the initial subscriber acquisition costs

In assessing the medium-term outlook, the Ofcom pay-TV investigation appears unlikely to have a material impact on Sky earnings, even if Ofcom pushes through its premium wholesale proposals, while the advertising downturn may work to Sky’s benefit in developing its competitive strengths in programme origination outside sports

Results for the telecoms business again displayed strong volume growth in a difficult market. The business has now turned EBITDA-positive and is expected to generate a quarterly operating profit during FY 2011. However, original guidance for IRR remains challenging

Ofcom’s recent statement on LLU pricing has increased the amount which BT Openreach can charge unbundlers for full LLU over the next two years by about 8% overall

We estimate the changes will raise BT group EBITDA by less than 1% over the two years to March 2011

TalkTalk Group’s recent retail price increase is more than enough to offset the impact of Ofcom’s ruling on its annual EBITDA to March 2010, but the ruling could still take 5% off annual EBITDA to March 2011

Sky has yet to start mass migration to MPF and is more exposed to increases in the price of ancillary services, but less exposed to those for MPF rental. Sky’s annual residential telecoms EBITDA to March 2011 could be 10% lower, but this could be reduced if management takes the opportunity to increase the price of retail line rental

Another strong quarter of pay-TV subscriber growth, marked by record Sky+ HD sales, indicated continued resistance to recessionary pressures, supported by flat costs other than those associated with accelerated HD take-up

Results for the telecoms business again displayed strong volume growth in an increasingly difficult market. But original guidance for broadband subscribers, breakeven and standalone IRR looks challenging

Although the recession may yet take its toll on subscriber growth, the final outcome could work to Sky’s advantage due to the severe revenue losses being experienced by the free-to-air advertising sector. Constraints imposed by regulatory intervention remain a possibility, but unlikely to make a material difference over the next two to three years

UK broadband subscriber growth continued to decline in Q4 2008 year-on-year. We expect declining growth throughout 2009, with the growth rate remaining positive, but in single figures

Strong Q2 results announced on Wednesday 28th January 2009 provided no evidence of negative impact so far due to the current recession

Sky+ HD looks set to provide a major growth opportunity, especially with the Sky+ HD box prices now dropping to £49. That and another record quarter for Sky+ take-up strengthens the view that Sky will meet its target of 10 million pay-TV subscribers by the end of 2010 with room to spare

Fixed line results again displayed relatively strong subscriber growth in an increasingly difficult market, but the operating loss excluding Easynet continued to deepen. Original standalone IRR guidance for fixed line looks unlikely to be met without further price increases