Vodafone and H3G have finally announced their long-trailed merger plans, with weaker-than-expected financials and the focus squarely on the superiority of a combined network.

We view the hailed synergy estimates of £700m per year as achievable but the merged entity will need to deliver other positive financial filips to get returns above its cost of capital.

The approval case for the merger is that: it makes the operators a stronger competitive force; prices won't rise; a combined network will be superior, and that the status quo is unsustainable in any case.

Mobile service revenue growth slowed again this quarter—now at +3%—as the impact of the 2022 price rises waned further, but a strong B2B performance for some compensated for consumer weakness.

Q2’s boost from bumper price rises will unwind over the following quarters as customers re-contract and face much lower increases next spring due to the inflation outlook.

Given the temporary nature of in-contract price rises, and the more permanent nature of elevated cost bases, new-customer pricing now appears to be edging upwards, and the case for consolidation is strengthened.

The Italian football league is auctioning its media rights for up to five seasons from 2024/25, with bids due by 14 June.

As in previous cycles, Sky and DAZN will probably bid below the minimum prices, which could trigger further auctions.

Plans for a league DTC service are unrealistic, and free-to-air broadcasts would be uneconomical.

On 18 May 2023, Enders Analysis co-hosted the annual Media and Telecoms 2023 & Beyond Conference with Deloitte, sponsored by Barclays, Financial Times, and Salesforce

With over 550 attendees and over 40 speakers from the TMT sector, including leading executives, policy leaders, and industry experts, the conference focused on how new technologies, regulation, and infrastructure will impact the future of the industry

This is the edited transcript of Session One, covering: the future of digital experiences, the streaming economy, and harnessing AI for good. Videos of the presentations will be available on the conference website

VMO2 had a subdued Q1, with EBITDA growth only just positive—this was pre-warned due to tougher comparables and the mid-teens price rise not due to take effect until April/May.

KPIs were mixed: fixed was fairly strong and mobile was slightly weak, with there being realistic hope that the former is a trend and the latter a blip, although more work is required to fully turn around fixed.

Guidance for mid-single-digit EBITDA growth for 2023 has been maintained. This now excludes the nexfibre construction margin benefit, thus is in a sense an upgrade, and still looks eminently achievable.

Service revenue growth was flat at 1.9% this quarter—a reasonable performance considering waning boosts from roaming and UK price rises, and a challenging macroeconomic backdrop.

Looking ahead, operators in most markets are now implementing price rises, providing a welcome (albeit transitory) tailwind to revenue growth—although EBITDA momentum remains subdued.

We expect a consolidation deal to be announced between Vodafone UK and H3G in the coming weeks and a decision from the EC on the Orange/MásMóvil deal in August—crucial issues for the sector’s prospects.

Headline inflation-busting price increases of 14% mask effective increases averaging a sub-inflation 8%, due to their limited scope across the customer base and over time.

The high headline increases have led to attacks from political and consumer groups, we would argue unfairly, and may yet drive reputational damage.

Looking forward, inflationary increases may be banned, but we would expect higher fixed increases to replace them, and micro-regulating pricing structures does tend to result in unintended consequences.

Mobile service revenue growth remained strong at 5% this quarter, albeit 1ppt lower than Q3 as boosts from roaming and the spring price rises diminished.

The cost-of-living crisis is becoming evident in weak net adds in the consumer segment while the B2B market remains quite robust for now.

Although the operators will implement in-contract price rises of 14-17% in April, the revenue impact will be much more muted (+4-9% for 2023), and transient (disappearing as customers recontract)—unlike their rising costs.

Providing home broadband connections via a mobile network (FWA) is gaining traction in certain markets where local conditions make it a viable alternative to fibre, such as New Zealand, Italy and the US.

FWA is a time-limited opportunity for most, with mobile traffic growth absorbing capacity for it and fixed traffic growth depleting the economic case. An ultimate shift to fibre is the best exit strategy.

In the UK, H3G's spare capacity could support up to 1 million FWA customers on a ten-year view—enough for a meaningful revenue fillip for H3G, but not enough to seriously disrupt the fixed market.