Sky plc, the coming together of BSkyB, Sky Deutschland and Sky Italia, has enjoyed an excellent start, as adjusted H1 2015 figures delivered a 5% increase in revenues versus a 3% increase in costs, resulting in EBITDA growth of 7% and with free cash flow up by 25%

The strong financial results were accompanied by strong subscriber growth figures, especially in the operations covering Austria, Germany, Ireland and the UK, while all markets showed large reductions in churn, reinforcing confidence in the strategic approach of Sky plc

It is too early to assess Sky’s delivery of its target group synergies. Individually, the former BSkyB and Sky Deutschland markets may be showing much stronger subscriber and product growth, but they also look to be more exposed to risk over football rights, while Sky Italia has more going for it than may appear at first sight

Customer movement between operators shows susceptibility to dynamism in branding; O2 are picking up the majority of EE churners as customers move to the new “cool brand” while EE pull in Vodafone churners tempted by the new “best network”. O2 have the lowest churn though the lion’s share move to Vodafone and H3G churners are more evenly picked up by the other three

Customer perceptions of own operator network quality are high among the big 3 with no less than 75% of customers reporting theirs is the best network. O2 is the best regarded while H3G is the least best regarded highlighting a stark contrast between the (prospective) merging parties

Consumers report little interest in quad play and indeed operators in the both fixed and mobile markets have publicly confirmed the same from other market research. However the arrival of converged players in the form of a merged BT/EE or Vodafone re-entering the fixed space will see operators seeking to change this

The posited deal merging H3G and O2 would create a new largest UK mobile operator with 40% market share, with massive synergy benefits available from cutting overlapping network and operations costs

Regulatory hurdles would be very significant, and the remedies required may well counteract the benefits of reduced network operator competition, as they will be designed to do

For Vodafone and EE, the impact will be mixed; a potentially aggressive competitor is removed, but their preferred positioning as being the best mobile networks is under threat

On Wednesday Orange announced a simple new single tariff range for all its new contract users. Although there are some benefits to both consumers and Orange of tariff simplification, the main impact appears to be to increase the price of calls for off-peak users, which is a sensible strategy for Orange and consistent with other tariff increases we have seen recently. Orange may lose customers because of this, but it has helpfully given four weeks warning of the change to the other operators, who may react with changes of their own.

Weak economic growth is usually blamed, but we believe that other forms of communication are substituting for fixed voice calls. Substitution of fixed line calls by calls from mobile phones is increasingly less important. By contrast, our conclusion is that Internet-based communication (email and instant messaging) has recently become a far more important source of competition to fixed line voice calls.

This note discusses the likely obstacles to a successful launch of H3G UK, the most aggressive 3G new entrant in Europe. Our main points:

What does this mean for the media industry? Does the increasing power of media buyers mean further downward pressure on rate cards? We suspect that many of the effects have already been felt, particularly in the European and US TV businesses. In fact, we see a different issue emerging: the explosion in advertising inventory in the last few years, which has resulted in a worldwide glut. This has coincided with what we think may be a permanent reduction in the absolute number of advertisers. As a result, media buyers will continue to obtain better terms, whether in buying as part of a large group or not, but media price deflation may be a feature of the industry for many years to come.