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
The UK and international businesses (now ‘Worldwide’ and ‘CWI’) are both continuing to perform well, despite weak revenue growth, thanks to strong cost control. Worldwide is now generating cash organically for the first time in memory
Performance at the newly-acquired Thus has been slightly below expectations, mostly due to increased customer churn. The sale of the ‘mid-market’ part of the business is a possibility
The market was disappointed by guidance for the new financial year. In our view it is both acceptable and achievable
Iliad, now France’s number two broadband provider, will increase total revenues by 10% per year by 2012, mainly by growing its subscriber base (rather than ARPU) in a market however rapidly reaching maturity
Excluding mobile, the EBITDA margin could rise by five percentage points to 40% in 2012, but a mobile launch in 2011 would pare the margin down to 32%
Funding both the fibre-to-the-home and the mobile network capex commitments could compress Iliad’s cumulative cash flow to just €168 million during 2009-2012, thus requiring new financing or a minority partner in the mobile venture
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
In Q4 2008 Iliad added 100,000 subscribers in a slowing French broadband market
A restructured 4th 3G licence call for tender is now expected in March, with a cost of €206 million for a 2x5MHz spectrum block, which Iliad is expected to bid for
We remain sceptical that Iliad will earn a return from this, with the 3G-only business model challenging even with a reduced licence cost and restricted network rollout
Ending a simmering commercial dispute, Vivendi’s Canal+ has agreed to distribute its packages to France Télécom’s Orange TV satellite customers, allowing Orange to relaunch its DTH platform (targeting 4 million customers off the DSL TV footprint) after its dismal ‘do-it-alone’ first six months
Canal+ recruitments will benefit from the resumption of active marketing for its packages over Orange TV platforms, after a poor year for subscriber growth
Canal+ catch-up TV will now be available to all Orange Canal+ DSL TV subscribers, as it is to those on Free, where it is very popular, plus Orange satellite subscribers, thus giving Orange back the leadership position on IPTV in France