Sky maintained strong revenue growth of 5% in 2017/18, with EBITDA and operating profit both bouncing back into strong positive territory after the UK Premier League rights hit of 2016/17

The UK grew revenue well and profits better; Italy performed well and should improve much further given the retreat of its principal competitor; Germany is more challenged, but extra content investment may aid sustained growth

Sky is proving adept at managing content costs and revenue in a changing environment, with investment, cost control and monetisation all being put to effective use as the content type demands it

Many European telecoms operators are pursuing a fixed/mobile convergence strategy on the pretext that the addition of mobile reduces churn. We see no evidence of churn reduction from this strategy

Discounts required to encourage take-up of fixed/mobile services are often value-destructive, even before competitor reaction: a 10% bundle discount necessitates a 2ppt improvement in churn to wash its face economically. M&A premia on the basis of convergence synergies raise the hurdle even higher

Most UK operators offer very limited discounts on fixed/mobile bundles for now, sensibly focusing on enhanced services. Vodafone is the most aggressive, albeit less so than it is elsewhere. All UK players should hope that it stays this way

UK residential communications market revenue growth strengthened in Q1, but this was entirely driven by an overlapping price increase from BT, and the decline in market volume growth continues

Continued pressure on both subscriber volume growth and ARPU has led to diverging strategies, with most operators focused on sustaining ARPU, but TalkTalk chasing volumes at the low end, with the former approach currently proving more successful

Looking forward, the benefit of BT’s price rise will fall away completely next quarter and market revenue growth will likely resume its downward trend, but the nadir may be within sight if the flight to quality persists at most operators

BT has emphasised ‘convergence’ in its new Consumer strategy, but it has avoided most of the usual fixed-mobile convergence mistakes, with separate brands, minimal discounting and only slightly flawed converged products

The general strategy is to improve customer service to improve market share trends (particularly in broadband), enable premium products/positioning, and allow for cross-selling of a strong set of converged (in a broader sense) products, which is very sensible in our view

It does require extra spending in the short-term to improve customer service and the perception thereof (particularly in broadband) before premium positioning and cross-selling can be effective, therefore improved trends at the bottom line may take some time to come through

 

BT Group met expectations for the 2017/18 financial year, but future guidance is very modest compared to previous performance and financial market expectations, with 2018/19 revenue and EBITDA both guided to decline by around 2% with capex rising

In our view, this weakened outlook is primarily driven by the ongoing slowdown and increasing competitiveness of the UK broadband market, with operating metrics at BT Consumer particularly weak

BT’s re-vamped strategy looks good in parts, and could deliver the incremental improvements necessary to outperform the new (much more modest) expectations, helped by existing – and likely continued – strength in mobile

Sky posted yet another set of solid results, with revenues up 5% and operating profits up 10%, despite weakening operating metrics in Germany & Austria

Deals with Netflix and Spotify will enhance the customer experience, signalling Sky's confidence in its platform, perhaps a sign of further deals to come

A successful outcome from February’s Premier League auction sealed the prospect of a takeover battle for Sky, with Comcast launching its formal bid this week

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

 

Sky H1 results were very solid, maintaining 5% revenue growth and 10% EBITDA growth, with Sky continuing to support a widening product portfolio and more expensive core products with strong cost control and execution

Subscriber volume growth was a little weak at the margin, but this will be helped by all-IP products expanding the economically addressable base in new, and existing, markets 

There remain questions on content, with the outlook for premium football rights uncertain in the UK and Italy, and investment in Originals questionable given a mixed track record, but certainly with upside

 

BT Group revenue growth held steady at -1.5% during the quarter, but this was helped by some recovery in the (still declining) Global Services division, with weaknesses appearing in a number of other areas

BT Consumer is of particular concern, with revenue growth turning negative as a result of declining volumes and weak ARPU growth, which are driven by industry-wide trends that are hard for BT to avoid

Looking forward, the March quarter will be flattered by an overlapping price rise at BT Consumer, but thereafter pressures will resume, with few obvious sources of upside on the horizon