France Télécom’s Orange TV premium strategy presents an interesting example of diversification into low cost ‘light’ pay-TV offers by an incumbent telecoms operator. Orange Sport and Orange Cinéma Séries are offered exclusively to Orange's 2.55 million TV subscribers, and five quarters after launch, adoption is 20%. This report draws several lessons on this type of venture for other incumbent operators
Vodafone Europe’s service revenue growth declined again in the September quarter to -4.6%, but on an underlying basis it improved, and volume growth also improved, suggesting that improving economic fundamentals are starting to feed through
Margins again fell, with the net benefit of the cost reduction program a long way from compensating for revenue declines, but overhead costs are at least dropping in absolute terms
We are optimistic that revenue growth can continue recovering in Europe, implying a still-depressed 2009/10 but a much better 2010/11, with positive revenue growth in 2010/11 a real possibility, and that the company could stabilise margins if it sticks to cost reduction plans, and resists the temptation to ‘reinvest’ in ‘strategic’ initiatives
Vodafone has launched a suite of internet services, platforms and handsets under the ‘Vodafone 360’ umbrella brand
Our views are mixed: we applaud the contacts back-up service that will be available across a wide range of handsets, provided it proves user friendly, but are puzzled by the point of a Vodafone-designed user interface built onto a fairly obscure smartphone operating system
Overall, if Vodafone 360 can stimulate data usage amongst low- to mid-end handset users, Vodafone would profit in both revenue and loyalty terms, but competing at the high end with the likes of Apple, RIM and Google strikes us as both needless and futile
H3G’s H1 2009 results showed some improvement on revenue growth and profitability on a very weak H2 2008, but it is still growing very slowly while barely EBITDA positive
The company has at last admitted that it will not be EBIT positive in 2009, and without some major changes we doubt it ever will be
For the UK business, there are a number of factors which may turn in its favour over the coming two years, allowing a more concerted marketing push to scale; for Italy and the smaller European operation, consolidation appears the only answer
Vodafone’s European revenue growth continued to slide, down to -4.4% in the June quarter from -3.3% last quarter, which itself was a sharp drop
A substantial element of this quarter’s decline was driven by an acceleration in termination rate cuts in Germany, but the general trend is weak volumes driven by a weak economy
With a substantial termination rate cut in the UK taken from 1st July, we expect growth to decline again in the September quarter, before stabilising/improving for the rest of the year
This report contains the 2009 edition of our annual review of UK mobile user trends, based on a survey of 1,000 adults
We look at handset ownership, replacement trends, handset manufacturer choice, network operator choice, 3G handset ownership, usage of existing services such as photo-messaging and the mobile internet and, finally, interest in new services such as mobile TV, datacardsand femtocells
Vodafone (and others) are reported to be interested in acquiring T-Mobile in the UK, but any such merger would be likely to face significant barriers from regulatory authorities
This achievement would be moderated by ‘integration leakage’, i.e. increased churn caused by customers leaving who were initially attracted by an aspect of one of the operators that disappears after integration, but the net result should still be positive for the JV
The remaining UK operators will benefit both from this churn and the reduction in competitive intensity associated with five players dropping to four. While all the operators may win, UK consumers might lose, with regulatory clearance thus still far from certain
Vodafone’s European revenue growth dipped sharply in the March 2009 quarter to -3.3% from -1.4% in the previous quarter, due to a combination of recessionary impact and continuing underperformance of the market
EBITDA margins also declined by 2ppts, with falling handset subsidies more than compensated for by a sharp rise in general operating expenses, despite cost cutting efforts
Implied guidance for Vodafone Europe in 2009/10 of an organic 4-5% drop in revenue and 2ppt dip in EBITDA margin is bleak but realistic, with even these figures at risk if either the economy does not start to recover or the company cannot keep general operating expenses flat
H3G group’s H2 2008 results showed a 5% decline in revenue on a constant currency basis and a return to strongly negative underlying EBITDA, with a margin of -17% in H2 2008 and -8% for the year as a whole, versus a margin of -1% in 2007
The UK performed reasonably well, with 11% revenue growth and improving margins, albeit still being cashflow negative, but Italy suffered from an 18% revenue decline and falling margins
The company’s target of positive EBIT in 2009 looks very unlikely without contributions from some major accounting adjustments, and the consolidation move in Australia looks likely to be repeated elsewhere
Ofcom’s statement on Next Generation Access (NGA) gives BT the maximum possible incentive to invest by allowing a high degree of pricing freedom and some short cuts to reduce implementation costs
But Ofcom cannot guarantee that BT will make a return from NGA, only the existence of an opportunity to make one
Ofcom’s statement is certainly positive for BT, but we remain sceptical of the business case for BT NGA, particularly given the low price of all-copper based offers and Virgin Media’s roll-out of 50 Mbit/s broadband