VMO2’s Q3 results were mixed, with underlying revenue and EBITDA slightly improving (but still negative), subscriber momentum slightly improved, but customer service issues still apparent.

The company’s broadband momentum is clearly being significantly curtailed by altnet gains (and Openreach overbuild), with substantial network expansion resulting in anaemic subscriber growth.

A return to growth in 2025 certainly looks possible, but it will depend on customer service issues being resolved, and industry consolidation going VMO2’s way. 

The CMA's provisional findings on the Vodafone/Three merger reiterate its concerns around the impact on the retail and wholesale market but its previous issues regarding mobile towers sharing with BT/EE have been satisfied 

Crucially, the CMA seems somewhat dismissive of structural remedies, although hasn't ruled them out entirely. Remedies sought in the form of network and pricing commitments seem somewhat unnecessary, but nonetheless workable 

We now expect the Vodafone Three merger to gain approval in December, with remedy detail negotiated over the coming months—a very significant positive development for the sector 

Service revenue growth dropped off by 2.7ppts this quarter, and into negative territory, as operators in all markets suffered weaker growth
 

Operators in France and the UK implemented price increases this quarter but re-contracting absorbed any positive revenue impact. In Italy, regulatory intervention thwarted operator plans to raise prices
 

Increasing competitive intensity in France and Germany comes at a time when operators can ill-afford ARPU dilution and high churn
 

SpaceX and its Starlink satellite network have made headlines dangling a vision of free emergency service coverage direct to all mobile devices, undoubtedly connected to its ongoing battles for FCC approval.

Starlink is the clear leader in the D2D space and almost certainly will be the first to launch its service. AST Space Mobile, backed by various mobile operators (including Vodafone) is lagging significantly behind, having not yet launched any commercial satellites.

The UK is however a relatively unfavourable geography for D2D, due to its high latitude and relative density, and we don't expect any launch of commercial service in the UK by Starlink or AST Space Mobile before 2026.

Service revenue growth dropped off by 5ppts this quarter to -1% as lower in-contract price rises hit.

The outlook for 2025 is marginally brighter than it was last quarter as new price-increase regulations raise the average in-contract price increase for customers.

The CMA is set to deliver its preliminary findings on the Vodafone/Three merger in September. If it is not approved, we expect both parties to significantly change their strategies to be viable in the UK market.

Handset sales by UK mobile operators have been weak for some time as customers keep their phones for longer due to affordability issues, slowing technological advances, and the spread of longer handset contracts.

Though margins on handset sales are often slim, their erratic nature can lead to big EBITDA hits—we estimate that the recent 20% declines at VMO2 and Vodafone have had a 6-9ppt impact on EBITDA.

The operators have an opportunity to improve their fortunes in the refurbished handset market where take-up is low, but both consumer interest and margin potential is high.

We forecast broadcaster viewing share to drop to 52% in 2030 (from 58% in 2023), with the firming of its on demand viewing unable to balance out the decline of live: this is a slight improvement on our past estimates, with decline slowing.

SVOD viewing will begin to plateau in 2025, as video sharing platforms (YouTube, TikTok, Twitch) take an increasing share of engagement.

On the TV set, YouTube will grow strongly: we predict a 90% increase from 2023 to 2030. This is from a low base with broadcasters retaining 70% of viewing on the main screen in 2030

VMO2 survived the hammer blow of lower inflation-linked mobile price increases in Q2 with substantially unchanged revenue and EBITDA growth, helped by improving broadband ARPU

However, both mobile contract and broadband subs suffered declines, likely driven by issues with serving existing customers as well as attracting new ones, and these trends have to improve for the company to return to top and bottom line growth

Guidance implies that EBITDA growth will worsen in H2, but this would be good news in our view if it is driven by expenditure to support improved subscriber growth across broadband and mobile 

Service revenue growth was broadly flat at 1.7% as improvements in Germany offset weaknesses in Italy.

The impact of price increases has been mixed, with subscriber losses dulling their upside, and the mixed picture looks set to continue into Q2.

The market continues to be challenging with elevated competition at the low end, pressure from some regulators to increase network coverage, and a somewhat soft EBITDA outlook.

AI integration into production tools throughout media industries will deliver increased productivity for professional content creation. Generally available tools will also improve quality and production speed for individual user-creators.

Roadblocks include the uncertain copyright status of models and their outputs, attitudes of creative workers and consumers, and the AI tech underdelivering versus what was promised. The need to integrate new tools into existing processes is perhaps the biggest brake.

There are stark differences by sector: the opportunities are greatest in games, where costs have ballooned and software engineering is core. Marketing is furthest in exploiting AI, while audiovisual production is more cautious.