Carphone Warehouse’s acquisition of Tiscali UK makes TalkTalk Group the second largest UK ISP and the largest in terms of residential broadband subscribers, just as market growth begins to stall

The company’s synergy target looks readily achievable, although integration challenges are significant and could make the acquired customer base difficult to stabilise

Nonetheless, TalkTalk Group now seems set to dominate the ‘value’ end of the UK residential telecoms market

In fixed line, net broadband additions for the quarter were strong at TalkTalk given a tough market, but remained firmly negative at AOL UK

We are sceptical of new guidance for fixed line for the year to March 2010, but still expect reasonable performance, given the slowdown in broadband market growth

The distribution business continued to defy the consumer downturn in volume terms, with 12% connections growth and a solid outlook for next year, although the pain is being felt at the margin level

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

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

ITV has switched from a turnaround to a survival strategy focused on preserving its core broadcast and content production business. The switch comes against a backdrop of plunging total TV NAR (net advertising revenues) due to the devastating mix of severe recession and major structural decline in the TV advertising medium

ITV plans to cut programme budgets outside regional news by £65 million in 2009 versus 2008 and rising to £135 million by 2011, raising the spectre of a downward spiral in programme budgets, audiences and NAR

We expect the eventual programme budget cuts to be at least double those already planned, given the scale of the unprecedented advertising crisis. Despite this, ITV may just squeeze through without getting sucked into the spiral, but it will be close

Project Canvas is the BBC/ITV/BT backed proposal for next generation Freeview and Freesat services that embraces IPTV reception, new EPG, home storage and HDTV applications

Setting up Canvas as a not-for-profit consortium and making it non-exclusive to content providers should avoid the competition issues which killed Kangaroo, but many questions remain and technical and regulatory delays could push back the launch to 2011

We do not expect Canvas to make a major difference to non-linear viewing of audiovisual content – its importance lies much more in future-proofing the ‘Free TV’ viewing experience on the terrestrial and satellite platforms

The planned merger of Vodafone and H3G in Australia has raised the question of what consolidation could occur in Europe, although a direct analogy is not appropriate because Vodafone is much weaker in Australia (#3 operator) than it is in the larger European countries, and so would face much more regulatory scrutiny in Europe

The only merger opportunities in the top five markets which would have a similar or lower theoretical impact on competition (and hence would theoretically be as easily approved) in the top five European countries would be T-Mobile and H3G in the UK, Wind and H3G in Italy, and any operator with Yoigo in Spain

There are massive cost savings to be had from in-market consolidation, with network, marketing and general administration costs all fully overlapping between operators. The non-merging players would also enjoy a period of less competitive intensity, which may last indefinitely

The essential conclusion of Ofcom’s Second Public Service Broadcasting Review is that the present commercial PSB model is unsustainable in the digital age. The Ofcom solution of fixing on Channel 4 as the “alternative, commercial PSB voice”, while freeing up the Channel 3 and 5 licensees from most of their PSB obligations, still leaves a major funding gap

A particularly attractive solution is some kind of synergy-generating merger/JV/partnership, but difficult to achieve in practice. The attached note examines the main issues that we may expect to arise with the existing proposals

Kangaroo – the proposed BBC Worldwide/ITV/Channel 4 video-on-demand (VOD) service – has been terminated by the Competition Commission (CC) due to fears that it could control the wholesale and retail supply of UK TV VOD

In our view the CC decision is a lucky escape for all three shareholders since it will save them from investing potentially tens of millions in an ill-advised venture which could have become a bottomless money pit when they can least afford it

Near term ITV and Channel 4 will refocus their internet strategies around their own portals and online syndication deals, but these are unlikely to deliver significant revenue; Marquee – the BBC’s proposition to open up iPlayer to other PSB broadcasters – could help, with the advantage of being very low cost

The final Ofcom statement on the future of PSB advocates fixing the commercial PSB crisis by designating Channel 4 as the core alternative provider of public service programming to the BBC, and freeing up ITV and Five commercially by means of considerably lightened PSB obligations

The fundamental issue of the Channel 4 (or any other) solution is funding the new commercial PSB model. Eyes are now being set on a Channel 4 partnership with BBC Worldwide, centred on its UK assets as the marriage made in heaven

Another major recommendation of the Ofcom PSB proposal is the abolition of the national Channel 3 breakfast time licence, currently held by GMTV, which is running a viable business with its own sales force. This recommendation appears at odds with Ofcom’s commitment to plurality in news provision and its statutory duties to encourage competition in the communications industries