European mobile service revenue growth strengthened very slightly to -0.3% this quarter but, with many positive and negative factors at play, it would be wrong to conclude that we evidenced a convincing improvement in momentum.

Most operators have reiterated their financial guidance in spite of COVID-19 but there is caution from Vodafone and those exposed to sports rights (BT and Telefonica).

The outlook benefits from continued lockdown measures (reducing churn and spin-down) and the annualisation of some financial drags from the middle of next quarter. However, competition in Spain remains intense and the sector is exposed to any economic downturn.

Virgin Media’s Q1 financial performance was in line with its subdued outlook, with its key problem being a lack of demand (yet) for the ultrafast services that only it can widely provide.

CV-19 has delayed the marketing of ultrafast services from competitors, likely suppressing demand more generally; in the longer term however, the working-from-home experience will likely help drive adoption.

Virgin Media still has to solve the problem of alleviating the long-term threat of full fibre builds negating its network advantage; we believe that the best answer is to expand to a nationwide service via wholesale, and the merger with the nationwide O2 reinforces this.

Sky posted understandably weak results for Q1, amid the ongoing COVID-19 crisis. Revenue fell by 3.7% year-on-year, with most sports subscriptions on pause and advertising markets in shock

The company has guided to a 60% fall in EBITDA over the next two quarters, as it bears the extra costs of a very condensed sporting schedule, but much will depend on what level of rebate it negotiates from the rightsowners for the disruption

On screen, Sky faces similar production issues to other broadcasters, but it has continued to enhance its platform gatekeeper role and strong content offering, most recently by integrating Disney+

The press has reported on an imminent merger of O2 and Virgin Media (UK). This is not likely to be driven by the pursuit of revenue synergies as dis-synergies are more likely if the brands are merged.

Cost synergies are real, albeit a bit tangential. However, in a mature market even modest synergies are worth pursuing.

A full regulatory review may be required but approval is likely. Market impact is somewhat nuanced, with the benefit of a distracted competitor short-term and a larger but still rational operator ultimately.

European mobile service revenue growth improved by 1ppt to -1.2% primarily as a consequence of diminished competitive intensity in France. Trends elsewhere were largely flat.

The mobile sector is playing an important role in tackling COVID-19 and is likely to be relatively resilient in the short term with a broadly neutral financial impact. Longer term it will be exposed to the fortunes of the economy.

There are reasons to believe that the improvement in trends evidenced in the last quarter may continue as churn reduction takes the heat out of some markets, cuts to intra-EU calls annualises out and for most countries, end-of-contract notifications will only begin to impact in 2021.

 

At the Enders/Deloitte Media & Telecoms 2020 and Beyond conference the economic and policy importance of telecoms infrastructure was a major theme, particularly in the current climate.

Operators envisage a pricing environment that will continue to be very challenging.

Help is required to secure infrastructure investment, deliver the economic upside from 5G, and level the playing field between sub-sectors.

Market revenue growth dipped to below zero in Q4 2019, as pricing pressures bite and smaller players gather share.

2020 is off to a challenging start, with new customer pricing dipping down again, and existing customer pricing under regulatory assault.

With expensive full fibre networks being built, persuading consumers to pay more for the higher speeds they enable will be key.

Virgin Media’s subscriber base fell again in Q4, although strong ARPU growth allowed a slight acceleration in cable revenue growth to 1.8%, and a deceleration in OCF decline to 1%.

Liberty Global group OCF guidance of mid-single digit decline in 2020 is likely to be mirrored at Virgin Media, as regulatory pressure and market competitiveness continue to bite, and mass-market demand for ultrafast remains nascent.

We continue to believe that the best way for Virgin Media to capitalise on full fibre rollouts is to use a wholesale deal with Openreach to expand its footprint to (eventually) nationwide.

Despite two decades of online disruption, the UK remains reliant on traditional platforms and brands across the media sector more so for older cohorts, but also for younger generations

13% of adults still do not use the internet and, in reality, an online only media ecosystem remains a distant prospect

Traditional providers, particularly within TV, radio and news, look set to endure for the long term , aided by the trajectory of the UK’s ageing population

Despite operating in a challenging market, Sky has continued to increase revenues, with the resilient performance of its direct-to-consumer and content businesses offsetting the disappointing drop in advertising income.

Across FY 2019, EBITDA was up 12.2%; profit growth driven by a significant reduction in “other” costs as large one-off effects disappear and cost-cutting continues.

Extended distribution deals with Netflix and WarnerMedia will protect Sky’s content proposition for the coming future, as would the mooted integration of Disney+.