The capacity boost with 5G will be more important than any speed or latency uplift. We estimate a 7-fold increase in mobile capacity in the UK and 13x+ for O2 and H3G

We view fixed mobile substitution products as quite niche although the number of mobile-only households is likely to creep up. mmWave would have the capacity to substitute for fixed but has many hurdles to overcome

Capacity-constraints have tempered competition of late and their removal risks an increase in intensity, especially as H3G views itself as sub-scale – good for policy makers but another challenge to add to the industry’s woes
 

Google’s Stadia promises the most credible game streaming service yet, but building a subscription bundle of top titles would require an all-out bet in the sector

Google is building its own game studios – to win over others it must overcome a troubled history in gaming, mitigating risks to developer business models and creative integrity

Games are much more technically demanding to stream than video, presenting an advantage to Google, Microsoft and Amazon – and a boost to telecoms network demand, welcomed by operators

European mobile service revenue growth dropped to -1.3% – its lowest level in three years – particularly disappointing as growth should be bouncing back post-EU roaming tariff cuts

Having enjoyed relatively favourable dynamics in 2018, the UK and Germany are facing marked changes in momentum from here

Regulation limiting intra-EU call prices could hit hard – up to 6% of revenues and 20% of EBITDA in the UK, although other EU countries may be less exposed due to lower tariffs currently

Following record growth last quarter, the UK mobile market took a step down to just 0.9% growth in the quarter to December on the back of increasing pressure in the business market and the impact of out-of-bundle limits

2019 looks set to be a tough year for the sector with: a series of potentially painful regulatory hits; markedly lower price rises than last year; and early signs of a degree of creeping competitive intensity

We view 5G as a much-needed means of expanding capacity in the sector with upsides from M2M and IoT likely to remain relatively small

The combination of 5G, AI, IoT and big data were evangelised at MWC as generating massive scope for the transformation of multiple industries. 

That much is probably true, but it is the tech and consultancy companies who will likely receive the benefits, with connectivity revenue likely to be modest.

For the operators, 5G brings more capacity much needed for hungry smartphone users, and perhaps the opportunity to transform themselves into a leaner operating model.
 

Addressable linear TV advertising, where precision-targeted ads overlay default linear ads, could enhance the TV proposition for advertisers, agencies and viewers, benefiting all broadcasters

In the context of dwindling linear viewing and rocketing online video ad spends, the adoption of Sky AdSmart and similar services on YouView and Freeview could take addressable TV ads from a sideshow to a pillar of revenue

Addressable linear is a bigger and more strategic prize for broadcasters than BVOD ads. Sky holds the key to wider adoption of its AdSmart platform if it can find a way – or a price – to bring ITV Sales and/or 4 Sales on board 

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Amazon’s recent deals with Apple in TV, music and device sales mark a turning point after a decade of frosty relations

The context for this involves shifting priorities at both firms, growing pressure on Apple’s iPhone business, and rivals in common — first and foremost Google, but also the likes of Netflix and Spotify

The uneasy alliance helps both companies consolidate their strengths in the platform competition over media and the connected home — but trouble already brews

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

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

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