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.

O2’s merger with Virgin Media seems more of a marriage of convenience than a determined pursuit of synergy benefits. With the owners effectively selling their stakes, the combination will be well-advised to exercise caution in any convergence strategy that they pursue.

O2’s results this quarter appear to be fairly decent with all metrics ticking up slightly, although caution is advised in interpretation and pressure on ARPU has not eased.

With the mobile sector reasonably well insulated from COVID-19 and O2 likely to fare better than most in out-of-contract discounts, the short-term outlook is relatively robust, but competitive and macroeconomic vulnerabilities remain on the horizon.

The UK lockdown since mid March has boosted TV time to levels not seen since 2014, with broadcast TV and online video each growing by nearly 40

minutes/person/day

While trends vary significantly by demographic, news consumption has been a common catalyst for linear TV’s growth, benefitting the BBC above all. Although Sky News has also flourished, Sky’s portfolio has been seriously impacted by the lack of live sport

2019 extended many of the long running trends of the last decade, but, notably, online video’s growth rate appeared to slow among youngsters, in contrast to older demographics. 35-54 year olds watching more VOD will have significant implications for linear broadcasters down the line

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.

 

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+.

Comcast’s new, on-demand service, launching in April, is an attempt to break NBCU’s unsustainable dependence on sales to Netflix and other SVODs. Peacock provides a path of digital transition for advertising-funded TV with a revamped low-load, high cost-per-thousand model.

Reach will be built with a free online tier and distribution to Comcast subscribers. Peacock seeks carriage from other pay-TV operators, with which reciprocal deals would make sense (i.e. HBO Max on Comcast alongside Peacock on AT&T’s platforms).

In Europe, where Comcast has no existing major free-TV offering to transition, launching Peacock will be challenging but could present Sky with ideas to counterweigh Netflix on its own service.

European mobile market service revenue growth dropped again in Q3, by 1.9ppts to -6.2%. This was not helped by a substantial increase in the MTR impact, driven by a big cut in Italy, but underlying revenue growth still fell by 1.3ppts In stark contrast to Europe, the US mobile market continues to grow apace, with there being over 10ppts between the growth rates of the two regions. The most obvious difference between the markets is the very much higher levels of capex spent by the US incumbents, which drives their superior network quality and coverage, and hence price premia, and hence superior growth The European incumbents have not (yet) used their greater ability to spend on capex to increase the spending gap with smaller operators, with 4G launches (mostly) being low profile with low initial coverage (the UK being a notable exception to this). While this is an understandable approach given the prevailing macroeconomic conditions, it does mean that closing the growth gap with the US remains a distant prospect

2012 has been a year of two halves, with TV NAR up by 2-3% in H1, plus the feel good factor of the Diamond Jubilee and London Olympics, but down by 1-1.5% across the full year as economic conditions have worsened in H2 2013 and 2014 promise to be especially taxing times with significant downside risks due to weakness in the economy, the squeeze on consumer disposable income and beginnings of real fiscal austerity On the upside, we expect negative structural pressures, caused by increases in CI delivery and online growth, to subside and conditions to improve from 2015

The linear TV broadcast industry has kept its oligopolistic structure remarkably intact over the last 50 years against a background of much technological innovation and re-regulation, but now faces a new wave of innovation that promises growth of non-linear at the expense of linear True disruption can only occur by solving the device challenge of developing on a mass scale new, compelling and innovative ways to access content, but so far non-linear has achieved a very small share of total viewing while linear viewing levels are as high as ever Although non-linear viewing may become substantial, it is unlikely to result in fundamental change in the distribution value in the industry

Keen to reposition itself as a media conglomerate, Vivendi is considering merging SFR with private equity-owned Numericable and its B2B sister Completel, while reducing its stake in the new entity to below 50%.

Sizeable savings would come from migrating SFR’s fixed line subscribers in urban areas from Orange’s copper network to Numericable’s coax and FTTB, and from eliminating Completel’s LLU network and Numericable’s marketing spend.

In the short term, execution would be challenging and require sizeable capex. In the longer run, coax is a much cheaper alternative to investing in FTTH. The merger would put pressure on the other two altnets, Iliad and Bouygues, to consider consolidation scenarios.