From the depths of 2023, advertising expenditure on legacy media rose moderately in 2024, on the back of an uptick in real private consumer expenditure thanks to lower inflation and reduced costs of credit—the outlook for legacy media is about the same for 2025.

Online stands apart from legacy media due to the growth of ecommerce—driven by both goods (over 26% of retail sales) and services such as travel, as well as intense competition among platforms (Amazon, Shein, Temu)—with double-digit growth in 2024 set to continue in 2025.

Television remains the most effective medium for brand advertisers—despite the decline in viewing—with broadcasters’ digital innovation and SVOD ad tiers providing greater targeting alongside the mass broadcast reach.

Service revenue growth dropped further to -1.7% this quarter as pricing remains under pressure and in-contract price increases no longer benefit

Competition is heating up in Germany and France, and Digi is taking an aggressive stance as it enters the Portuguese and Belgian markets

While there is increasing awareness that investment levels in Europe are compromised by the current market structure, support for in-market consolidation remains lukewarm at best at the EU level

Apple is investing an additional $1.5 billion into its satellite partner Globalstar to build a new satellite network and expand its direct-to-device text and call capabilities, setting Apple up to take a sizeable piece of this emerging market

The FCC has approved Starlink's direct-to-device service, opening the path to an imminent commercial launch in the US and elsewhere, though it deferred on controversial power and interference questions

In the UK, while Ofcom will potentially approve services in the second half of 2025, we continue to expect no commercial services apart from Apple to be launched before 2026, with the UK market an imperfect fit for direct-to-device for now

Vodafone’s Q2 performance was in line with the company’s guidance on almost every metric and was always going to be a tough one given the hit from TV losses in Germany and the annualisation of price increases there

The share price reaction (-6%) is likely a reflection of fears around Vodafone’s ability to improve underlying operational performance in Germany. Whilst this remains a valid concern, there is nothing in these results to amplify our worries on the issue

Escalating competitive pressure in German mobile is, however, a threat to the company’s growth outlook, and Vodafone’s promise to be “disciplined” in its approach to it may turn out to be too conservative a strategy

UK news publishers are experimenting with generative AI to realise newsroom efficiencies. Different businesses see a different balance of risk and reward: some eager locals are already using it for newsgathering and content creation, while quality nationals hold back from reader-facing uses.

Publishers must protect the integrity of their content. Beyond hallucinations, overuse of generative AI carries the longer-term commercial and reputational risk of losing what makes a news product distinctive.

Far less certain is the role of generative AI in delivering the holy grail of higher revenues. New product offerings could be more of an opportunity for businesses that rely on subscribers than those that are ad-supported.

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.

The UK’s choice of policy for rebalancing the relationships between news publishers and tech platforms is on the agenda of the CMA’s Digital Markets Unit for 2025. The UK is expected to steer clear of the pitfalls of Canada’s news bargaining regime, which led Meta to block news, crashing referrals.

In the UK, Google’s relationships with news publishers are much deeper than referrals, including advertising and market-specific voluntary arrangements that support a robust supply of journalism, and dovetail with the industry’s focus on technology (including AI) and distribution.

The rise of generative AI has also ignited the news industry’s focus on monetising the use of its content in LLMs. AI products could threaten the prominence, usage and positive public perceptions of journalism—this might require progress in journalism’s online infrastructure, supported by public policy.

Q1 was always going to be tough for Vodafone with lower in-contract price increases a very significant drag on performance (across the sector), TV losses in Germany ramping up, and ongoing struggles to turn around broadband performance there. A deterioration in German mobile is an unwelcome addition.

Encouragingly, Vodafone continues to optimise its portfolio and is guiding to a U-shaped recovery, with Q2 particularly weak and B2B driving a better 2H.

While there are particular headwinds this year and tailwinds next which point to an improving outlook, better operational performance remains critical to the company's future, and we continue to await evidence of this.