European mobile service revenue growth slipped again to -2.0%; its worst performance in four years

Regulation limiting intra-EU call prices could hit hard next quarter – with the UK likely to be hardest hit by up to 6% of revenues and 20% of EBITDA

Excluding the EU-call impact, we see greatest scope for improving trends in Italy and France thanks to easier comps and diminishing competitive intensity

The UK government is now consulting on a wider TV advertising ban until 9pm for food and drink high in fat, salt and sugar (HFSS), to combat childhood obesity

TV and TV advertising are not the cause of children being overweight or obese (O+O). Policy change in this area should inform and educate parents and young children, as they have in Leeds and Amsterdam

With 64% of the UK population being O+O, obesity is a complex societal issue requiring a multifaceted approach. The evidence from existing rules, and plummeting TV viewing amongst children, says that further restrictions on TV advertising will be ineffective in curbing the rise of obesity in the UK

Vodafone’s operating performance worsened again this quarter with revenues down 3.3% and an extension of its underperformance relative to peers 

Vodafone was right to cut its dividend given the extremity of the cash constraint. With financials in Euro terms in negative territory and worsening, an elevated and progressive dividend was not sustainable 

In spite of difficult market conditions, the lower end of guidance looks achievable as comparables will become easier and football rights costs decline. The transformation programme will need to pay off fast to deliver any meaningful growth
 

Market revenue growth accelerated to 3% in Q4, but it might never reach this level again, being helped by a never-to-be-repeated BT overlapping price rise

With price rises becoming more challenging in general, and superfast pricing under pressure in particular, maintaining/increasing ARPUs is becoming more difficult despite superfast volumes surging

Openreach’s ultrafast roll-out has accelerated, challenging Virgin Media and bringing the prospect of further price premia, but perhaps too late to be of significant benefit in 2019

The average cover price of national newspapers has risen by 58% since 2010, more than twice the CPI increase of 22%. Are publishers “shooting themselves in the foot” at a time when buyers and advertisers are defecting to online?

To settle this, we analysed all the cover price events by national titles between 2010 and 2018, which reveals the relative success of The Times when it has raised its price.

For mid-market and popular titles, cover price hikes have on balance reduced circulation revenues and, by lowering reach, drained advertising revenue: a lose-lose scenario.

Vodafone’s revenue trends took another step backwards this quarter (down almost 3% on our estimates) with its strongest markets (UK and Germany) weakening unexpectedly

The reiteration of their financial guidance and commitment to cost-reduction provides some reassurance although nothing in the results provides grounds for optimism; churn is not really falling and is not correlated to convergence

With the UK mobile market delivering its strongest growth in 7 years last quarter, these results may be a precursor for a more challenging outlook with Vodafone citing pressure from business pricing and out-of-bundle limits, and the outlook for RPI-linked price increases diminishing

Our central case forecast with orderly EU withdrawal predicts 2.7% growth for total UK advertising spend, down from 4.7% in 2018. We have a no-deal Brexit scenario that predicts a smaller advertising recession than in 2009, with total ad spend declining 3% and display down 5.3% in 2019

The total advertising figures partly mask the pressure on UK consumers, through an expansion of the measured advertising spend universe. This is due to significant self-serve online advertising growth by SMEs, and non-advertising marketing budgets moving to online advertising platforms

In a downturn, we’d expect advertisers to become more tactical, which would disproportionally affect display media including TV, which is further affected by declining commercial impacts among younger adults. Search and social advertising would see only small growth through the first year of a recession

The ban on pre-9pm TV ads for HFSS (high in fat, salt or sugar) products being considered by the Government would not play a constructive or quantifiable role in reversing the UK’s rising childhood obesity rates. 

The ban on HFSS product ads since 2008 around children’s programming has not impeded the inexorable rise of childhood obesity. In 2010, Ofcom termed an HFSS watershed ban ‘disproportionate’ and ‘ineffective’. 

In 2018, a watershed ban would be even less effective. Children’s linear broadcast TV viewing is down by half since 2010, mainly to YouTube’s advantage, which benefits from light-touch HFSS regulation.
 

Vodafone’s deteriorating financial performance is as much due to an increasing margin of underperformance relative to its peers as to challenging markets such as Italy

A strategic refocus on operational performance is long overdue and seems largely sensible, save for the continued push for discount-led convergence products which are driving underperformance

Although Vodafone posted 3% organic EBITDA growth for H1 of this year and is guiding to same for the full year, we view this definition as overly flattering with true EBITDA performance flat and revenues in decline

European mobile service revenue growth was sharply lower this quarter dropping to -0.7% after two years in positive territory, owing to weakness in the southern(ish) European markets of France, Italy and Spain

Iliad has strong momentum in Italy and we expect ARPU dilution to worsen into Q3, with the subscriber loss impact also growing.  Any loss of traction for Iliad is likely to drive another round of price cuts

We expect continued north/south divergence in Q3 with the anniversary of the European roaming cuts boosting the UK and Germany in particular whilst the outlook for Southern European operators remains challenging