The sector was hit harder than expected by COVID-19 with a 5ppt deterioration in service revenue trends and operators are now sounding a more cautious note.

H3G bucked the trend with improving service revenues thanks to lower exposure to COVID-related impacts and a shift towards indirect distribution—a change in strategy since the end of 2019.

The outlook is better for next quarter as some drags weaken due to the easing of lockdown.  The business market remains particularly vulnerable however as the furlough scheme ends and economic weakness takes hold.

Fortnite has been kicked from mobile app stores over the ‘App Store tax’, the 30% cut that Google and Apple charge for in-app purchases.

Apple needs Fortnite to keep the iPhone attractive, but it also needs its revenue cut, as services have become a key part of its growth story to investors.

Apple can no longer set its ecosystem rules without regard for partners, as apps like Fortnite, Amazon and WeChat are so central to the utility of a smartphone.

Premium sports subscriptions are the primary sector weakness in the current crisis, and they look set to drive fixed operator revenues down 10% next quarter and Sky’s EBITDA down by 60%.

As lockdown eases, latent broadband demand can be more easily sated, and sports subscriptions will bounce back from the September quarter. A surge in working-from-home is likely to increase both the quantity and quality of home broadband demand, with ‘failover’ mobile backup also likely to be of greater interest.

Openreach will benefit from accelerated demand for full fibre, converged operators will be best-placed to offer mobile backup for broadband, and operators with a strong corporate presence will most easily target demand for home-working products.

Apple’s developer conference coincided with a period of unprecedented tension with its developer community, parts of which are chafing under Apple’s rules for the iPhone App Store.

These rules let Apple extract a large portion of the value of the App Store. This revenue is more important than ever to Apple’s growth story, so it has been applying its rules more strictly.

Apple is constrained here by the need to deliver the best product possible to its users, and by the possibility of regulatory intervention.

The slow recovery in UK mobile continued this quarter with a 1ppt improvement in service revenue trends.

In spite of operator guidance to the negative, the sector is likely to remain relatively resilient in the face of COVID-19 in the short term, with its various impacts affecting operators differently depending on their business mix.

The outlook is relatively robust with the impact of some regulatory initiatives muted by lockdown measures and the annualization of some financial drags from the middle of next quarter.

 

Demand for telecoms capacity is booming, and the networks can (broadly) cope, with the increase primarily in off-peak demand. However, as the crisis continues, maintaining resilience becomes more challenging.

In the short term, the demand for ample, reliable connectivity coupled with reduced churn will add resilience to operator financials, although there may be significant weak spots especially in business markets.

However, as the crisis goes on, the pressure on capacity and network maintenance may grow, and the impact of the dramatic economic slowdown on consumers and businesses will also put pressure on financials.

The UK mobile market was steady this quarter at around -2% ahead of out-of-contract notifications hitting from February.

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.

Elsewhere, there have been green shoots of positivity in the outlook: some good regulatory news; a degree of price inflation; Carphone Warehouse’s retreat is a positive for the operators, and some financial drags will drop out as the year progresses.

Dixons Carphone (DC) has announced the closure of all of its standalone Carphone Warehouse stores, distributing solely through its Currys PC World stores and online going forward.

Several industry trends have led to these difficulties and DC is pivoting its strategy to better position itself for the new reality.

This move is likely to be a positive one for the mobile operators, especially H3G.

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.

2020 promises a year of transition for the games industry: eSports and games broadcasting are competing with traditional programming; game streaming services are becoming meaningful platform competition; and new consoles are on the way.

While most in the studio and TV industries continue to struggle with the games market—neither understanding (or seeing) a strategic fit, nor showing a willingness to invest—expect explosive growth to power the industry for the next decade and transform all entertainment services, not just games.

The ‘free-to-play’ games sector requires oversight and regulation to protect children and the vulnerable; expect regulatory turbulence in the UK, Europe and China.