Vodafone Europe’s service revenue growth dipped by 1ppt in the March 2011 quarter, but nearly all of this was due to regulated MTR cuts, with its competitive performance actually improving again
The combined Europe and common cost EBITDA margin was actually held flat in H2 10/11 on H2 09/10, aided by some heroic (and, frankly, uncharacteristic) cost cutting efforts, with Vodafone’s cost profligacy days apparently behind it
The outlook for next quarter is poor due to the UK MTR cut, but we then expect revenue growth to steadily improve for the rest of the year, with smartphone-driven data growth a help rather than a hindrance
Sky’s revamped model has delivered a sharp reduction in churn and higher gross additions, accelerating subscriber growth. Rising high definition take-up is sustaining the increase in average revenue per user
Business prospects are improving on stronger private consumption and a carriage deal for HD versions of German commercial channels
Our forecasts have been revised upwards and we now expect faster improvement in cash flow, though it will still be negative in 2013
CPW Europe had a difficult quarter, with volumes falling 9% and like-for-like revenue 2%, due to continued prepay weakness and the shift to 24 month contracts in the UK
The US business was again very strong, growing volumes at 26%, and this strength is likely to continue due to an acceleration in store roll outs
Keeping the European business flat in 2011/12 will be a challenge, but the US business is likely to more than make up for this at the group level
H3G Europe improved its revenue growth and margins in 2010, albeit not by as much as its headline figures claimed. It is currently growing at 5% with EBIT at around breakeven
Given that its parent company is likely to want to keep EBIT positive, it is likely to be constrained on future investment in subscriber growth, limiting its potential going forward
The UK was particularly strong, with dramatically improved contract subscriber growth, and margins improving despite this, driven by the completion of the T-Mobile network share implementation helping margins and the smartphone revolution playing to the company’s 3G network strengths
Ofcom is proposing to design the 800MHz and 2.6GHz spectrum auctions to ensure that the UK mobile market remains at four players, through a complex set of rules largely designed to help H3G get the spectrum it needs to remain competitive
However, the sting in the tale is that Ofcom expects H3G to pay around £600m for this spectrum, which it may not want to do, and it is not clear what the backup plan would then be
We expect the general theme of regulators seeking to protect a fourth player to repeat across Europe and across regulatory areas, especially as the US market may consolidate towards three with AT&T’s proposed takeover of T-Mobile USA
European mobile revenue growth improved very slightly in Q4 2010, up by 0.1ppt in reported and 0.2ppts in underlying terms, but remained negative
While the improvement is welcome, growth remains very subdued compared to pre-recession levels, especially in Italy and Spain, which continue to lag the growth of the UK, Germany and France
The outlook for mobile revenue growth is bleak, with severe MTR cuts in Germany and the UK likely to drive growth down again over the next six months
Vodafone Europe’s revenue growth was broadly flat in the December quarter at 0.2%, but MTR cuts in Germany meant that underlying growth improved by 0.4ppts
Given flat economic growth in its key markets and the cold weather effect, this is a very respectable result, albeit not in line the company’s confident guidance given three months ago
With more severe MTR cuts scheduled over the coming quarters, and GDP growth forecast to not improve, revenue growth is more likely to decline than rise over the coming year
CPW’s European volume and revenue growth dropped in the December quarter, but this was largely due to the higher mix of prepay in the Christmas period, with underlying trends (strong contract, weak prepay) unchanged
US volume growth surged to 34% as the company continued to roll out standalone stores in malls and shopping centres, and there appears to be plenty of growth to come
Looking forward, the UK business is likely to suffer from the longer handset contracts that have been rolled out by the UK mobile operators over the last two years, but continued strength in the US is likely to more than make up for this
This report looks at the prospects for mobile operators. It focuses on the UK, and Vodafone in particular, because of the high quality of data available to analysts. We think the main conclusions apply widely across European operators.
It is well placed to weather any downturn, though its dependence on recruitment advertising continues to concern outside observers.