Fixed line revenue growth continued to decline excluding the impact of Tiscali UK, but at a manageable rate, and profitability continued to improve strongly. TalkTalk Group is performing well in the run-up to demerger, and management is sounding very confident. But there are some clouds on the horizon, not least the relaunch of Tesco Telecom

Sky+ HD is now manifestly the centre point of a three-pronged operational strategy that focuses on driving customer growth, selling more products into the customer base and seeking efficiencies in fixed costs

Sky 3D, due for residential launch in H2 2010, fits in well with the core Sky+ HD proposition and the satellite operator looks well placed to combat growing retail competition from other platforms, assuming Ofcom implements its wholesale pay-TV proposals for Sky premium subscription films and sports some time in spring 2010

At TalkTalk Group (TTG) net broadband additions at TalkTalk/AOL UK were unexpectedly strong, with low cannibalisation of Tiscali subscribers particularly good news

At the newly acquired Tiscali UK, the inevitable skeletons are starting to emerge from their cupboards. Management appears well prepared for the challenges, although it is early days

Carphone Warehouse’s distribution business grew connections at 2.1% during the quarter, another very creditable performance in a declining market, and it remains well positioned for the market recovery

H3G’s H1 2009 results showed some improvement on revenue growth and profitability on a very weak H2 2008, but it is still growing very slowly while barely EBITDA positive

The company has at last admitted that it will not be EBIT positive in 2009, and without some major changes we doubt it ever will be

For the UK business, there are a number of factors which may turn in its favour over the coming two years, allowing a more concerted marketing push to scale; for Italy and the smaller European operation, consolidation appears the only answer

The distribution business experienced modest growth in connections and revenue, easily outpacing European market handset growth of -15%, as the company continues to build market share

At TalkTalk Group (TTG) net broadband additions for the quarter were relatively strong, given likely market growth, probably due at least in part to reduced subscriber loss at AOL UK

In our view cut-price business broadband, rather than IPTV, offers the best prospect of profitable revenue growth in fixed line

Carphone Warehouse’s distribution business had a slightly mixed year, with strong volumes and revenue mitigated by a sharp drop in margins and profit, with margin being sacrificed for market share

Given the very poor recession-hit market for handsets, Carphone Warehouse’s market share gains have been dramatic, so the sacrifice was at least not in vain

Although TalkTalk Group missed much of its guidance to March 2009, we now view new guidance as achievable, with the main risks related to the integration of Tiscali UK

Carphone Warehouse’s acquisition of Tiscali UK makes TalkTalk Group the second largest UK ISP and the largest in terms of residential broadband subscribers, just as market growth begins to stall

The company’s synergy target looks readily achievable, although integration challenges are significant and could make the acquired customer base difficult to stabilise

Nonetheless, TalkTalk Group now seems set to dominate the ‘value’ end of the UK residential telecoms market

In fixed line, net broadband additions for the quarter were strong at TalkTalk given a tough market, but remained firmly negative at AOL UK

We are sceptical of new guidance for fixed line for the year to March 2010, but still expect reasonable performance, given the slowdown in broadband market growth

The distribution business continued to defy the consumer downturn in volume terms, with 12% connections growth and a solid outlook for next year, although the pain is being felt at the margin level

UK broadband subscriber growth continued to decline in Q4 2008 year-on-year. We expect declining growth throughout 2009, with the growth rate remaining positive, but in single figures

H3G group’s H2 2008 results showed a 5% decline in revenue on a constant currency basis and a return to strongly negative underlying EBITDA, with a margin of -17% in H2 2008 and -8% for the year as a whole, versus a margin of -1% in 2007

The UK performed reasonably well, with 11% revenue growth and improving margins, albeit still being cashflow negative, but Italy suffered from an 18% revenue decline and falling margins

The company’s target of positive EBIT in 2009 looks very unlikely without contributions from some major accounting adjustments, and the consolidation move in Australia looks likely to be repeated elsewhere

The planned merger of Vodafone and H3G in Australia has raised the question of what consolidation could occur in Europe, although a direct analogy is not appropriate because Vodafone is much weaker in Australia (#3 operator) than it is in the larger European countries, and so would face much more regulatory scrutiny in Europe

The only merger opportunities in the top five markets which would have a similar or lower theoretical impact on competition (and hence would theoretically be as easily approved) in the top five European countries would be T-Mobile and H3G in the UK, Wind and H3G in Italy, and any operator with Yoigo in Spain

There are massive cost savings to be had from in-market consolidation, with network, marketing and general administration costs all fully overlapping between operators. The non-merging players would also enjoy a period of less competitive intensity, which may last indefinitely