Service revenue declines stabilised at -7% this quarter with a myriad of factors at play: roaming worsening, the end of lockdown taking some pressure off, B2B a mixed bag, and the annualisation of cuts to intra-EU calls.

Ofcom’s second 5G auction will be a focus in January. We expect selective bidding, proceeds of up to £2.7bn, and some wrangling over spectrum trading.

The outlook is better from here as the drag from roaming eases, in-contract price rises step up from the spring, Carphone Warehouse diminishes as a factor in the market, and the prospect of consolidation is still on the table.

With a lack of live sport, the lockdown weighed on incumbent pay-TV platforms’ subscriptions. SVOD providers leveraged their cheap positioning—Netflix and Amazon Prime Video now rank above other subscription services in Europe, and Disney+ had a successful launch.

Incumbents—Sky, Canal+, Movistar+—all pursue a twin-track strategy. They are positioning themselves as gatekeepers thanks to service bundles, while redirecting resources away from sports towards original series.

European productions are increasingly garnering audiences outside of their home markets, regardless of the production language. Netflix is a major conduit for European exports, due to personalisation of the interface and high-quality dubbing.

Investors warmly welcomed WMG's IPO of non-voting shares in March, valuing the company at $12.8bn, a 388% increase in the company's valuation since Len Blavatnik acquired it in 2011

Investors are placing a bet on music streaming. WMG's strength in the US market due to R&B and Hip-hop in its catalogue allowed it to outperform UMG and Sony on recorded music over 2015-19, an advantage that will dissipate when growth shifts to emerging markets

COVID-19 impacts explains WMG’s 6% decline in recorded music revenues for calendar Q2 2020, despite an 8% rise in digital revenue, as revenues from physical sales (vinyl and CD) sank, and also those from artist services due to the halted 2020 live music season

EE has announced the ending of its relationship with Carphone Warehouse, hot on the heels of a similar announcement from O2 a few months ago and the recent closure of Carphone Warehouse high-street stores.

Representing less than a third of the market gross adds, Carphone Warehouse is going to struggle to be viewed as a true comparison distribution channel. Its future probably lies elsewhere.

The closure of Carphone Warehouse stores, and now the diminished appeal of its website/off-high street stores, is positive for the operators.

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.
 

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.

There is a belief in some quarters that there is space for a myriad of large SVOD services in the UK. We question whether there is room for more than the current three pacesetters; Netflix, Amazon and NOW TV

Like the UK, the US market is dominated by three services, and there is evidence of an appetite for further offerings. But the US market is conspicuously different to the UK's, with the forces behind cord-cutting in the States less apparent this side of the Atlantic

Potential domestic UK services would struggle to compete with the resources—supported by debt-funded and loss-leading models—that foreign tech giants can marshal

The Public Service Broadcasters (PSBs) have been mulling a possible SVOD service, a decade after their ad-supported Project Kangaroo was blocked on competition grounds

Even if a reboot between the BBC and ITV were this time to be approved, we do not think Kangaroo 2 can succeed as a significant SVOD entrant in its home turf of the UK, above all because it’s too late

Other flaws in the offer are that it would be too small, non-premium, too old (archive), and too old (viewing profile), plus lacking sufficient financial resource to produce a pipeline of unique series

The Public Service Broadcasters (PSBs) are in the process of sliding from TV dominance to middling contenders, in terms of content expenditure and significance to viewers

There are calls from many sides that the PSBs need to collaborate in order to thrive, in an era when global debt-funded SVOD services are making all the running

This note explores what can realistically be achieved by PSB collaboration; where partnerships work best; and the areas best avoided