In this report we show the findings of our 2012 UK mobile user survey. The report is a wide ranging analysis of the mobile market based on our consumer research, focusing on the competitive landscape among the mobile operators and smartphone manufacturers, and the changing consumer behaviour that has and will continue to impact the market
CPW’s key operating metrics worsened again in the March quarter, with connection volume growth dropping to -19% and like-for-like revenue growth dropping to -5.5%
Weakness in the UK prepay market continued to affect CPW’s results, with volumes again down 30-40%, but contract sales did not mitigate this as much as last quarter, with growth in the UK but declines in continental Europe
Prepay is not likely to improve until the end of 2012, as the volume decline annualises out and more smartphones are available at prepay price points, and contract recovery is dependent on economic recovery
Enders Analysis co-hosted its annual conference, in conjunction with BNP Paribas and Deloitte, in London on 19 January 2012. The event featured talks by 13 of the most influential figures in media and telecoms, and was chaired by Sir Peter Bazalgette. An edited transcript of notes taken during the speaker presentations follows.
The speakers were Sir Martin Sorrell (CEO, WPP), Glen Moreno (Chairman, Pearson), Martin Morgan (CEO, DMGT), David Levin (CEO, UBM), Dan Cobley (MD, Google UK & Ireland), Mike Pocock (CEO, Yell), Vittorio Colao (CEO, Vodafone), Charles Dunstone (Chairman, Carphone Warehouse, TalkTalk Group), Stephen Carter (President, Alcatel-Lucent EMEA), the Rt. Hon. Jeremy Hunt MP (Secretary of State for Culture, Olympics, Media and Sport), Neil Berkett (CEO, Virgin Media), Liv Garfield (CEO, Openreach) and Ed Richards (CEO, Ofcom).
Carphone Warehouse’s Q3 2011/12 volume and revenue was severely hit by a steep reduction in UK prepay volumes, with prepay subsidy cuts driving a drop in the UK market of as much as 40%
However, stronger volumes of higher margin contract handsets drove a small improvement in gross profit for the quarter
The unexpected prepay weakness means that Carphone Warehouse’s handset business will have roughly flat operating profit in its 2011/12 financial year at best, although given the negative external factors this would reflect a strong underlying performance
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
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