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.

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.

CPW’s European handset business had a steady quarter, with growth dipping slightly on the previous quarter but still in line with full year guidance. Smartphone sales are surging, and CPW is orientating its business towards them, but their impact is not unambiguously positive in Europe

The US handset business continued to enjoy strong growth, with this side of their business benefitting strongly from smartphone growth, and this outperformance led the company to increase its full year EBIT guidance

The UK ‘big box’ roll-out is continuing, but no sales figures or indications have been given, and the full year operating loss guidance has been increased, eating up some (but not all) of the outperformance from the US. There appears to still be much experimentation involved at this stage, and even more uncertainty about the eventual success or failure of this new business

CPW saw growing revenue but falling volume in its core European handset retail business, as contract handset growth outperformed prepay

We believe that this is in line with a slightly subdued market, with consumer confidence quite weak across a number of European countries

CPW’s US business did much better, growing at 30%, and it is this strength that leaves us confident in the group’s ability to have a strong full year

Subject to BBC Trust approval, Canvas looks almost certain to launch in spring 2011 after the OFT decided that it did not have the jurisdiction to review Canvas under the merger provisions of the Enterprise Act 2002. The OFT decision does not rule out complaints on other grounds, but the chances of persuading the regulators look very small

The launch of Canvas promises to strengthen significantly the free-to-air digital terrestrial platform, otherwise very limited compared with satellite and cable platforms in terms of bandwidth, but mass adoption poses numerous challenges and it is open to question whether Canvas will ever extend to more than half the DTT base

In the long term, it is hard not to see Canvas as an interim step in the growing convergence between the TV screen and the internet, raising the question of how successfully its PSB TV-centric approach can adapt to the coming challenges of the full blown digital age

TTG’s indicative full year financial results were solid, but were flattered by the acquisition of Tiscali UK in July 2009

Subscriber growth at TalkTalk is exceptionally strong thanks to effective marketing and a strong proposition, if somewhat at the expense of the acquired businesses

Guidance for the new financial year looks undemanding given additional uplift from Tiscali UK; further underlying progress will depend crucially on continuing strong growth at TalkTalk and old fashioned operating leverage based on a single set of platforms, rather than new developments such as high speed broadband or TV

CPW grew its core European mobile handset distribution business in underlying like-for-like revenue terms by 3% in the March quarter, and its profits grew by 18% in the 2009/10 year, although connection volumes and actual revenue fell during the quarter

Growth is improving with the recovery, but not dramatically, as its strong competitive performance during the recession is unwinding to some extent. Nonetheless, 2010/11 should see continued improvement, with handset trends still generally going in CPW’s direction

The company is currently more than covering the start-up losses at its ‘big box’ consumer electronics business in the UK through steady growth at CPW Europe and dramatic growth in the US, and should continue to do so in 2010/11. However, thereafter there is far more uncertainty, as the big box business will have to start trading well to prevent accelerating losses, and we have no visibility over its prospects as yet