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

In this short presentation we show our analysis of trends in UK broadband and telephony to December 2010, based on the published results of the major service providers. We include our own estimates where reported data is incomplete. This quarter’s edition includes a look at Ofcom’s recent research into broadband speeds and its response to the Advertising Standards Authority’s review of broadband advertising.

The BBC Trust has given its provisional approval to the BBC Executive’s proposals for Project Canvas, the JV between the BBC and five partners that aims to enable DTT homes with broadband connections to access IPTV content on their TV sets

Canvas promises to enrich greatly the DTT platform; however, it is likely to encounter fierce opposition during the coming consultation from equipment manufacturers and the pay-TV platform operators, Sky and Virgin Media, especially in relation to its attempts to prescribe the user experience (UX)

We think that the BBC Trust will give its final approval, subject to the conditions specified in its provisional statement, but further delays seem likely and we do not expect Canvas devices to appear in the shops before 2011

The BBC Executive has fleshed out many details of Project Canvas in response to questions raised by the BBC Trust: Canvas being the proposed joint venture between the BBC, BT, ITV and Five that aims to solve the challenge of realising the seamless convergence of linear broadcast TV and internet video to the TV screen in the living room

For Project Canvas to succeed, it is likely, in spite of its merits, to have to address competition concerns in the areas of company structure, stifling innovation and editorial controls over who gets to participate

Stifling innovation – whether to do with creative restrictions, marginalisation of competing players or undue prominence given to the traditional public service broadcasting (PSB) model – appears the most problematic issue facing Project Canvas, whose success will depend on its ability to convince the rest of the industry that it is stimulating, not stifling innovation

Project Canvas is the BBC/ITV/BT backed proposal for next generation Freeview and Freesat services that embraces IPTV reception, new EPG, home storage and HDTV applications

Setting up Canvas as a not-for-profit consortium and making it non-exclusive to content providers should avoid the competition issues which killed Kangaroo, but many questions remain and technical and regulatory delays could push back the launch to 2011

We do not expect Canvas to make a major difference to non-linear viewing of audiovisual content – its importance lies much more in future-proofing the ‘Free TV’ viewing experience on the terrestrial and satellite platforms

The essential conclusion of Ofcom’s Second Public Service Broadcasting Review is that the present commercial PSB model is unsustainable in the digital age. The Ofcom solution of fixing on Channel 4 as the “alternative, commercial PSB voice”, while freeing up the Channel 3 and 5 licensees from most of their PSB obligations, still leaves a major funding gap

A particularly attractive solution is some kind of synergy-generating merger/JV/partnership, but difficult to achieve in practice. The attached note examines the main issues that we may expect to arise with the existing proposals

Kangaroo – the proposed BBC Worldwide/ITV/Channel 4 video-on-demand (VOD) service – has been terminated by the Competition Commission (CC) due to fears that it could control the wholesale and retail supply of UK TV VOD

In our view the CC decision is a lucky escape for all three shareholders since it will save them from investing potentially tens of millions in an ill-advised venture which could have become a bottomless money pit when they can least afford it

Near term ITV and Channel 4 will refocus their internet strategies around their own portals and online syndication deals, but these are unlikely to deliver significant revenue; Marquee – the BBC’s proposition to open up iPlayer to other PSB broadcasters – could help, with the advantage of being very low cost