VMO2 had a tough start to a tough year in Q1, with revenue growth dipping to -4% and EBITDA to -2%, and both fixed subscriber and contract mobile subscriber net adds negative.

Trends are unlikely to improve in the short term, with the fixed side suffering from full fibre overbuild and the mobile side struggling to replace its formerly unique Custom Plan offers.

There are however longer term upsides on fixed in particular, with network and service upgrades bringing sub-brand and wholesaling opportunities, and the company is striving to get the magic back on mobile.

Direct greenhouse gas emissions from the UK telecoms sector equate to around 0.1-0.3% of the UK total. Most operators have set targets to reach net zero across their direct emissions in the next 10-20 years, with the move to electric vehicles an obvious win.

Network upgrades to 5G and fibre have the potential to cut emissions from electricity by a factor of 10, and consolidation offers further decarbonisation upside.

The industry could enable emissions savings in other sectors equivalent up to 30x its own by averting the need to travel and through IoT applications, with the latter requiring careful commercial assessment given the financial constraints in the industry.

While altnets continued their strong expansion in 2023, a slowdown in 2024 is looking very likely, with financing drying up due to tougher financial conditions and disappointing operating performances from some.

Consolidation is the obvious answer, and the altnets could consolidate into a pure wholesaler (via CityFibre), a retail/wholesale player, or could be absorbed into VMO2/nexfibre.

Which of these routes is taken, and how quickly, will have a profound impact on the structure of the industry, and all players should be careful what they wish for, with long-term outcomes hard to reliably predict in such a complex marketplace.

VMO2 ended 2023 with strong ARPU and EBITDA growth, meeting its (revised) guidance for the full year, but saw receding subscriber momentum across both fixed and mobile.

2024 will be much tougher across the industry and for VMO2 in particular, with its revenue expected to be flat at best, and waning boosts from price rises and synergies coupled with a series of technical factors shrinking EBITDA.

The company has promised new commercial initiatives in 2024, and thereafter we see strong potential in it maximizing the use of its network and retail arms via breaking the long-standing lock between them, although the formation of NetCo is neither a necessary nor sufficient step for this.

According to press reports, VMO2 is in early stage discussions over buying TalkTalk’s consumer retail broadband business, but not its wholesale business, which may leave the latter in limbo.

There is strong industrial logic to the deal, with a sub-brand useful, and significant synergies from moving the TalkTalk base to VMO2’s network, with the latter gain at Openreach’s expense.

There would be major regulatory hurdles for the deal, with concerns on both a retail and wholesale level, and particularly the future of the altnets, with any deal likely having to protect this.

Germany’s RTL+ streaming platform has been revamped into an 'all-in-one' bundle of content including premium sports, music and audiobooks.

RTL wants to leverage its FTA reach to build an online subscription base large enough to influence the future shape of German TV.

To sustain subscriber growth we argue that RTL will need to release defining content and explore partnerships beyond its current deals with telcos.

Vodafone’s Q3 results were slightly disappointing following the green shoots of Q2, with growth in Germany slipping back again, albeit some of it already flagged.

It is difficult to imagine the full year results event being a positive catalyst with the likelihood of a dividend cut, a recognition of the hard-currency reality of the financials, and a still challenging outlook for FY 2024/25.

Deal-making is a positive counter with a highly accretive deal still in the offing in Italy, and the prospect of execution in Spain and the UK. Various inorganic deals with 1&1, Microsoft and Accenture will also be helpful, although none of them as valuable as an improvement in the core operations.

Cost-of-living pressures and tougher fixed competition drove VMO2’s revenues (just) back into negative territory this quarter.

Synergy benefits, however, delivered impressive EBITDA growth (+5%) with more to come as the Virgin Mobile MVNO shifts on-network next quarter.

We struggle to foresee convergence becoming the company’s next growth driver as trailed by the CEO, but the mobile outlook is fairly robust and there are steps that can be taken to shore up the pressurised fixed business.

The pandemic years boosted many businesses selling services on subscription in the UK: work-from-home gave people more time and money to widen the services they enjoyed in the home, such as gaming, entertainment and music, also boosting engagement with trusted news

The cost-of-living crisis dented the number of subscribers to OTT SVOD and news services in Q2 2022. Broadband and mobile are must-have; bundles of services (e.g. Sky’s pay-TV and broadband or mobile) are more resilient; yearly and multi-year contracts prevent churn relative to monthly contracts; and services that cater to passions (e.g. football) are always need-to-have

Subscription (or supporter) media and news services reaped the demand for trusted news through the pandemic, but now face a tough challenge to their toplines from the economic downturn—and also to transition to a sustainable business model for media audiences, while advertisers are also feeling the heat

With the cost-of-living crisis expected to worsen over the coming months, the telecoms operators must walk a fine line—support customers but protect their financial performance in the face of a likely recession and rising costs.

We are likely to see weakness on the B2B side and consumers will look for ways to reduce out-of-bundle spend, seek retention discounts and spin down to lower speed tiers and data bundles, but we expect that dropping services completely will hold limited appeal.

Proactive retention activity and promotional pricing is likely to pay off more than slashing headline prices, and will help to avoid a damaging price war—a far bigger risk to their revenues than spin-down.