The UK mobile market suffered its worst performance in six years this quarter as competition heated up and regulation continued to bite

Vodafone’s unlimited tariffs have proven popular, reaching 5% of its contract base in one quarter, helping to drive its outperformance

Some reprieve is in prospect next quarter, before the impact of out-of-contract notifications and automatic discounts from February, although there is the possibility of pre-emptive moves bringing some of the effects forward 
 

Mobile sector returns are low, particularly for smaller-scale operators, with H3G earning less than its cost of capital. Regulatory initiatives, spectrum auctions and 5G look set to worsen this picture as H3G strives to gain viable scale

Back-book pricing is crucial to the returns of fixed challengers. Regulatory intervention is likely to lead to a waterbed effect in the fixed sector and exacerbate challenges in mobile

New entrant business case in full fibre is limited to de facto monopoly opportunities. There is the potential for BT’s returns to increase markedly if it gets full fibre right but new entrants’ inferior economics are unlikely to offer sufficient investor appeal

The UK mobile market posted its slowest growth in more than two years this quarter; just 0.5% service revenue growth although net adds were strong and churn was down

ARPU is under considerable pressure thanks to regulation limiting out-of-bundle spend which will exacerbate as the year progresses

Several other negative developments look set to be layered on the pressures this quarter, including a step-up in competitive intensity as 5G launches –  with H3G’s pricing of unlimited data a sign of a resurgence in its aggression

Sky made a surprisingly weak start to 2019, with revenue growth decelerating to 1.9% (the first time below 4% since the European businesses merged in 2015), due to weaker ARPU trends.

However, Sky expects improvement to follow, blaming one-off factors in the quarter. The ARPU weakness drove EBITDA down 11.3%, but this should bounce back across the rest of 2019 as football rights costs turn from a drag to a positive.

Comcast highlighted collaborations with Sky across tech, advertising, content distribution and even news, stating it is on track to achieve the anticipated $500 million in annual synergies over the next couple of years.

The combination of 5G, AI, IoT and big data were evangelised at MWC as generating massive scope for the transformation of multiple industries. 

That much is probably true, but it is the tech and consultancy companies who will likely receive the benefits, with connectivity revenue likely to be modest.

For the operators, 5G brings more capacity much needed for hungry smartphone users, and perhaps the opportunity to transform themselves into a leaner operating model.
 

Once on the winning side of strategic French telecoms price wars thanks to a struggling SFR, Iliad now looks wounded, and a possible prey, suffering from declining fixed and mobile KPIs – we expect cash flow losses of €617 million this year

Broadband, in a capex-heavy migration to higher margin fibre, may stabilise revenue with (somewhat) differentiating new ‘Freeboxes’ bundled with Netflix. Mobile (€2.3 billion burned since launch) hopes rest on on-net transition fostering profitability, but the 5G capex race looms

The new Italian mobile venture is explicitly and surprisingly behind the French legacy: it is already delivering a worse performance, and carrying much higher outlays (after 5G auctions spiralled). We believe Iliad has to revamp its model in France and consider differentiation with content to escape the discount brand trap
 

The rights auction for France’s Ligue 1 will be held on 29 May. With Altice’s struggling subsidiary SFR unlikely to bid, Canal+ and BeIN Sports may not offer enough to meet reserve prices, triggering a postponement of the auction

In Spain, stiff fixed-line competition is shifting battlegrounds from football to scripted content. The Champions League has yet to sign up a platform for next season, while the upcoming 2019-22 La Liga rights auction may well fail to increase domestic revenues

With just 12 weeks before next season kicks off, Italy’s Serie A is also yet to secure a broadcaster, although we expect the league to back down and settle with Sky. In this deflationary environment, top clubs are eyeing a new Club Word Cup as an extra revenue stream – running the risk of further widening the financial chasm between themselves and smaller clubs

The UK mobile market is growing strongly – we estimate revenues by 5% and EBITDA by 8% in 2017 – excluding one-off regulatory drags and the loss of non-profit-generating handset revenue

Regulatory price cuts end in mid-2018, and the handset effect will disappear from all reported figures from April 2018, leaving scope for very positive headline growth next year – considerably better than its European comparators and the sluggish UK fixed market

The outlook for the UK mobile industry is the best it has been in a decade, with significant growth in data demand, price increases, some supply constraints, rational competition, and major regulatory drags rapidly fading