A post-Brexit recession will cause a hyper-cyclical decline in the advertising revenues of broadcasters and publishers

The Vote Leave idea of the UK joining a free trade area for goods with the EU would sever UK access to the Single Market for services, damaging the export-reliant audiovisual group, among many other sectors of strength

Made-in-the-UK IT, software and computer consultancy services will lose eligibility for government procurement tenders once the UK is an outsider to the EU

At present, Sky exclusively holds all pay-TV domestic live rights to Germany’s top football league. The 2017-2021 rights auction will conclude in early June. It contains a new soft ‘no single buyer’ clause referring solely to online rights

Sky’s real threat comes from potential bids for the main TV packages by deep-pocketed telecom or digital platforms. This could see Sky losing games and shouldering significant cost increases

We think Sky’s German operations will break even by fiscal 2017. Beyond this, profitability is heavily dependent on the auction’s outcome. If it were to retain all live rights, Sky could afford to increase Bundesliga costs by up to 40% over the four-year period. Anything beyond this would lead to Sky making losses

European mobile service revenue growth was flat at -0.8%, while underlying country movements were somewhat more dramatic. The key highlights were Italy returning to positive growth driven by pricing stability, and France showing worsening growth decline for the first time in over two years impacted by challenger telco pricing cuts

An assessment of these challenger telcos highlights a somewhat precarious position, as continued price aggression yields diminishing incremental gains, and they all remain some way from gaining the scale to achieve profitability

The only incentive for challengers to remain aggressive is as an encouragement for their competitors to buy them; increasing regulatory hurdles to consolidation would remove even this incentive, leaving price increases as their only rational route to profitability

UK mobile service revenue growth dipped down in Q4, but at least remained still just positive at 0.3%. The dip was driven by contract ARPU weakness at the largest three operators, mitigated by strong ARPU growth at the smallest operator H3G

Looking forward, the sources of weakness (growth of SIM-only and tariff policy adjustments) look more temporary than the sources of growth (data volume growth filling up capacity). SIM-only is likely to hit a natural ceiling, whereas data volume growth has no ceiling in sight and the scope for network capacity expansion is limited

With CK Hutchison currently negotiating with the European Commission in regards to the fate of the H3G and O2 merger, there is a high level of uncertainty on the future of the structure of the UK mobile market. Merging the two networks would generate extra capacity and capability, likely increasing competitive intensity, but the precise form this would take is unclear, as is the future of the brands and the identity of the capacity MVNO recipient(s)

Vodafone Europe’s service revenue growth continued its trend of gradual improvement, helped by solid contract net adds and sustained high data traffic growth, and is now almost stable

Project Spring network metrics performed strongly in the quarter, and there is some evidence of this translating into better operating performance in Italy, which enjoyed positive mobile service revenue growth for the first time since 2010

Problems remain for the company in its other key mobile markets however, all of which remain in decline. Although these issues may prove temporary, and Project Spring may yet offer them a boost, further pressure is on the horizon due to competitor consolidation and associated regulatory remedies

Vodafone Live represents an attempt to claw back some of the initiative from handset manufacturers, and to offer product and services that add to revenue. We look at the early evidence from the UK about the design of this package, its consumer appeal and the likely impact on ARPU. Vodafone is launching this new campaign with a Java-enabled camera phone from Sharp. It is putting tens of millions of pounds behind Live, apparently targeting the product at young urban males, a demographic group that has become very loyal to Nokia. The first phone is attractive and well featured, but we question whether it is of sufficiently general appeal significantly to influence overall ARPU in European markets, particularly in light of the low levels of interest we are finding in our consumer research on camera phones.

Our most recent survey of handset purchase intentions shows a dramatic increase in interest in buying a new phone among UK adults. 39% of handset owners claim an intention to purchase in the next year, compared to about 30% in the last three bi-monthly surveys.

Wanadoo's results for the first half of 2002, detailed in the attached note, show that the company is well on track to make its target of positive EBITDA as the loss margin has been cut by half on the Internet side of the business. The targeted revenue increase of 30% also looks plausible as Internet access revenues have done well in France due to migration of the subscriber base to higher priced broadband packages. Wanadoo hopes to have 1 million broadband subscribers by the end of the year, and is counting on the rollout of a new lower speed (128k) and lower-priced broadband package in mid-October. The French Competition Commission has also permitted the company to again market its broadband packs in FT's network of shops, cutting customer acquisition costs. Margins will improve in mid-October due to wholesale broadband price declines mandated by the regulator ART.

We think that the business is worth about €6bn, rather less than the €7-9bn that the investment banks are projecting. The difference arises because we think that they over-estimate the value of Universal’s music publishing business and expect a faster upturn in recorded music sales. But Universal is clearly strongest of the major music companies and we do expect the company’s margins to recover from the low levels seen this year.

This note contains our latest update on Wanadoo, France's leading ISP and broadband service provider, following on from the report we issued in April. Wanadoo's Q1 2002 results are on target with the company's objectives for the year, despite sharp declines in portal and e-commerce revenues. The reason is Freeserve: a better deal from its network provider has raised ARPU to €5.7/month from €3.7/month in Q4 2001, and its PAYG customer base has expanded under continued marketing efforts.

Wanadoo is a business combining extensive interests in European ISPs with a strongly cash-generative directory business. Wanadoo's position as the leading French ISP is secure. Its position as an ISP in other markets is much less happy; in particular, Freeserve in the UK is not performing well. In this report, we address the underlying reasons why the French ISP business is healthy while the low ARPUs and poor or negative access margins in other countries are draining the company's profitability. Section A of the report provides detailed projections of 2002 for Wanadoo ISP operations. We try to show why the unmetered access model for narrowband ISPs is dangerous.

This note inquires into the difficult question of what really drives the capital expenditure of mobile operators. We try to show that since much capital investment is actually replacement of existing assets, the importance of the declining growth rate in call minutes in reducing capex is overstated. Our - very rough - estimate is that a mature European 2G operator will probably have to spend about 15% of sales on capital expenditure for years to come. This is in marked contrast to the more optimistic operators, who have publicly offered targets of below 10%. Similarly, we see little relief from 3G. While it is undoubtedly true that 3G provides more bits per buck, the costs of running a 3G network alongside a 2G infrastructure more than outweigh this advantage. Observers should also note that the capital efficiency benefits of 3G are largely illusory, since the savings in the network are wiped out by the higher handset costs.