Vodafone’s downgraded guidance is due to its woes in Germany rather than the economy. There is some limited reassurance that this will turnaround soon.

It remains challenging for Vodafone to achieve its revised FY guidance with a 7ppt improvement in underlying EBITDA growth required to get there.

Leverage and cash-calls are much improved, and the dividend looks assured, but the Vantage and German deals mean escalating pressures on EBITDA.

Vodafone is in the midst of a flurry of M&A, likely driven by its share price, which is at a 30-year-low, and stubbornly high leverage as an economic crisis looms.

While the mooted Vodafone/Three merger has the potential to add meaningful shareholder value, the German and Vantage deals are designed to ease Vodafone’s ongoing leverage issue—with debt relief up front paid for with future EBITDA.

Getting leverage under control will be helpful, but the focus should continue to be Vodafone’s operational performance, particularly in Germany, and its ability to deliver EBITDA promises in challenging circumstances.

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

On 12 May 2022, Enders Analysis co-hosted the annual Media and Telecoms 2022 & Beyond conference with Deloitte, sponsored by Barclays, Financial Times, Meta, and Deloitte Legal

With up to 500 attendees and over 40 speakers from the TMT sectors, including leading executives, policy leaders, and industry experts, the conference focused on regulation, infrastructure, and how new technologies will impact the future of the sector 

These are edited transcripts of Sessions 7 and 8 covering: UK mobile and the opportunities and challenges of infrastructure. Videos of the presentations are also available on the conference website

Vodafone attributed its muted outlook for the coming year to macroeconomic headwinds but it has more to do with the German cable business, which is now in decline rather than being the growth engine that it was billed to be when acquired.

Value-accretive deals remain on the agenda but management are rightly reluctant to appear desperate—a difficult balancing act with the risk of missing out on further opportunities.

Substantial fibre investment in Germany looks inevitable, as does sustained competitive pressure there. Even if the former is off balance sheet, the combination will dampen hopes of growth and a progressive dividend.

Whilst we remain sceptical of the churn reduction benefits of fixed/mobile convergence, the pandemic and a more astute approach from the operators is enhancing the case for it in the UK.

Creating the impression of a giveaway whilst minimizing the effective discount is key, as is extracting any loyalty and cost benefits.

Even if well executed, any upsides are likely to be modest. Operators are right to keep discounts to a minimum and to avoid M&A premia predicated on fixed/mobile convergence synergies.

The recent shareholder pressure on Vodafone seems to focus on consolidation (where we see approval prospects as only slightly improved), Vantage (where a sell-down may create more value than an industrial merger), and improving operational performance (which continues to struggle).

The zero-growth German fixed business took another step down this quarter and looks set to worsen.  This will be central to growth prospects next year and a write-down of the investment looks inevitable.

A culture necessitated by a sprawling asset base may be holding back performance but any break-up would be costly and protracted, with real premium valuations achievable only with consolidation.

With a lack of live sport, the lockdown weighed on incumbent pay-TV platforms’ subscriptions. SVOD providers leveraged their cheap positioning—Netflix and Amazon Prime Video now rank above other subscription services in Europe, and Disney+ had a successful launch.

Incumbents—Sky, Canal+, Movistar+—all pursue a twin-track strategy. They are positioning themselves as gatekeepers thanks to service bundles, while redirecting resources away from sports towards original series.

European productions are increasingly garnering audiences outside of their home markets, regardless of the production language. Netflix is a major conduit for European exports, due to personalisation of the interface and high-quality dubbing.

The COVID-19 crisis is compounding the already grim revenue prospects for upcoming football rights sales in continental Europe.

The financially weakest leagues in Italy and France are especially exposed. Serie A is exploring deals with private equity firms, with the pros and cons finely balanced.

There is a window of opportunity for Sky and Canal+—the adults in the room—to build coalitions with selected clubs to nudge leagues towards needed reforms including longer licence terms, reducing the number of clubs and more equal revenue splits.

Despite two decades of online disruption, the UK remains reliant on traditional platforms and brands across the media sector more so for older cohorts, but also for younger generations

13% of adults still do not use the internet and, in reality, an online only media ecosystem remains a distant prospect

Traditional providers, particularly within TV, radio and news, look set to endure for the long term , aided by the trajectory of the UK’s ageing population