Market revenue growth fell in Q3 to below 1%, and may drop below zero next quarter as existing customer pricing comes under more pressure
New customer pricing is however rising, and average pricing should rise much further as ultrafast increases in availability and popularity
Political enthusiasm for full fibre should be welcomed, although some specific plans are likely to do more harm than good if implemented literally
With elections in the UK in December, and in the US in 2020, online political advertising is receiving intense scrutiny. Google has announced limits on targeting, while Twitter has banned politicians from buying ads
Facebook is the big player in online political ads, and it continues to allow targeted political ads, and to carve them out as exempt from fact-checking
Facebook wants to keep Republicans on side and surf the revenue opportunity, but pressure will increase with US elections, and we expect Facebook to bring in restrictions
The local press is in an existential crisis: relentless decline in revenues since 2004 has rebased the scale of the sector, but there is little if any consensus about what to do next, despite broad agreement that the implications for democracy are deeply troubling
Incumbents have focused on incremental innovation with limited success, and have failed to adapt their digital strategies from those created 20 years ago, despite overwhelming evidence that they do not work, and never will
We argue for radical innovation, switching the industry’s focus from advertising to communities, building new use-cases while also sustaining print media for as along as possible, both to buy time but also to develop a multimedia roadmap for utility, entertainment and public good services
Virgin Media had a challenging quarter, with its early price rise driving weak subscriber figures and product spin-down, resulting in reduced revenue growth and an accelerated OCF decline
The market environment remains challenging with very competitive pricing on superfast and little push for ultrafast, but superfast pricing is easing and competitors’ ultrafast pushes should accelerate in 2020
Full fibre roll-outs remain a threat and an opportunity in almost equal measure, with Virgin Media’s positioning likely to be clarified as the regulatory mist clears over the next year
Consumer magazine circulation and advertising continue to spiral down, with notable exceptions at the top of the market and in a handful of key genres, triggering ever greater revenue diversification and innovation The market is fundamentally over-supplied and the gap between successful portfolios and the glut of secondary titles is growing. Furthermore, the distribution and retail supply chain hang by a thread There are some encouraging signs. Publishers are evolving, with their strategies and leadership capabilities increasingly defined by the needs of the industry they serve rather than the publishing brands they exploit, bringing the consumer model closer to more thoroughbred B2B models
BT suffered a weak Q2 with revenue and (particularly) EBITDA declines accelerating, but this was mainly down to timing (particularly at Openreach, which will likely recover in Q3), with the company confident in maintaining full year expectations
BT’s fixed broadband business enjoyed some recovery as the pricing environment improves, but will suffer another price timing bump next quarter, and its mobile business is suffering from a tough market environment that is unlikely to improve in the short term
The company is busy re-branding, re-positioning and transforming, but the outlook for football rights costs and fibre roll-out regulation will dominate in the short term, and further bumps (such as the Virgin MVNO contract loss) may emerge
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
Market revenue growth bounced back to all of 1% in Q2 after near zero in the previous quarter, with broadband volumes at a near standstill
Operators appear resigned to this however, with new customer pricing appearing to recover, and wholesale price cuts not to be repeated
On the downside, further regulatory and commercial pressure on existing customer pricing is likely, and pricing détentes are often short lived
TalkTalk suffered subscriber losses and falling consumer revenue growth in Q1, with churn still high despite the high speed base growing, countered by ARPU growing for the first time since 2017TalkTalk suffered subscriber losses and falling consumer revenue growth in Q1, with churn still high despite the high speed base growing, countered by ARPU growing for the first time since 2017
The subscriber drop was, however, modest and looks quite deliberate, with there being evidence of price firming in both direct and indirect channels supporting both ARPU and margin
This more cautious approach, if it can be sustained, puts the company on a much more healthy footing in our view, allowing it to achieve its financial targets without increasingly unsustainable existing customer price rises
Google’s advertising business has begun losing market share in the US, with competition from Amazon, Facebook and Microsoft intensifying in search and display
In response, the company is redoubling efforts to reshape its apps, services, and the entire web for more efficient monetisation, spelling uncertainty for partners and users
The adaptability and complexity of Google’s services reduce business risk from targeted regulatory measures, but increase the pressure for a radical intervention