Service revenue growth was broadly flat this quarter as some unwinding of price increases was compensated by a pickup in roaming revenues.
Vodafone has made some progress on its turnaround plan: it has sold its ailing Spanish unit; is rumoured to be in talks about a deal in Italy; and its German business is (just) back to growth (for now).
We expect muted guidance for 2024 with lower prospective price increases for most, inflated cost bases, and continued consolidation uncertainty.
Service revenue growth dipped by 0.7ppts to 1.2% this quarter—a slightly disappointing performance given the price rises implemented in some markets.
The impact of price increases has been mixed, with little revenue benefit in France, somewhat better in Spain, and a shift to Iliad in Italy.
Q2 should be stronger, with the UK price rises kicking in, the promise of a turnaround from Vodafone Germany, but a waning of price rise benefits elsewhere.
Service revenue growth was flat at 1.9% this quarter—a reasonable performance considering waning boosts from roaming and UK price rises, and a challenging macroeconomic backdrop.
Looking ahead, operators in most markets are now implementing price rises, providing a welcome (albeit transitory) tailwind to revenue growth—although EBITDA momentum remains subdued.
We expect a consolidation deal to be announced between Vodafone UK and H3G in the coming weeks and a decision from the EC on the Orange/MásMóvil deal in August—crucial issues for the sector’s prospects.
European mobile service revenue growth declined this quarter to 0.3%, likely due in large part to the increased negative impact from the European roaming surcharge cuts, which we estimate at around 0.5-1.0ppts for Europe as a whole
The continued growth was supported by continued ‘more-for-more’ price increases coupled with strong data volume growth. Partially countering this, there has been a step up in competition at the low end in some markets, often driven by the smaller operators
Looking forward, the negative EU roaming impact is likely to decline from next quarter given the end of the summer holiday season, and on balance we would expect positive price increase trends to overcome negative low end competitive trends, at least in the short term. This might change in 2018, as Iliad launches in Italy, and recently consolidated operators become more of a threat
European mobile service revenue growth witnessed a rare growth spike this quarter, rising to 0.5%, likely due in large part to the reduced impact this quarter from the European roaming cut regulation, but also helped by a slight softening of MTR cuts and continued ‘more-for-more’ price increases
This roaming regulation holiday will end next quarter and the full impact of ‘free roaming’ will be felt, thus the spike in mobile service revenue growth is likely to more-than-reverse
What is likely to prove lasting is the zero-rated data offers introduced in several markets in Q2, which we expect to see more of given their reported success at improving ARPUs
European mobile service revenue growth remained stuck at zero in Q1, with a heightened impact from the mobile termination rate cuts in Germany and price promotional activity in southern Europe mitigating improving markets in the UK and France
‘More-for-more’ price rises continued both during the quarter and after, and appear to be more widespread than the 2016 increases. This should be driving revenue growth at a healthier rate than zero, and may well do as out-of-bundle revenue declines fade away in significance and regulated MTR and roaming cuts annualise out
On the downside, there remain clear disruptive threats from consolidation in Italy, the potential for improved non-incumbent competitor performance in Germany and Spain, and the potential for further consolidation, with its distinctly mixed blessings for competitors, in the UK and France
European mobile service revenue growth was unchanged in Q4 on the previous quarter at -0.1%, tantalisingly close to growth but just held back by renewed mobile termination rate cuts in Germany
‘More-for-more’ tariff changes are becoming increasingly commonplace, as operators increase data bundle sizes to allow for volume demand growth, but nudge up pricing as partial compensation. This has not yet translated into positive revenue growth across Europe as a whole, but increasingly looks like it will do, with a number of moves made in early 2017
The quarter saw completion of two M&A deals in Spain and Italy with MasMovil completing its acquisition of Yoigo, and H3G Wind completing their joint venture to form Wind Tre. While the former is unlikely to alter the market dynamics much, the latter, resulting in the entry of Iliad in Italy, has the potential to disrupt the pricing dynamic in that market, although ultimately it will be limited by Iliad’s initial MVNO economics and dearth of spectrum
France Télécom’s Orange TV premium strategy presents an interesting example of diversification into low cost ‘light’ pay-TV offers by an incumbent telecoms operator. Orange Sport and Orange Cinéma Séries are offered exclusively to Orange's 2.55 million TV subscribers, and five quarters after launch, adoption is 20%. This report draws several lessons on this type of venture for other incumbent operators
Ending a simmering commercial dispute, Vivendi’s Canal+ has agreed to distribute its packages to France Télécom’s Orange TV satellite customers, allowing Orange to relaunch its DTH platform (targeting 4 million customers off the DSL TV footprint) after its dismal ‘do-it-alone’ first six months
Canal+ recruitments will benefit from the resumption of active marketing for its packages over Orange TV platforms, after a poor year for subscriber growth
Canal+ catch-up TV will now be available to all Orange Canal+ DSL TV subscribers, as it is to those on Free, where it is very popular, plus Orange satellite subscribers, thus giving Orange back the leadership position on IPTV in France