In 2013 Sky focused on recruiting ‘quality’ subscribers: net additions fell but ARPU growth accelerated and most new customers have signed up to two-year contracts, which will lead to a reduction in churn

Now Sky is moving its focus back to subscriber growth. It aims at 400-450,000 net adds this year, including the migration of wholesale DTAG customers – a target we find realistic. The €70-90 million EBITDA guidance may be conservative

Without any direct competitor, Sky is rightly enhancing its all-in-one premium appeal. This supports ARPU growth and increases its distinctiveness compared to other providers, including the expected Netflix launch in Germany

The stress on 21st Century Fox’s Italian pay-TV platform is easing as the worst recession of any G8 country is expected to end in 2014, and competitive pressure from Mediaset is weakening

Sky is sticking to a long term strategy, investing in the (unrivalled) quality of its offering and sustaining high recruitment costs. The subscriber base seems to have levelled off, revenues are stable, but profits have collapsed. Management plans cost cuts to raise profitability by 2016

The upcoming auction for the 2015-18 football rights could see Sky gaining more exclusivity at a higher cost, which it would have to recoup mostly by rising prices. The key potential upside resides in an Italian economic upturn – which is only conceivable in a few years

Iliad is getting ever closer to securing the French 4th 3G licence on terms with which it is happy, with progress slow but seemingly inevitable, and a licence award likely in H2 2008 followed by service launch in 2010

This report presents our analysis of Neuf Cegetel alongside that of close rival Iliad (which trades under the Free brand). Neuf and Iliad are France’s two leading unbundlers, are both quoted on the Euronext exchange and, since Neuf’s IPO in November 2006, have been assessed largely in parallel by investors. We anticipate Neuf's Investor Day on 12th September will provide analysts with greater detail on Neuf’s strategy to improve by 2010 its profitability to the level enjoyed by Iliad.

Iliad’s 2006 results were solid with broadband subscriber growth on target, DSL market share up one point to 19%, ARPU up 7% to €34.5/month and churn (enviably) at just below 1% per month. Over 1 million of Iliad’s subscribers have dropped France Télécom line rental and Iliad now completely owns those fixed-line telecoms customer relationships