UK mobile service revenue growth continued to improve, rising to 1.2% in Q1, a modest figure but still the best of the five largest European mobile markets, albeit weaker than the UK consumer fixed line market (4%-5%)

O2 continued to be the strongest grower of the ‘big 3’, and maintained over 40% share of contract net adds. Both Vodafone and EE appear to have suffered from the demise of Phones 4U, having been its biggest (and latterly its only) network operator suppliers. EE is also suffering from the gradual withdrawal of its Orange and T-Mobile brands, which is forcing it to work harder to both attract and retain customers

Vodafone launched a competitively priced consumer fixed broadband offer on 10 June. EE has shown that there is an opportunity for Vodafone to have some limited success cross-selling broadband through its shops, but O2's mobile-only success and EE's struggles in its mobile business suggest that this will not drive improved mobile performance

European mobile service revenue growth improved for a fourth consecutive quarter jumping 1.7ppts to -2.7%, the slowest rate of decline in over three years. Easing declines in France, Italy and Spain largely drove the improvement but a full recovery in these markets is still some way away given that all of their growth rates remain below -5%. The UK, and now Germany, are experiencing positive mobile service revenue growth although their improvements in the quarter were more modest

Three announced consolidation transactions have yet to be approved by the regulators although none of these deals are likely to offer much market repair, being either of the wrong kind of deal or being in markets that are growing. Consolidation targets remain in France, Italy and Spain which offer clearer routes to market recovery as seen in Germany where the consolidation of O2/E-Plus has already led to positive rhetoric on medium term market growth prospects

Network investment continues with 4G roll-outs at or over 70% population coverage in all markets and targets being accelerated, supporting long term optimism in the sector. Strong data traffic growth coupled with the growing importance of data to service revenue give a clear focus for operators on value-adding network quality investment, although the impact of pricing competition in some markets could weigh on the ability to capitalise on these trends in the medium term

Customer movement between operators shows susceptibility to dynamism in branding; O2 are picking up the majority of EE churners as customers move to the new “cool brand” while EE pull in Vodafone churners tempted by the new “best network”. O2 have the lowest churn though the lion’s share move to Vodafone and H3G churners are more evenly picked up by the other three

Customer perceptions of own operator network quality are high among the big 3 with no less than 75% of customers reporting theirs is the best network. O2 is the best regarded while H3G is the least best regarded highlighting a stark contrast between the (prospective) merging parties

Consumers report little interest in quad play and indeed operators in the both fixed and mobile markets have publicly confirmed the same from other market research. However the arrival of converged players in the form of a merged BT/EE or Vodafone re-entering the fixed space will see operators seeking to change this

The posited deal merging H3G and O2 would create a new largest UK mobile operator with 40% market share, with massive synergy benefits available from cutting overlapping network and operations costs

Regulatory hurdles would be very significant, and the remedies required may well counteract the benefits of reduced network operator competition, as they will be designed to do

For Vodafone and EE, the impact will be mixed; a potentially aggressive competitor is removed, but their preferred positioning as being the best mobile networks is under threat

In this presentation we show our analysis of revenue growth trends for mobile operators in the top five European markets (UK, Germany, France, Italy and Spain). The historical analysis is based on the published results of the operators, although they include our estimates where their data is inconsistent or not complete. A copy of the underlying data in spreadsheet format is available to our subscription clients on request

Vodafone Europe’s service revenue growth improved marginally in the September quarter, a very solid performance under tricky circumstances, helped by good competitive performances and judicious pricing measures

The combined Europe and group common function EBITDA margin was again held flat, despite continued smartphone adoption pushing up handset costs, with strong cost control again evident

Pricing, competitive, regulatory and cost trends are all going well; but macroeconomic trends are clearly not, and are likely to make an acceleration in the second half of the year very difficult

Advancing its free-to-air TV project, France’s Canal+ is to buy Bolloré TV’s national channels for €465 million to gain (scarce) licences for FTA terrestrial broadcast

Canal+ plans to leverage its library of original programming to attract upscale audiences, neglected by commercial rivals

However, the Vivendi investment case of a 9% return on capital is built on incompatible assumptions about profit margins and market share – to grow the latter in a mature market, a channel needs to sacrifice the former

In this presentation we show our analysis of revenue growth trends for mobile operators in the top five European markets (UK, Germany, France, Italy and Spain). The historical analysis is based on the published results of the operators, although they include our estimates where their data is inconsistent or not complete. A copy of the underlying data in spreadsheet format is available to our subscription clients on request

After strong underlying improvements in growth and profitability in 2010, in H1 2011 H3G Europe’s service revenue growth was steady at 3% and margins only slightly improved to (underlying) EBIT breakeven

In the UK, service revenue growth accelerated to 7% (from -1% in H2 2010), with EBIT maintained at about breakeven, as the UK company’s ongoing strong contract subscriber growth fed through

Italy suffered roughly the opposite fate, with service revenue growth falling to -8%, as its recent subscriber losses fed through, and EBIT remained firmly negative

Fiscal 2011 was a vintage year for Sky, which reported a 23% growth in operating profit and 51% increase in free cash flow as it started to reap the full benefits of its investment in multi-product growth

Q4 2011 showed signs that tougher economic conditions are starting to bite, although the sharp fall in TV product additions was balanced by a fourth consecutive bumper quarter in home communications, in which Sky outperformed the rest of the market

Strong focus on operating efficiencies and product innovation combined with big investment in UK originated content should position the company well as competitive pressures build in the medium- to long-term, at the same time as allowing continuing strong profit growth