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

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

Virgin Media’s results were quite mixed, with the subscriber base shrinking in a very slow market, but ARPU and revenue returning to growth despite pricing pressure and regulatory drags

The outlook remains challenging, but market pricing does seem to be easing with no repeat of the damaging Openreach price cuts on the horizon

‘Full fibre’ roll-outs will bring further challenges, but opportunities as well, with the accompanying focus on higher speeds likely to be a significant operational upside in the short to medium term

UK online advertising spend continued its double-digit growth in 2018, up 11% to reach nearly £13bn in annual spend or 58% of the total advertising market, but a no-deal consumer downturn could nearly stop growth this year

Google, Facebook, Amazon, professional services firms and the largest marketing cloud companies are the biggest winners, while content media, media agencies and independent advertising technology firms languish 

Self-regulation has improved as pressure mounts on advertising technology firms, but interventions by both privacy and competition authorities are now inevitable

After strong underlying 2018 results, the more subdued outlook for 2019 is an important shift, driven by regulatory pressure on mobile, higher programming costs, one-offs and softening demand

Lightning is continuing to drive market share gains in new build areas, and should provide a 2ppt tailwind to revenue growth in 2019, but enhanced visibility on the economics of rollout suggests that its conservative approach is a wise one

In existing build areas, Virgin Media is facing-off pricing pressure from TalkTalk on high speed, and potentially from BT on even higher ultrafast speeds, with it moderating pricing and launching a market-beating 500Mbps product in Spring 2019 in response

Our central case forecast with orderly EU withdrawal predicts 2.7% growth for total UK advertising spend, down from 4.7% in 2018. We have a no-deal Brexit scenario that predicts a smaller advertising recession than in 2009, with total ad spend declining 3% and display down 5.3% in 2019

The total advertising figures partly mask the pressure on UK consumers, through an expansion of the measured advertising spend universe. This is due to significant self-serve online advertising growth by SMEs, and non-advertising marketing budgets moving to online advertising platforms

In a downturn, we’d expect advertisers to become more tactical, which would disproportionally affect display media including TV, which is further affected by declining commercial impacts among younger adults. Search and social advertising would see only small growth through the first year of a recession

Virgin Media’s subscriber figures were flat on the prior year quarter, a robust performance in a slowing and increasingly competitive market, with ARPU growth still weak but at least not worsening

Project Lightning had another successful quarter, accelerating strongly and passing an additional 147k premises, which bodes well for subscriber acceleration into 2018

A recently implemented price increase should boost ARPU growth next quarter, on the basis that it successfully limits the retention discounting that characterised last year’s price increase, but such a boost will be limited by wider market pricing pressures

UK residential communications market revenue growth bounced up to 3.6% in Q2, a full 1.4ppt improvement on the previous quarter and reversing the downwards trend of the previous two quarters. However, this was entirely driven by price rises at BT and Sky, with the ongoing market volume growth decline continuing at pace

In competitive terms, TalkTalk was the only operator able to improve its broadband net adds on a year earlier, and Virgin Media was solid with only a modest decline, leaving BT and Sky shouldering the worst of the slowdown, albeit with neither company doing particularly poorly given the market context

New customer pricing remains tight, with Virgin Media in particular becoming more competitive. Looking forward, we expect volumes to continue to slow, and for the pricing boost enjoyed in Q2 to largely drop out next quarter, leading to a renewed revenue growth slowdown

Virgin Media’s subscriber figures in Q2 were a little mixed, with total homes and broadband figures weaker than a year earlier, but pay TV much stronger. ARPU growth fell though, largely due to price increase timing effects, leading to a modest dip in revenue growth

Project Lightning premises passed during the quarter rose to 127k, making at least some progress towards upping its run-rate after changing its roll-out management team and approach, the company declined to give indications of how this will evolve

The broader market context is still one of slowing broadband volume growth, and Virgin Media continues to take market share, being the fastest growing of the ‘big 4’ in both subscriber and RGU volumes

Across Europe, markets are becoming more competitive. Incumbent pay-TV paltforms (e.g. Sky or Canal+) face increasing threats from both internet-based services (e.g. Netflix and Amazon), and telecoms operators

Telecoms providers are proving the most potent challengers as they enter the premium football rights market to create attractive triple and quad play bundles – examples include BT, SFR and Telefónica. The latter is now the main pay-TV operator in Spain whereas France’s Canal+ has entered into a strategic alliance with Orange

Across the top five markets (UK, France, Germany, Spain, and Italy), Sky remains the leading operator with an estimated 21.5m video subscribers, twice as many as Netflix