The CMA's provisional findings on the Vodafone/Three merger reiterate its concerns around the impact on the retail and wholesale market but its previous issues regarding mobile towers sharing with BT/EE have been satisfied 

Crucially, the CMA seems somewhat dismissive of structural remedies, although hasn't ruled them out entirely. Remedies sought in the form of network and pricing commitments seem somewhat unnecessary, but nonetheless workable 

We now expect the Vodafone Three merger to gain approval in December, with remedy detail negotiated over the coming months—a very significant positive development for the sector 

Service revenue growth dropped off by 2.7ppts this quarter, and into negative territory, as operators in all markets suffered weaker growth
 

Operators in France and the UK implemented price increases this quarter but re-contracting absorbed any positive revenue impact. In Italy, regulatory intervention thwarted operator plans to raise prices
 

Increasing competitive intensity in France and Germany comes at a time when operators can ill-afford ARPU dilution and high churn
 

VMO2 survived the hammer blow of lower inflation-linked mobile price increases in Q2 with substantially unchanged revenue and EBITDA growth, helped by improving broadband ARPU

However, both mobile contract and broadband subs suffered declines, likely driven by issues with serving existing customers as well as attracting new ones, and these trends have to improve for the company to return to top and bottom line growth

Guidance implies that EBITDA growth will worsen in H2, but this would be good news in our view if it is driven by expenditure to support improved subscriber growth across broadband and mobile 

Vodafone/H3G/VMO2 have announced a spectrum-trading and towers-sharing deal, allaying potential spectrum concerns around the proposed Vodafone/H3G merger, although BT may argue that it is short of some critical spectrum bands.

The towers sharing agreement incorporates H3G spectrum into the VMO2/Vodafone Beacon agreement and appears to expand the agreement onto some of H3G's current sites.

We estimate a c.70% increase in VMO2 capacity from this deal and 5% for the industry as a whole (in addition to the 25% from the Vodafone/Three merger). BT/EE made a strong argument for spectrum reallocation in its merger objection, and some validity to that argument may or may not remain post-trade

Service revenue growth was broadly flat at 1.7% as improvements in Germany offset weaknesses in Italy.

The impact of price increases has been mixed, with subscriber losses dulling their upside, and the mixed picture looks set to continue into Q2.

The market continues to be challenging with elevated competition at the low end, pressure from some regulators to increase network coverage, and a somewhat soft EBITDA outlook.

On 4 June 2024, Enders Analysis co-hosted the annual Media and Telecoms 2024 & Beyond Conference with Deloitte, sponsored by Barclays, Salesforce, the Financial Times, and Adobe.

With over 580 attendees and over 40 speakers from the TMT sector, including leading executives and industry experts, the conference focused on how new technologies, regulation and infrastructure will impact the future of the industry.

This is the edited transcript of Session One, covering: the evolution of streaming models, and public service broadcasting in the digital age. Videos of the presentations will be available on the conference website.

Starlink’s compelling consumer broadband proposition has become the clear front runner in the satellite space, with an attractive cost to serve the 100k UK homes in very hard to reach areas relative to fibre alternatives

The latest developments allow full mobile coverage via satellite with existing handsets, a service the mobile operators could charge a premium for, and which might ultimately take pressure off mobile network coverage

The threat of full substitution is extremely limited given the 50-100x cost differential involved, but Starlink could still launch a retail product as a part-MVNO, putting pressure on the mobile operators to launch satellite-assisted retail services first

In-contract price increases have been the worst of all worlds—reputationally damaging for telecoms operators but contributing (temporary) revenue growth of just half the rate of inflation. We expect the revenue boost from in-contract price increases of 5% last year to become a 2% drag from Q2 2024.

Cost inflation is, however, cumulative with an acceleration in the gulf between costs and revenues forecast from here. We expect muted financial guidance for 2024/25 from BT Consumer and Vodafone UK over the coming weeks.

Rising new-customer pricing is a necessity if margins are not to be significantly squeezed, but competitive intensity and scale economics continue to thwart such efforts, with no real resolution in sight.

Service revenue took a dip in Q4 to 1.5% as a waning price rise impact in the UK combined with the loss of positive one-offs in Germany.

We expect growth to slow further through 2024 as many operators implement lower index-linked price rises which are also coming under increasing regulatory scrutiny.

Vodafone has made progress on its turnaround plan—striking deals for its Italian and Spanish units—but it is not yet out of the woods, with ongoing challenges in Germany and approval still uncertain in the UK.

Mobile service revenue growth was down 1.2ppts in Q4 as the impact of 2023’s price rises continued to wane.

Growth will wane further into Q1 and with spring price rises being 7-9ppts lower than last year’s, we don’t foresee a revenue boost in Q2.

With negative publicity and upticking churn from inflation-linked price increases, Ofcom’s review of the mechanism may prove to be a blessing in disguise.