European mobile service revenue growth slipped again to -2.0%; its worst performance in four years
Regulation limiting intra-EU call prices could hit hard next quarter – with the UK likely to be hardest hit by up to 6% of revenues and 20% of EBITDA
Excluding the EU-call impact, we see greatest scope for improving trends in Italy and France thanks to easier comps and diminishing competitive intensity
The capacity boost with 5G will be more important than any speed or latency uplift. We estimate a 7-fold increase in mobile capacity in the UK and 13x+ for O2 and H3G
We view fixed mobile substitution products as quite niche although the number of mobile-only households is likely to creep up. mmWave would have the capacity to substitute for fixed but has many hurdles to overcome
Capacity-constraints have tempered competition of late and their removal risks an increase in intensity, especially as H3G views itself as sub-scale – good for policy makers but another challenge to add to the industry’s woes
European mobile service revenue growth dropped to -1.3% – its lowest level in three years – particularly disappointing as growth should be bouncing back post-EU roaming tariff cuts
Having enjoyed relatively favourable dynamics in 2018, the UK and Germany are facing marked changes in momentum from here
Regulation limiting intra-EU call prices could hit hard – up to 6% of revenues and 20% of EBITDA in the UK, although other EU countries may be less exposed due to lower tariffs currently
Following record growth last quarter, the UK mobile market took a step down to just 0.9% growth in the quarter to December on the back of increasing pressure in the business market and the impact of out-of-bundle limits
2019 looks set to be a tough year for the sector with: a series of potentially painful regulatory hits; markedly lower price rises than last year; and early signs of a degree of creeping competitive intensity
We view 5G as a much-needed means of expanding capacity in the sector with upsides from M2M and IoT likely to remain relatively small
UK mobile service revenue growth nudged down in Q3 2012 by 2.0ppts to -3.8%, with 0.5ppts driven by an increase in the effect of regulated MTR cuts and 1.5ppts caused by underlying factors, largely driven by a weakening UK economy
In October EE launched its new brand and 4G service to great fanfare. The response of the other operators has been very mixed; Vodafone has indicated that it will launch a better 4G network next year, H3G has emphasised the merits of its 3G network, and O2 has not focused on networks at all. We continue to believe that EE’s 4G products will be good for its ARPU but not necessarily raw subscriber numbers, with the rebrand exercise bringing additional synergy benefits to its bottom line
The overall outlook is looking tough for the next six months, with consumer confidence still low and unlimited tariffs hitting pricing, but more promising thereafter, as the 4G premium becomes more material, and the regulated MTR cuts finally start to moderate in Q2 2013
European mobile market service revenue growth dropped again in Q3, by 1.9ppts to -6.2%. This was not helped by a substantial increase in the MTR impact, driven by a big cut in Italy, but underlying revenue growth still fell by 1.3ppts In stark contrast to Europe, the US mobile market continues to grow apace, with there being over 10ppts between the growth rates of the two regions. The most obvious difference between the markets is the very much higher levels of capex spent by the US incumbents, which drives their superior network quality and coverage, and hence price premia, and hence superior growth The European incumbents have not (yet) used their greater ability to spend on capex to increase the spending gap with smaller operators, with 4G launches (mostly) being low profile with low initial coverage (the UK being a notable exception to this). While this is an understandable approach given the prevailing macroeconomic conditions, it does mean that closing the growth gap with the US remains a distant prospect
EE announced its 4G pricing today, with the prices broadly set at a premium of around £5 a month to those of 3G services from Orange, T-Mobile, O2 and Vodafone
Perhaps more importantly, the pricing includes unlimited voice and text as standard, which pushes the minimum spend to £36 a month, a substantial uplift from current average contract values of £20-£25
Whether the £5 premium is sustainable or not, EE’s efforts to promote it (and competitor responses) will likely shift the market focus to network quality as opposed to price and handset range, a very healthy development in our view
A number of developments over the summer have, at least in theory, made the UK 4G mobile spectrum outlook a lot clearer: in July Ofcom issued its final policy statement regarding the 800MHz and 2.6GHz ‘4G’ auctions, in August it decided to allow Everything Everywhere (EE) to ‘refarm’ its 1800MHz spectrum for 4G use, and EE announced that it had sold 15MHz of its 1800MHz spectrum to H3G
The main short term implication is that EE will have clear short term advantage of being the only operator offering 4G (LTE) services for about 12 months from (roughly) the end of September 2012 to (roughly) the end of September 2013
The main uncertainty is legal action; O2 and/or Vodafone may appeal Ofcom’s decision to allow EE to refarm its 1800MHz spectrum, which would trigger EE to appeal the 4G spectrum auction rules, and give 4G in the UK an unhelpful delay
In this presentation we show our analysis of the UK mobile market performance to Q2 2012 and consider the outlook both in terms of market growth and competitive dynamics
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.