Mobile growth improved very marginally to -3.6% this quarter as roaming revenues were harder hit and competitive intensity bounced back, but usage recovered from the lockdowns in Q2 and cuts to intra-EU calls were annualised.

Italy’s fortunes took a turn for the worse as roaming hit particularly hard and Iliad resurged. After a spate of downgrades to the outlook last quarter, there were some tentative upgrades in Q3 although the tone remains cautious.

The diminished drag from roaming is the primary positive driver from here. Although lockdowns of some degree are in place in Q4, their impact will be less severe than those in Q2.
 

Market revenue growth plummeted to -2% in Q1 2020, with a lack of premium sports pay TV revenue the biggest factor.

The lockdown is also reducing churn and firming up pricing, but it is unclear how long this will last post-lockdown.

Pay TV revenue trends will continue to dominate next quarter; thereafter the battleground will move to ultrafast.

BT’s March quarter appeared to have been going reasonably well until COVID-19 hit, with full year guidance still being broadly met, but the new financial year will be hit harder, with BT Sport, SME and new fibre connection revenue particularly vulnerable.

BT’s full fibre roll-out has been temporarily slowed by COVID-19, but it is accelerating its ambitions regardless increasing both its 12-month (4.0m to 4.5m) and longer term (15m to 20m) coverage targets.

BT is suspending and then rebasing its dividend, in part to cover the above costs. While we regard BT’s fibre investment as a good one, investors and analysts alike have been frustrated by a lack of clear multi-year guidance of the benefits, perhaps as a result of BT not wanting to reveal its negotiating hand to the regulator, government and retail partners.

Demand for telecoms capacity is booming, and the networks can (broadly) cope, with the increase primarily in off-peak demand. However, as the crisis continues, maintaining resilience becomes more challenging.

In the short term, the demand for ample, reliable connectivity coupled with reduced churn will add resilience to operator financials, although there may be significant weak spots especially in business markets.

However, as the crisis goes on, the pressure on capacity and network maintenance may grow, and the impact of the dramatic economic slowdown on consumers and businesses will also put pressure on financials.

Market revenue growth dipped to below zero in Q4 2019, as pricing pressures bite and smaller players gather share.

2020 is off to a challenging start, with new customer pricing dipping down again, and existing customer pricing under regulatory assault.

With expensive full fibre networks being built, persuading consumers to pay more for the higher speeds they enable will be key.

The speeds made possible by full fibre build are unnecessary for most users in the short term, giving limited commercial advantage to those that can offer them, but are likely to prove essential in the medium/long term.

The economics of full-scale, independent alternative networks look very challenging in our view – especially without the support of Sky – although there are some limited arbitrage/cherry-picking opportunities.

The Openreach full fibre model makes economic sense under Ofcom’s proposed regulatory framework, provided it retains the lion’s share of the market, although considerable risks remain.

Recorded music revenues in Japan are stuck in decline as physical sales sag, although 2017 marks the first year when streaming gained a foothold with 8 million subscribers. 

J-pop fans spend on 'experiences' with their idols including events, merchandise, CDs and DVDs, which streaming cannot replicate. Top native LINE MUSIC offers integration with a popular messaging app and bundling with mobile. 

Serving international repertoire, Apple Music claims more subscribers than Spotify in Japan, which is more localised, and has most users on the free tier. Amazon Prime Music is a looming constraint on the adoption of subscriptions. 

European mobile service revenue growth was down slightly to 0.3% in Q1, with improving trends in all countries other than France, which was down sharply due to the closure of the VAT loophole and intensifying competition

Iliad's launch in Italy was somewhat muted but its focus on straightforward tariffs is likely to hold considerable appeal there, with hidden charges there commonplace and being investigated by the antitrust authority

We expect greater polarisation between the North and South as the year progresses, the key question marks being Vodafone's strategy in Germany, Iliad's traction in Italy, and whether Iliad's revamp in France will lessen or worsen mobile competition there​

UK residential communications market revenue growth fell again to 1.2%, with weakening ARPU growth the main driver. New customer pricing remains flat to down, and existing customers are being increasingly discounted, fuelling the ARPU weakness

High speed broadband adoption is proceeding apace, but the high speed premium is fairly thin, muting the impact on ARPU. Regulated wholesale price cuts from Openreach finalised today and due in April 2018 will not help

Looking forward, the March quarter will benefit from price timing effects at BT and Virgin Media, but we fear that the rest of 2018 will follow the current downward trend and the operators will need to adjust to an ex-growth environment

European mobile service revenue growth remained stuck at zero in Q1, with a heightened impact from the mobile termination rate cuts in Germany and price promotional activity in southern Europe mitigating improving markets in the UK and France

‘More-for-more’ price rises continued both during the quarter and after, and appear to be more widespread than the 2016 increases. This should be driving revenue growth at a healthier rate than zero, and may well do as out-of-bundle revenue declines fade away in significance and regulated MTR and roaming cuts annualise out

On the downside, there remain clear disruptive threats from consolidation in Italy, the potential for improved non-incumbent competitor performance in Germany and Spain, and the potential for further consolidation, with its distinctly mixed blessings for competitors, in the UK and France