Virgin Media’s lockdown subscriber surge continued into Q3, as working-from-home highlights the importance of the faster speeds its network can offer.

ARPU is more challenged, and will get worse next quarter given its forgone price rise, but price rises are back in fashion in the industry, so this problem is likely to prove temporary.

Openreach’s full fibre remains a medium-term threat, but the company is rightly taking advantage while its network superiority remains, with momentum firmly in its favour for now.

BT’s revenue growth remained very suppressed in the September quarter at -7%, with a limited COVID-19 recovery chocked off by seasonal roaming effects and regulator-inspired pricing forbearance.

EBITDA growth did improve to -3% from -7% last quarter, mainly due to short-term cost actions and the early impact of its longer-term cost program, and the company has upgraded its short- and longer-term EBITDA targets.

The company is also optimistic on a longer-term return to underlying revenue growth, helped by a return to regular existing customer price increases and the impact of full fibre, but not until 2023, with a few bumps in the road before then.

BT’s June quarter results were predictably hit by COVID-19, with revenue and EBITDA dropping by 7%, but less predictably most of the hit was on mobile and business customer revenue, with consumer fixed resilient despite the suspension of sport.

BT’s full year guidance is cautious, with a 7% EBITDA decline at the mid-point, with much of this caution around further hits to its business revenue as government support is withdrawn.

BT’s full year guidance is cautious, with a 7% EBITDA decline at the mid-point, with much of this caution around further hits to its business revenue as government support is withdrawn.

Premium sports subscriptions are the primary sector weakness in the current crisis, and they look set to drive fixed operator revenues down 10% next quarter and Sky’s EBITDA down by 60%.

As lockdown eases, latent broadband demand can be more easily sated, and sports subscriptions will bounce back from the September quarter. A surge in working-from-home is likely to increase both the quantity and quality of home broadband demand, with ‘failover’ mobile backup also likely to be of greater interest.

Openreach will benefit from accelerated demand for full fibre, converged operators will be best-placed to offer mobile backup for broadband, and operators with a strong corporate presence will most easily target demand for home-working products.

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.

Virgin Media’s subscriber base fell again in Q4, although strong ARPU growth allowed a slight acceleration in cable revenue growth to 1.8%, and a deceleration in OCF decline to 1%.

Liberty Global group OCF guidance of mid-single digit decline in 2020 is likely to be mirrored at Virgin Media, as regulatory pressure and market competitiveness continue to bite, and mass-market demand for ultrafast remains nascent.

We continue to believe that the best way for Virgin Media to capitalise on full fibre rollouts is to use a wholesale deal with Openreach to expand its footprint to (eventually) nationwide.