Market revenue growth continued to accelerate in Q2 to reach 3%, but broadband growth worryingly dipped as the lockdown boost waned.
Differing pricing dynamics (among other factors) led to very different outcomes for the main players, with BT’s growth surging to 7% while VMO2’s revenue stayed in decline.
Underlying trends of weakening broadband growth, keener pricing and customer bargain seeking point to slower growth ahead … until the next price increase.
VMO2 struggled to fully capitalise on its price increases this quarter, with much of the benefits absorbed by retention discounts and tariff pressure.
EBITDA growth of 4% is nonetheless a solid result in a challenging market and guidance looks achievable, albeit not as easily as it previously did.
The opaque nature of the relationship with the new network company makes it difficult to establish whether VMO2 is capitalising on the current glut of speculative infrastructure investment, or is at risk of being a victim of it.
Press reports suggest that VMO2 is in the early stages of negotiating a deal to buy TalkTalk, which has reportedly been for sale since April.
There is strong industrial logic to the deal, with a sub-brand useful and significant synergies from moving the TalkTalk base to VMO2’s network, with the latter gain at Openreach’s expense.
The main hurdle for the deal would be regulatory clearance, with there being major issues for the CMA—from a range of angles—for such a large in-market merger.
With the cost-of-living crisis expected to worsen over the coming months, the telecoms operators must walk a fine line—support customers but protect their financial performance in the face of a likely recession and rising costs.
We are likely to see weakness on the B2B side and consumers will look for ways to reduce out-of-bundle spend, seek retention discounts and spin down to lower speed tiers and data bundles, but we expect that dropping services completely will hold limited appeal.
Proactive retention activity and promotional pricing is likely to pay off more than slashing headline prices, and will help to avoid a damaging price war—a far bigger risk to their revenues than spin-down.
European mobile service revenue growth was positive for the first time in five years this quarter as a resurgent mobility boost combined with the return of roaming revenues.
Q2 is set to be a mixed bag, with inflation-plus price increases expected in the UK, an elevated boost from the roaming recovery, but also some weakness in the B2B market.
We are also seeing the early impact from end-of-contract notification rules, particularly in Germany, and we expect ARPU pressure and churn to pick up elsewhere as the impact becomes more widespread.
Mobile service revenue nudged into growth territory for the first time since the pandemic as a resurgent mobility boost combined with returning roaming revenues.
Q2 looks set to deliver a more convincing growth filip with inflation-linked price rises boosting by 2-5ppts, and a stronger roaming bounce for seasonal reasons.
The picture is not entirely rosy, however, with already discernible B2B headwinds and inevitable consumer bargain-hunting on the horizon.
The market looked superficially healthy in Q1, with revenue and broadband volume growth both maintained at 2%.
However, net adds trends suggest that consumers are becoming more bargain seeking, and prices have become more competitive into Q2.
The April price increases will support growth in the short term, but this boost may not last long if the cost-of-living crisis persists.
On 12 May 2022, Enders Analysis co-hosted the annual Media and Telecoms 2022 & Beyond conference with Deloitte, sponsored by Barclays, Financial Times, Meta, and Deloitte Legal
With up to 500 attendees and over 40 speakers from the TMT sectors, including leading executives, policy leaders, and industry experts, the conference focused on regulation, infrastructure, and how new technologies will impact the future of the sector
These are edited transcripts of Sessions 7 and 8 covering: UK mobile and the opportunities and challenges of infrastructure. Videos of the presentations are also available on the conference website
European mobile revenue growth was zero for the third successive quarter with better mobility but less roaming upside, some B2B weakness, and stronger competitive intensity in the Italian and Spanish markets
Q1 should evidence some similar trends but the impact of out-of-contract notifications will begin to emerge and roaming looks set to become a significant boost from Q2
Consolidation fever continues to dominate the headlines though this is set against a backdrop of considerable uncertainty regarding regulatory approval