The charges imposed by the mobile operators for handling incoming calls are a very important part of their revenue stream. The UK telecoms regulator is attempting to force the networks to reduce their prices significantly. The row has just been referred to the UK competition authorities. We look at the arguments used by Oftel to justify its harsh stance. We conclude that the evidence supports the regulator's view that incoming call charges are held artificially high. As a result, analysts should expect that the UK networks will fail to see the charge cap reversed. The impact on revenue will be about 7% in the next four-year period. This will flow straight to the profit line. Increases in fixed to mobile call volumes, as a result of the lower prices, will partly offset this.

Wanadoo's aim of being the #2 broadband ISP in Europe (behind T-Online, way ahead) was adversely affected in Q1 2002 by the decision of the French Competition Commission to halt the marketing of the company's product through the network of France Telecom, so other ISPs can also have a chance to establish a foothold. Wanadoo has had to resort to other, more expensive, marketing platforms, and sales are running at about 70% of the pace before the decision. Wanadoo is also looking for a strong showing on broadband from Freeserve, just entering the market now: 70,000 broadband subscribers by year-end, and a quarter million by mid-2003. We are sceptical whether the brand can shake its reputation for cheap Internet service, which continues to attract a large PAYG base.

This report is a companion to Broadband Europe (2002-02), issued concurrently, and looks more closely at cable’s ability to compete with incumbents on marketing broadband. Key points include:

The outlook for the industry is further enhanced by the impact of much lower paper costs, allied with cost measures on print usage, and reduction in expenditure on online ventures. The industry is increasingly benefiting from best practice although anomalies remain in margins that indicate further room for improvement. Editorial investment has not alas managed to halt continuing slow declines in circulation that are inevitable in our opinion.

The potential for residential broadband connectivity in France, Germany and the UK depends on the availability of low-priced broadband products (hardware, installation and monthly subscriptions) and a narrow pricing gap with existing Internet access packages. Unless monthly subscriptions fall below €30 (from current comparable levels of €45 and up) and hassle-free self-installation is ubiquitous, consumers will not migrate from narrowband, even if they appreciate the faster surfing and download speeds of broadband. But regulators are guarding against any price declines from the incumbents, having put their faith in infrastructure-based competition through local loop unbundling (LLU) and upgrading of cable infrastructure. We believe that expectations of alternative supply of broadband through either of these routes in France and Germany are misplaced; in the UK, broadband cable will make more headway due to specific historical and regulatory factors, while there will be no effective alternative supply of residential DSL through LLU.

In its projections supporting its £3.2 billion debt financing, H3G projects 172,000 subs in 2002, 1.2 million by end 2003 and 9 million by end 2010.

Combined with projected ARPU of £40/month (or about current contract ARPU in the UK), H3G’s revenue projections come to £2 billion in 2005 (note UK mobile market in total = £10 billion today).

The flow of news about ITV is going from bad to worse. But we think that the market may have misunderstood the real story behind last week's bombshell that ITV viewing has fallen by 25% in a year. This figure could have been predicted from existing data.