BT's direct access broadband product attracted a lot of attention last week. This note examines the likely scale of demand for the product over the next four years. We conclude that although the product does have a niche among sophisticated users, the number of prospective customers is very unlikely to exceed 1 million. BT forecasts several times this number.

We use this report to show that, while camera phones have been important in Japan, they have actually added very little to ARPU. Their primary effect has been to attract high spending customers to J-Phone, Japan's innovator in this area. The rate of uptake in Japan has been encouraged by highly subsidised handsets (less than or around €150 or £100), and very low prices for sending and receiving pictures (12 € cents or 8 pence each).

We think that ITV Digital will eventually be forced to close. What will replace the service on the digital terrestrial spectrum? This note looks at the possible outcomes once the commercial television regulator decides to re-licence the spectrum.

We identify the main external factors, such as the current strong video game cycle, mobile phone expenditure and piracy that will continue to reduce consumers’ expenditure on music. Format maturity is the main industry factor in its decline and we see no grounds for optimism about digital delivery for up to 10 years. As a result, we believe that, excluding exchange rate effects, the global music market will continue the decline that began in 2001 (-9%), with further declines in 2002 (-9%), 2003 (-7%), and 2004 (-4%), with a prospect – but no certainty – of stabilisation in 2005. If economic conditions deteriorate further in the US, Europe and Japan, our forecasts may look optimistic. In contrast, recent industry studies forecast 3-5% growth from 2004 onwards.

The BT self-install broadband product appears to be working well. Our own trial showed it was easy to install and functioned perfectly.

Despite the cut of approximately 25% in retail pricing of broadband and BT’s major advertising campaign, intentions to adopt broadband have only increased modestly – from 24% to 28% of Internet users in the three-month period to May 2002.

We identify one problem as the absence of concerted industry efforts to shift uneconomic heavy users to broadband by limiting consumption on unmetered products.

Wanadoo is a business combining extensive interests in European ISPs with a strongly cash-generative directory business. Wanadoo's position as the leading French ISP is secure. Its position as an ISP in other markets is much less happy; in particular, Freeserve in the UK is not performing well. In this report, we address the underlying reasons why the French ISP business is healthy while the low ARPUs and poor or negative access margins in other countries are draining the company's profitability. Section A of the report provides detailed projections of 2002 for Wanadoo ISP operations. We try to show why the unmetered access model for narrowband ISPs is dangerous.

This note inquires into the difficult question of what really drives the capital expenditure of mobile operators. We try to show that since much capital investment is actually replacement of existing assets, the importance of the declining growth rate in call minutes in reducing capex is overstated. Our - very rough - estimate is that a mature European 2G operator will probably have to spend about 15% of sales on capital expenditure for years to come. This is in marked contrast to the more optimistic operators, who have publicly offered targets of below 10%. Similarly, we see little relief from 3G. While it is undoubtedly true that 3G provides more bits per buck, the costs of running a 3G network alongside a 2G infrastructure more than outweigh this advantage. Observers should also note that the capital efficiency benefits of 3G are largely illusory, since the savings in the network are wiped out by the higher handset costs.

UK national newspapers are in poor shape. The inherent problem of the industry – too many papers chasing too few readers – has been exacerbated by a sharp decline in advertising revenue since September. As a result of these challenges coupled with the implications of forthcoming media legislation, we expect to see significant changes in newspaper ownership over the next two years.

The likely development of overall advertising in Europe in 2002 and 2003;

The development of overall online advertising in the same period;

Telewest has drawn away from its key competitor in terms of UK performance. However, we still believe Telewest's bonds are worth less than 50% of their face value. This note explains why.

In this note, we provide some evidence for this unpopular view. We look at BSkyB in the UK in the period from prior to the start of its digital service to today. We show four main points: (1) Digital TV has not resulted in digital viewers buying more channels or spending significant sums on pay-per-view. In fact the key 'pay-to-basic' ratio has fallen; (2) Sky's increased TV ARPU has resulted entirely from price increases in the various Sky packages, rather than increased purchasing; (3) The move to digital has caused a significant, and possibly permanent, deterioration in the costs of operating the Sky service. All the main categories of Sky's costs have risen as a percentage of turnover; (4) The ability to run more sophisticated interactive services on a digital platform has had little positive effect on Sky's economics. Though Sky disguises the costs attached to interactive services, it almost certainly loses money on this part of its activities.

This report is the first of a quarterly series by Toby Syfret, one of Europe's best known commentators on viewing trends.

We believe it will opt for the BBC offering. This note shows why.

The UK Internet population continued to grow very slowly in the fall of 2001, reaching 14.7 million home users (30% adult penetration rate). Although this slow pace of customer growth may give dot.com investors pause for concern, we found some good news on e-tailing to report, such as higher numbers of purchasers - to almost 9 million - and positive experiences online that will lead to repeat shopping. Books, clothes, DVDs and computer games were especially popular items. Bricks-and-clicks e-tailers like WHSmith, Argos and John Lewis are well positioned to take advantage of offline/online marketing synergies, but Amazon (around 3 million unique visitors) is impressive in execution. Tesco has retained its very wide lead over other online supermarkets, almost doubling reach to 9% of home Internet users in 2001, and Argos is also doing well.

This note looks in detail at the reseller business model, and in particular for BT service providers taking over BT lines, where Oftel has just mandated a ‘wholesale line rental’ product. We think the small international call segment is unappealing for entry as competition is already fierce. The new entrant will also find it difficult to establish a foothold on the local and national calls segments where substitution of mobile telephony is draining any dynamism from the market. Even more ominous is the advantage the BT Together packages have given BT over resellers in the customer segment most likely to be aggressively marketed by stretchy brands: families making off-peak and weekend calls to family and friends.

Sky's continued excellent performance has attracted favourable comment in the weeks since its half yearly results. But much of the commentary missed some critical points. The analysts did not question Sky's assertions that it was successfully targeting high value customers. Actually, the last half-year saw a fall in the numbers taking the top-priced package. Similarly, few commentators noticed that despite the favourable comments in the results announcement, interactive revenues actually fell last quarter. The steepest rate of decline was seen in betting, which a year ago was going to be application that formed the core of Sky's interactive ARPU. Similarly nobody seemed to have noticed that Sky's overall share of TV viewing declined in the quarter, despite the addition of two hundred thousand new subscribers.

According to the Financial Times (27/03/2002), the European Commission is planning ‘to clamp down on the cost of calling mobiles’ and issue ‘tough new rules’, which ‘would make it easier for national telecoms regulators to force mobile phone companies to reduce excessive call termination charges’. According to our research, this is an exaggerated assessment: the likeliest outcome would be a Commission recommendation on ‘best practice’ guidelines, rather than new rules. Our research also shows that the pressures from NRAs on MNOs to lower mobile termination charges are highly uneven in the top three markets: they are most acute in the UK (predictably, given the pro-consumer orientation of Oftel), less significant but nevertheless present in Italy, and non-existent in Germany. Thus, if the UK Competition Commission endorses Oftel’s proposed charge cap in its forthcoming ruling, we can expect the four leading UK MNOs to lose about £880 million in revenues for the 2002-2006 period, with the annual reduction in 2002-2003 estimated at about £265 million.

The mobile operators in the UK and elsewhere probably make a higher margin on SMS than on any other product. We think that about 30% of a UK operator's gross margin in derived from SMS and the percentage is rising. This report asks the question 'why should mobile operators launch any other mobile data products aimed at consumers?'. SMS now generates about £800 per megabyte of traffic. GPRS prices fall to about £1 per megabyte to heavy users. We conclude that operators may say that they are focusing on new consumer data services, but the reality will be very different as they work to protect their golden goose. In the long run, we think that SMS is vulnerable to Instant Messaging services introduced onto networks by innovative third parties. (In the US, where SMS has not really taken off, and thus the operators have no profits to protect, these applications are already available on some GSM networks).

The survey showed the typical UK consumer expects to keep his or her phone an average of 39 months. The most likely reason for changing would that the owner's existing phone no longer works. Younger consumers will replace their phone much more swiftly than the average.