2013 has seen yet another year of strong growth in consumer adoption of mobile devices and screens adding to the challenges facing traditional media. Press and radio have long been affected, but television is now starting to feel the heat

BT and Sky’s contest for premium pay-TV sports rights has intensified. August saw the launch of BT Sport, while BT’s acquisition of the European football rights in November was a clear statement of intent, spending half of Channel 4’s total programming budget on approx. 200 hours of content

The UK has seen buoyant advertising growth of around 4% in 2013, with similar growth expected in 2014, in the context of the strongest economic recovery in Europe

The launch of BT Sport and the acquisition of European Champions League and Europa League rights have set the scene for the fiercest of conflicts when the domestic live Premier League rights fall due for renewal by auction in 2015

The scale of BT’s ambitions when translated into spend per percentage share of total viewing across the year are staggering for a national TV industry generating circa £12 billion a year on programming spend of less than £6 billion. The current level of rights payments by BT imply a grand annual total of £100+ billion, if all other parties paid the same rate

So far, BT Sport has performed similarly to Setanta and ESPN in terms of audience share, and with little visible gains since launch in the total estimated base of about 3.5 million households taking BT Sport. However, BT has a long-term vision and 2015 promises to be a crunch year

UK mobile market service revenue growth improved on a reported basis in Q3 to -3%, but was unchanged on an underlying basis, still not a bad result after six consecutive quarters of underlying growth declining, albeit in the context of rapidly improving macroeconomic conditions

All four operators now offer 4G services, with O2 and Vodafone launching within the quarter and H3G in December. EE will nonetheless maintain its coverage and speed advantage for 2014, but others (most likely Vodafone) may challenge thereafter. H3G is offering 4G at no extra cost, reflecting its focus on unlimited data and meeting the capacity requirements for this, and O2 has recently cut its 4G tariffs to match those of 3G (but with a high minimum entry point), leaving EE the only operator with an explicit 4G premium

The overall outlook is mixed – we would expect some improvement to revenue growth into 2014 as the MTR impact wears off and the dilutive effect of unlimited tariffs wane, but this may be countered by a lack of mid-contract price increases, and while 4G is likely to benefit all as it drives data volumes and encourages package upgrades, the impact will be gradual

Revenues from traditional directory advertising products are continuing their rapid descent as social and mobile services become an increasingly popular tool in SME marketing activities as a supplement to online search

Hibu (formerly Yell) and other local media companies have responded to the shifting landscape by developing comprehensive marketing agency solutions for SMEs

In addition to these new service options, SME advertising spend will be effected by improving local service economies, rapid growth of mobile consumption and the continuing rise of e-commerce in the UK, while we believe that the decline of print has left a gap in local online display that is yet to be filled

BT’s case that the Competition Appeal Tribunal failed to address the reasons why the premium sports market works badly will finally arrive at the Court of Appeal tomorrow. We think BT’s chances of success are low, though a win would substantially enhance its competitive position in its battle against Sky BT’s complaint is that it has always wanted to retail Sky Sports channels, however Sky has always been unwilling to wholesale them, thereby resulting in no prospect of effective competition in the provision of premium sports on TV Ofcom implicitly endorsed BT’s position when it introduced the Wholesale Must Offer remedy. However, Sky took its case to the Competition Appeal Tribunal, which overturned Ofcom’s WMO remedy on the grounds of misinterpreting the evidence, only for BT to retort by taking its case to the Court of Appeal, which is to deliver a final verdict on whether BT is disadvantaged by Sky’s alleged anti-competitive behaviour

In this presentation we show our analysis of revenue growth trends for mobile operators in the top five European markets (UK, Germany, France, Italy and Spain). The historical analysis is based on the published results of the operators, although they include our estimates where their data is inconsistent or not complete. A copy of the underlying data in spreadsheet format is available to our subscription clients on request

The UK residential communications sector again had a strong quarter for revenue growth, with reported growth from the top four operators at 5%, or around 4% excluding the one-off impact of extra BT Sport related revenues

Unfortunately cost growth was even stronger, with margins dropping at three of the four largest operators. The aggressive launch of BT Sport has driven up content costs, marketing costs or both for all of the operators

The main issue going forward will continue to be actual and potential disruption relating to BT Sport. Content and marketing costs have likely been set at a new higher level, with further increases possible up to and following mid-2015, when the next Premier League auction is due and BT takes over the Champions League rights

Scotland’s SNP-led Government has published its White Paper setting out its assumptions for independence, including on broadcasting and telecommunications, where spectrum management will be assumed by the new Government, implying a discontinuity in existing UK-wide 3G and 4G licenses attributed by Ofcom.

The SNP promises no change in the broadcasting environment except for the creation of a Scottish Broadcasting Service (SBS), which would occupy the BBC’s position today. Channel 3, 4 and 5 licensees will be able to continue to broadcast without discontinuity, although free access to spectrum was not promised, which BSkyB of course doesn’t require.

The big ask is BBC One and BBC Two on free-to-air terms, implying a subsidy of £270 million to Scotland. This seems very unlikely to be agreed by the rest of the UK (rUK), since BBC Worldwide offers only commercial terms to other countries. However, the BBC will not comment on this assumption, so the Scots will only learn of the facts after the referendum.

TalkTalk maintained recent momentum despite increased competition in the quarter, delivering 5k broadband net adds and 167k pay TV net adds, although increased churn required higher marketing spend to achieve this

TalkTalk restructured its pricing towards the end of the quarter, increasing certain prices, introducing a lower cost broadband option and bringing pay TV to its (now) mid-tier plan; the net impact appears as if it will be positive

TalkTalk is fairly well insulated from the ongoing BT/Sky battle, with little enthusiasm for sports content within its base, and pricing that is already very competitive, but extra marketing costs may still weigh going forward

Vodafone Europe’s revenue growth declined again, as it underperformed a weak market, with pricing pressures still suppressing growth despite recovering macroeconomic conditions

Project Spring is a limited step in the right direction, with European mobile network investment only £3bn out of the £7bn total, but the potential network outcome – 4G coverage better than 2G is now – is impressive

Improving regulatory and economic conditions will give a limited boost in the short term, and the network investment will take years not months to pay off, leaving a long wait before sustainable improvement is seen