Service revenue growth remained firmly negative at -1.0% in spite of inflation of +2.1%, as competition remains intense and pricing power weak.
Operators are guiding to a 2025 EBITDA performance that is broadly in-line with, or weaker than, their 2024 performance, with SFR choosing to abstain from guidance this year.
In-market consolidation cries are getting louder, with France, Italy and Germany the most obvious candidates.
2024 was the first year in history in which the network operators lost contract subscribers. MVNOs added 1.7m.
In-contract price increases are dominating revenue trends, with a somewhat flatlining outlook on an underlying basis but boosted by accounting technicalities.
We expect the Vodafone3 merger to close on 1 of May which has implications for buyout timing and will prompt higher capex, some early network upsides, and big strategic decisions for both Vodafone3 and BT/EE.
Most regulations within the TAR26 condoc were continuations of the previous pro-investment regulations, albeit with little progress made on copper withdrawal, no extra help for the struggling altnets and a number of unexpected twists at the margin.
Within the detail, the most significant hit is the return of cost-based price controls to some leased line charges, and across all of the proposed changes, Openreach has on balance fared worse than retail ISPs, albeit at a scale that is manageable within the BT Group.
Ofcom showed no inclination to offer any extra help to the struggling altnet industry, regarding its inefficiencies as being its own (and its investors’) problem, with consolidation the only sensible path forward for most.
Geopolitical clashes between the US and Europe were a barely concealed undercurrent at this year’s MWC, with European tech regulation at odds with US moves, and telcos pitching for regulatory favours on firmer ground than they have had for years.
Perhaps the largest impact is on the satellite industry, with Eutelsat OneWeb having been given a new lease of life as the EU champion versus a now disfavoured SpaceX/Starlink.
AI was of course the talk of the town, but largely in ways that are tangential at best to traditional telcos, with the necessary building blocks for telcos to play a big role (i.e. network APIs) still needing much work.
With the formation of Vodafone3, we envisage continued intense competition at the low end of the mobile market, a ramping up of pressure at the top end over time, and some opportunities in the short term.
New information on spectrum trading confirms the view that BT/EE will be most capacity constrained, but with various strategic options available to it.
Expected EBITDA growth of 9% p.a. at Vodafone3 would allow Vodafone Group to almost double its excess FCF. Budgeting for buying CK Hutchison’s stake, however, may curtail Vodafone’s spending over the coming years.
VMO2 had another mixed quarter to end a difficult 2024, with revenue growth improving but EBITDA growth falling, and other metrics mixed at best.
The company hopes to put this behind it with guidance for both revenue and EBITDA growth in 2025, a tough ask given current momentum.
Ultimately achieving or exceeding this may depend on altnet pressure receding, which we expect it to do, but perhaps more towards the end of the year than the beginning.
Telcos are increasingly developing APIs to share selected network data with third parties, with the goal of supporting useful end-user applications.
Capabilities are still nascent, but the potential is real. Telcos need to adopt a pragmatic approach that looks to match API capabilities to useful products, and build increasing scale over time.
Security is the largest near-term opportunity for API products, but AI is the key emerging area, with telcos potentially able to play an ambitious role in providing APIs to help manage the growth of autonomous AI agents.
Vodafone has signalled a tougher outlook in Germany primarily due to a worsening competitive backdrop for mobile.
Although Vodafone has reiterated its guidance for the full year, this now relies heavily on developing countries, with currency risk emerging for FY26.
Investors are likely to be sceptical of the company’s “ambition” to grow in Germany next year, with this seemingly predicated on an improving competitive environment. Nonetheless, the company can point to some early fruits of its turnaround endeavours there, and next year’s trends should be better than the current ones regardless.
BT had a solid-but-mixed Q3, with revenue growth slightly weaker than expected, EBITDA growth slightly stronger, and subscriber net adds a touch weak across broadband, mobile and Openreach
The outlook is buoyed by a likely altnet slowdown at some point in FY26, with this set to help subscriber numbers at Consumer/Openreach and pricing at Consumer
The main cloud is the potential effect of a merged Vodafone-Three challenging BT/EE for best network and boosting MVNOs, a challenge we feel is real but manageable for BT
Vodafone has announced that it is looking to launch a satellite direct-to-device service with AST Space Mobile in Europe "later in 2025 and 2026", while also demonstrating the first satellite video call in the UK.
The key challenge for AST Space Mobile is scaling up its constellation, with significant uncertainty remaining around their ability to both manufacture satellites on time and the rockets available to deliver them.
Potential for a full mobile broadband service is a key differentiator versus Starlink's text-only service, and if AST can deliver then Vodafone could be first to market in the UK with a direct-to-device service.