The Conservative policy for broadband involves replacing
Labour’s proposed line rental tax with a portion of the TV licence fee, together with measures to encourage passive access to BT’s network and the use of alternative infrastructure

The policy sounds negative for BT, equivocal for VMed and
positive for Sky and TTG, but is unlikely to have a significant direct impact in the near term in the event of a Conservative government

We view as more significant the likely indirect impact on
Ofcom’s upcoming access market reviews. In the longer term, the development of alternative infrastructure could be significant, such as that already being deployed by Fibrecity in partnership with the water companies

Vodafone’s European revenue growth improved by 1.4 percentage points in the December 2009 quarter to reach -3.2%, the first improvement since the start of the economic slowdown in 2008

While data revenue is growing fast in absolute terms, its contribution to growth is flat to slightly down, with the main driver being more traditional services improving due to the recovery in year-on-year GDP growth

We expect revenue growth to continue to improve as economic comparables improve, with a return to positive growth likely by the end of 2010

The UK regulatory authorities have requested that the Orange/T-Mobile merger be scrutinised in the UK as opposed to in Brussels, which makes it likely that the EU will refer it down

Once in the UK, the deal is likely to be referred to the Competition Commission for a lengthy, detailed study, which is likely to result in significant concessions at least

A final result is unlikely before October 2010, putting the merger a few months behind the schedule indicated by the parent companies in September 2009

France Télécom’s forthcoming Chief Executive Officer, Stéphane Richard, is considering a radical shake up and potential U-turn of Orange’s TV ‘content’ strategy, initiated and driven by CEO Didier Lombard

Orange could withdraw entirely from supplying premium pay-TV channels (sports and film) and distribute only third party content, as has been the focus of other broadband suppliers

A retreat of Orange from TV content would enable a more active cooperation with the Canal+ Group, benefiting both partners, who have largely overlapping subscriber bases

BT Retail has announced its intention to launch residential
40 Mbit/s broadband at similar price points to its existing two higher tier
broadband offers. While this looks unlikely on its own to create significant
additional shareholder value, it could eventually help BT retain existing value

The move is unlikely to seriously inconvenience other
players for the next year or so, but could encourage TTG and Sky to sign
wholesale deals with BT for higher speed broadband and, ultimately, make it
more likely that a demerged TTG is acquired by another player

BT Retail’s strategy is likely to accelerate the
implementation of state-backed rural NGA in the UK since end user demand
outside commercially viable areas will be greater than would otherwise have
been the case

At TalkTalk Group (TTG) net broadband additions were solid, possibly helped by stronger growth in total market demand; but churn at Tiscali UK appears to remain high

TTG revenue was heavily distorted by the Tiscali acquisition but appears to remain in gradual decline on a like-for-like basis, due to continuing decline in non-broadband customers

Carphone Warehouse’s like-for-like distribution revenue showed a firm pick-up in the quarter, with it likely enjoying the first quarter of significantly improving market growth since the recession started

O2’s plan to launch competitively-priced ‘home phone’ offers in March should help sustain its current growth in fixed broadband, but is unlikely on its own to transform O2 into a significant player in UK fixed telecoms

The company’s fixed line foray is unlikely to reduce its mobile churn significantly, but nor does it look likely to increase it, with any residual net effect muted by the relatively small scale of O2’s fixed business

Demand for residential fixed telephony is declining gradually, and O2’s play is likely to make life more difficult for some established players, notably TTG, which is relatively dependent on demand from more price-sensitive customers

Google this week launched the Nexus One, a high spec handset equipped with the latest Android software, customised by Google, branded with Google and sold exclusively through Google (but made by HTC)

In contrast to its usual cooperative self as regards mobile, the Google go-it-alone approach of the Nexus One is likely to irritate handset manufacturers, handset distributers and mobile operators alike

The very limited distribution and limited marketing is likely to limit Nexus One sales, despite the strong hardware and software. The prospects for the Android platform in general remain strong, particularly in mid-range handsets, especially if Google maintains a more cooperative approach than the Nexus One launch has signified

In The Netherlands, KPN faces strong competitive pressure on voice and broadband from cable operators historically addressing subscription TV services due to their superior fibre/coax networks – KPN needs to upgrade its ADSL network to increase IPTV coverage and bandwidth to compete effectively on the triple play

KPN is pursuing a multi-technology approach to its network upgrade, deploying VDSL over the existing copper access network as a ‘transitional’ solution, accompanied by deployment of FTTC and FTTH. Currently, 13% of Dutch homes are passed by fibre, with KPN setting a ‘medium term’ coverage target of 30-60% of households

KPN says that FTTC and FTTH trial results show material increases in ARPU and market share, supporting the case for deployment. KPN is assuming entirely the costs of FTTC, but the investment in more expensive FTTH is being made by joint venture KPN-Reggefiber, whose need for finance in mid-2010 will require it to convince debt markets of its business plan for FTTH

France Télécom’s Orange TV premium strategy presents an interesting example of diversification into low cost ‘light’ pay-TV offers by an incumbent telecoms operator. Orange Sport and Orange Cinéma Séries are offered exclusively to Orange's 2.55 million TV subscribers, and five quarters after launch, adoption is 20%. This report draws several lessons on this type of venture for other incumbent operators