H3G group’s H2 2008 results showed a 5% decline in revenue on a constant currency basis and a return to strongly negative underlying EBITDA, with a margin of -17% in H2 2008 and -8% for the year as a whole, versus a margin of -1% in 2007

The UK performed reasonably well, with 11% revenue growth and improving margins, albeit still being cashflow negative, but Italy suffered from an 18% revenue decline and falling margins

The company’s target of positive EBIT in 2009 looks very unlikely without contributions from some major accounting adjustments, and the consolidation move in Australia looks likely to be repeated elsewhere

Overall reported year-on-year growth for the top 5 markets recovered in the quarter to December after a significant fall in the previous quarter, rising from 0.2% to 0.8%

However this movement was entirely due to the improving regulatory landscape which reduced the negative impact on growth by 0.6ppts in the quarter, particularly due to less pressure on growth from last year’s roaming cuts, which we estimate reduced reported growth by 1.3ppts this quarter vs. 1.9ppts last quarter

Stripping out these negative influences, and our estimate of underlying service revenue growth for the quarter is flat at 2.2%

We expect VMed to use the upgrading of its 2 Mbit/s broadband base to 10 Mbit/s as the basis for a de facto price increase

The resulting increase in revenue could be substantial, although growth in subsequent years is likely to be reduced by lower gross additions

We continue to expect cash flow performance in 2009 to be resilient but unspectacular. However, the prospects for double digit growth in subsequent years to 2012 are beginning to look more promising

Ofcom has reallocated its Digital Dividend spectrum, allowing the UK to fit in with plans for harmonised usage of the spectrum across Europe, resulting in most of the spectrum being made ‘mobile friendly’, and a little left for digital TV services

The revised plans provide a much improved platform for mobile services in a very attractive spectrum band, with European harmonisation providing the potential for standardised (i.e. cheap) equipment and handsets

On the downside, there will still be insufficient quantity of spectrum to satisfy demand from the mobile operators, with five operators chasing three decent blocks of spectrum, so the auction is likely to be very competitive

Ofcom’s statement on Next Generation Access (NGA) gives BT the maximum possible incentive to invest by allowing a high degree of pricing freedom and some short cuts to reduce implementation costs

But Ofcom cannot guarantee that BT will make a return from NGA, only the existence of an opportunity to make one

Ofcom’s statement is certainly positive for BT, but we remain sceptical of the business case for BT NGA, particularly given the low price of all-copper based offers and Virgin Media’s roll-out of 50 Mbit/s broadband

This research on next generation access in Spain continues our series of reports on NGA in the Continent

In relation to incumbents in other European markets, Telefónica’s NGA has one of the more aggressive deployment agendas, aiming to cover 40% of homes with FTTB/VDSL by end-2009 (and some FTTH). Its NGA-based Trio Futura retail offers launched in January 2009 after final regulatory clearance. Conditions for Telefónica's NGA in Spain are propitious because retail broadband prices are relatively high and bandwidth commands a premium

VMed’s Q4 results were mixed, with consumer cable revenue remaining stable but cable net adds dropping significantly and opex performance hit by rising energy costs

Group OCF was stable thanks to improvements at Virgin Mobile and Content

We expect performance to prove relatively resilient in 2009, though not to the extent of generating significant growth in underlying annual cash flow

As announced in the January trading update, BT’s Q3 results were hit by poor cost control at Global Services and the identification of some ‘toxic’ contracts. Performance elsewhere continued to be reasonable but helped by a spike at Openreach and non-core business

With a further ‘one-off’ charge against GS EBITDA in Q4 a virtual certainty, we continue to expect problems at Global Services to combine with recessionary pressures and stalling broadband growth to constrain performance well into 2010

A large pension deficit at the actuarial valuation in May looks inevitable. The Digital Britain initiative could pave the way for legitimate government and regulatory support

Ofcom has come up with a new 900MHz spectrum refarming/redistribution proposal, in which only 5MHz of spectrum is taken from Vodafone and O2, as opposed to the 15MHz it previously proposed

We still think that disrupting the voice and text services of existing customers in order to extend the availability of little-used 3G data services makes little sense, and that rearranging a small amount of intensively used spectrum when a far larger amount of unused spectrum is about to become available makes even less sense

Should Vodafone and O2 continue to oppose having their spectrum taken away, as appears likely, the delays to new spectrum auctions are likely to continue

In Q4 2008 Iliad added 100,000 subscribers in a slowing French broadband market

A restructured 4th 3G licence call for tender is now expected in March, with a cost of €206 million for a 2x5MHz spectrum block, which Iliad is expected to bid for

We remain sceptical that Iliad will earn a return from this, with the 3G-only business model challenging even with a reduced licence cost and restricted network rollout