Vodafone Europe’s service revenue growth continued to recover into its Q3, with the growth of -2.7% a further improvement of over 2ppts
This was largely driven by improved subscriber numbers, with contract ARPU in general still falling, although in the UK it notably returned to growth, with the pending consolidation bringing both threats and opportunities
Vodafone’s Project Spring investment appears to be bringing benefits before it is even halfway complete, boding well for its future impact
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Customer movement between operators shows susceptibility to dynamism in branding; O2 are picking up the majority of EE churners as customers move to the new “cool brand” while EE pull in Vodafone churners tempted by the new “best network”. O2 have the lowest churn though the lion’s share move to Vodafone and H3G churners are more evenly picked up by the other three
Customer perceptions of own operator network quality are high among the big 3 with no less than 75% of customers reporting theirs is the best network. O2 is the best regarded while H3G is the least best regarded highlighting a stark contrast between the (prospective) merging parties
Consumers report little interest in quad play and indeed operators in the both fixed and mobile markets have publicly confirmed the same from other market research. However the arrival of converged players in the form of a merged BT/EE or Vodafone re-entering the fixed space will see operators seeking to change this
The posited deal merging H3G and O2 would create a new largest UK mobile operator with 40% market share, with massive synergy benefits available from cutting overlapping network and operations costs
Regulatory hurdles would be very significant, and the remedies required may well counteract the benefits of reduced network operator competition, as they will be designed to do
For Vodafone and EE, the impact will be mixed; a potentially aggressive competitor is removed, but their preferred positioning as being the best mobile networks is under threat
The European mobile market had a rare quarter of solid improvement in Q3, with reported service revenue growth improving by over 2ppts to -4.7%, helped by a 1ppt improvement in regulated MTR cuts (which have now dropped to near zero) and a 1ppt improvement in underlying growth
The improvement appears largely driven by improved pricing trends, with the improvement in Italy particularly strong. However we feel that pricing is still in general in a fragile equilibrium, with the potential longer term structural improvements - consolidation and network focus - yet to be made
Consolidation has certainly progressed, but more in-market mobile deals need to be made, and while current levels of investment are encouraging, with accelerating data volume growth also encouraging, they will take some time to have an effect at the consumer level
A merger between BT and EE would create a converged operator directly serving around half of the UK adult population with fixed broadband, mobile or both services
We remain sceptical of the direct benefits of quad play and cross-selling, but we can see the benefits of merging the largest fixed and mobile operators under a single brand, and the long term strategic sense of owning both networks in case converged service offerings do become more important
The implications for other market participants are mixed, with benefits in the short term from the distraction of a large merger, and perhaps some regulatory concessions, but a longer term threat from the enlarged brand, and BT having a much enlarged customer base over which to spread content costs
UK mobile service revenue growth stayed positive in Q3 2014, albeit at a slightly lower level than last quarter, an achievement given performance in recent years, but a slight disappointment given the previous improving trend. Pricing trends were a little worrying, but data volumes continue to accelerate markedly
With Phones 4U ceasing to trade towards the end of the quarter, Q4’s subscriber shares will be largely determined by where its prior customers end up. With these representing 13% of market gross adds which implies 65% of net adds, the impact is significant
Merger talks underway with the parents of O2/EE and BT, with H3G reportedly getting involved, will have an impact whether they lead to a deal or not; if either EE or O2 (or both) remain independent within the UK, they will likely need reinvigorating and re-motivating as to their raison d’etre or risk drifting without a clear direction
The shift to mobile continues, with the smartphone replacing the laptop as the device with the most users, although the rate of tablet adoption has slowed somewhat.
This shift will change the online revenue mix, with mobile being better suited to content, native and video advertising than traditional display and search. Mobile devices also now account for the majority of visits to retail sites, and more than a third of spend online.
We see large age-based differences across all internet activities, but the split is particularly significant for smartphone adoption and usage, with only a quarter of over-55s using smartphones, and only a third of those reporting downloading apps.
Vodafone Europe enjoyed a sharp improvement in mobile service revenue growth in its Q2, with the decline reduced to 5% from 8% the previous quarter
Part of this was due to a reduced regulatory impact, part was due to one-off factors, but underlying improvements are still clear across all major markets, with price declines attenuating and a significant improvement in competitive performance
In the short term the partial stabilisation of pricing is perhaps the result of a fairly fragile equilibrium which could shatter at any time, but Vodafone’s aggressive network investment and surging data volumes give confidence in a sturdier recovery going forward
EE’s 4G adoption continued to surge, with 1.4m net adds, over 80% of new contract sales taking 4G and just under 40% of contract base having adopted it
Mobile service revenue growth however slowed to -2.4% from -1.1% the previous quarter, with an extra regulatory hit from the EU’s ‘Consumer Rights Directive’ doing some of the damage, as well as some underlying weakness
Operating revenue growth (i.e. including fixed and revenue from MVNOs) was much healthier, helped by the fast growing fixed broadband business, but growth in mobile is crucial to driving profitability given the operating leverage involved