This note looks at the likely extent of regulatory pressures on reducing termination charges for off-net calls to the 2G networks of mobile network operators (MNOs) in the UK, Italy and Germany. These charges are well above cost – mainly because each MNO acts as a monopolist for termination of calls on its network - and are therefore important contributors to revenues as well as profits of MNOs. In the UK, off-net interconnection charges contribute one-quarter of revenues of the four MNOs.

Analysts are predicting substantial declines in mobile industry capital expenditure when expressed as a percentage of turnover. These improvements are supposed to be driven by (a) declining growth in call minutes; (b) decreasing prices of capital equipment; and (c) better 'capital efficiency' in the 3G era.

The continuing success of the industry has derived partly from its position at the meeting point of several important social trends – the decline in the reading of books, the gradual fall in the total circulation of newspapers, increased attention paid to celebrities and fashion and, most important, the increasing amount of disposable income available to the people under 35. Improvements in printing costs and distribution have allowed publishers to make money, even though the average sales per magazine have fallen substantially.

Camera phones represent the best hope of the mobile operators. Proven demand in Japan gives European operators reason for optimism that cameras will increase ARPU. Handset manufacturers believe it will ignite replacement demand.

In this report, we look at the components of a theoretical DCF valuation of European mobile operators, focusing on Vodafone as the most salient example, and compare our views with those of the ‘analyst consensus’. Perhaps unsurprisingly, we are more conservative on revenue and margin forecasts than most forecasters, but an area in which we are uncharacteristically optimistic is cost of capital; the one benefit of the mobile industry’s transformation to low but stable growth is that WACCs should fall through both reduced betas and the ability to take on more debt. Our resulting value per share for Vodafone is lower than the analyst consensus forecasts would give, but is still a healthy 115p. We should stress that this is not a price target or a recommendation, as many other factors affect stock prices apart from theoretical projections. The Vodafone share price is currently trading below the valuation implicit in our low growth assumptions, perhaps because of cynicism about the company's excessive past promises, the possibility of further expensive acquisitions or many other potential concerns.

This note reports on our third bi-monthly survey of handset replacement intentions in the UK. Purchase intentions have weakened slightly in the last four months, suggesting a further lengthening in the average replacement cycle. Interest in replacing phones to acquire new handset features remains low. Awareness of camera phones is extremely high, but the most recent survey shows a decline in the level of interest in purchasing, probably as the prices of these devices has become more widely known. Nokia remains the overwhelmingly dominant choice for consumers’ next brand of phone. No other manufacturer has more than a tiny prospective share.

We think that TPS can probably just survive the prospective loss of football to Canal Satellite. Paradoxically, this may not be an ideal result for TF1, because it will not be able to argue that a merger of the two satellite platforms is justified on 'failing firm' grounds. Competition regulators will sometimes allow a merger on the grounds that the weaker company is bound to fail. This does not seem to be likely to be the case in French pay-TV, though TPS's subscriber numbers will be dented by the loss of the best football.

Last week Nokia launched its first 3G handset, the 6650. Or did it? Although the size, weight and price initially looked impressive, the handset has not really been launched (not until H1 2003), and technically it is not really 3G (the data rates are too slow). By the time the handset is actually widely available to consumers, GSM-only handsets will have a much better feature/price combination, with a 3G handset only appealing to laptop users who would probably prefer a data card anyway. This is good news for the operators - they can comfortably delay potentially expensive 3G roll-outs safe in the knowledge that competitors will not gain any advantage by being first to market with the current generation of handsets.

This note looks at what has happened to NTL in the past year, and the prospects for 2003-2004. It emerges from a period of introspection to face stronger competition than ever. Sky has won the battle for digital TV. Although NTL has been successful in broadband this year, BT has serious plans for this market.

In this short note we look at three data product offerings recently launched by the operators: Vodafone Live!, the Orange SPV and Vodafone Mobile Office laptop card service. Vodafone Live! follows a sensible strategy of having the operator define the user interface to help drive revenues, and is launched with two new light and compact handset models. However, the service has many glitches, with only the camera function working as well as it should, and very few of its target market will be likely to be able to afford the handsets. The SPV and laptop cards, being aimed at business users, stand a much better chance of being affordable to their target market, but we wait to see if those products are marketed and executed well.

Weak revenue growth has been a feature of both European and US fixed line incumbent operators over the last six months, with the root of the problem lying in poor growth, or even decline, in the volume of voice calls. This report looks at the reasons.

We have recently completed our December survey of UK mobile users, which shows increased purchase intentions for handsets in general and camera phones in particular.  We summarise the results in this note, which are good news for handset manufacturers, but more mixed for the operators.

In this report we look at the sales and usage of camera phones in Europe, and estimate future sales based in part on the results of our regular survey of UK mobile users. As a consequence of these findings, we have downgraded our forecast of UK MMS revenues.