The UK enters consolidation phase with healthy trends across the fixed, pay-TV and mobile markets.

10 September 2015

Q2 2015 operator results confirmed the positive momentum of the UK market, which is one of the healthiest in Europe in terms of customer and ARPU trends. 

The ongoing consolidation and possible regulatory remedies will change competitive dynamics over the next few years and will likely reinforce a household-centric proposition. However, Pyramid Research expects the focus to remain predominantly on service quality rather than discounted prices and this will drive some revenue growth between 2015 and 2020. 

Key takeaways from Q2 2015 operator results (reporting season closed with Three’s reporting on 25 August)

Despite Q2 seasonality, customer net additions remained quite strong – particularly in fixed broadband (205,000) and pay-TV (215,000) – and ARPUs remained resilient as the customer mix improved significantly as a result of the incorporation of high-value content and upgrades to fiber and LTE. 

BT and Sky continue to lead the way with an estimated share of net additions of 86% and 78% in the retail fixed broadband and pay-TV markets, respectively while Virgin Media lost further traction (low broadband net additions and loss of pay-TV customers for the second consecutive month). 

Sky overtook BT for the first time in six quarters in terms of broadband net additions (91,000 vs. 85,000). Sky’s churn reached the lowest level in 11 years at 9.8% and migration from pay-TV only to triple play is a key opportunity (Sky had 5.6m fixed broadband and 11.1m pay-TV customers as of June 2015). 

TalkTalk had a slowdown in broadband growth while Vodafone will be launching nationwide consumer fixed broadband by the end of the summer (Pyramid Research forecasts 25,000 net additions for Vodafone in H2 2015 compared to 6,000 in H1). 

LTE has moved beyond early-adopter status (28% of mobile connections as of June 2015) and is helping operators to stabilize their contract ARPU (Vodafone, EE) and return to revenue growth (Vodafone). MVNOs have also gained strength: Tesco and Virgin Media reached a combined customer base of more than 7m, which is not far from Three (8.8m before the integration of O2). BT gained 100,000 mobile customers in the first three months, which is about 15% of average quarterly net additions at market level over the last six quarters.

Exhibit 1 illustrates quarterly retail fixed broadband net additions for leading operators in the UK including Pyramid Research’s forecasts for Q3 and Q4 2015. Pyramid expects customer growth in the fixed broadband market in 2015 to be as strong as in 2014, at 4%. Sky and BT will account for 325,000 of the 441,000 net additions estimated for H2 2015. 





Five-year outlook and forecasts 

Pyramid Research forecasts telecoms and pay-TV revenue in the UK to grow from £34bn in 2015 to £35bn in 2020 and data and video services to account for 68% of revenue by 2020. 

More than 80% of the £1bn revenue growth will come from fixed and pay-TV services while mobile services will grow slowly due to the EU roaming impact and the possible negative effect of fixed-mobile convergence on mobile revenue (the latter happened in France, Portugal, Spain and, more recently, in Germany). These two factors will partially offset the positive impact of both LTE ARPU uplift and M2M expansion on mobile revenue.  

The number of fixed broadband connections will increase by 3.7m between 2015 and 2020 and BT will take the largest individual operator share of this growth (1m). BT’s estimated growth factors in the positive impact of quadruple-play bundles following the integration of EE. 

BT’s momentum in the pay-TV market is strong as well and its net additions keep accelerating (60,000 in Q2). Pyramid Research forecasts 2 million BT TV customers by 2020 (10% market share compared to 7% in 2015).

- Pablo Iacopino – Director, Europe 


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