Report Overview

European mobile in Q2 2020: Sounding a more cautious note

Service revenue growth in the major European markets worsened by 3.5ppts this quarter, as a loss of roaming, prepay, and business revenues hit almost all operators. The UK was hardest hit as prepay and out-of-bundle usage was offloaded to Wif-Fi, and there was an accounting drag as a consequence of the ending of the relationship between O2 and Carphone Warehouse. Conversely, performance in the Italian market was almost flat as prepay usage was up and there was a degree of reprieve from competitive pressures from Iliad. Elsewhere, the French market was hard hit by the loss of inter-continental roaming as far back as February as China began to shut down but other fundamentals appear to be robust. In Germany, O2’s revenue trend was hardest hit but it maintained its strong net adds momentum. While the lockdown provided a break from ‘a very intense promotional environment’ in Spain, that intensity resumed as soon as lockdown lifted with particularly compelling converged bundle offers from Vodafone and Yoigo.

Contents

Executive summary

Reported and underlying revenue growth

• COVID-19 impacts several revenue streams
• A relatively good quarter for Vodafone
• Mobile network performance resilient in the face of COVID-19
• COVID-19 short-term impacts mixed but negative overall
• Mobile operators gifts to customers to assist with COVID-19 impact
• Telecom operators’ financial guidance becoming more cautious as time goes on
• Telecom operators financial guidance detail
• COVID-19 creates longer-term challenges
• Slow-pedal on German convergence begins to pay dividends
• France 5G auction to go ahead this year while Drillisch seems no closer to a deal
• Infrastructure sharing gears up to reduce costs and debt levels
• Huawei now banned from UK networks by 2027 at great cost to the sector
• Intra-EU calls drag boosted service revenues 1ppt+ this quarter and next
• Revenue trends driven by shifts in with-handset bundles and means of distribution
• IFRS 15 revenue trend distortions
• UK operator performance: neither service nor total revenue growth are perfect measures
• German operator performance: neither service nor total revenue growth are perfect measures
• End-of-contract notifications a drag for most through 2021

Country analysis

• UK—recovery interrupted
• France—roaming hit hard, other fundamentals steady
• Germany—O2’s revenues hard-hit but extends its lead of net adds
• Italy—lockdown (temporarily) eases pressure from Iliad
• Spain—intense competition returns post lockdown

Appendix

List of charts/tables

Service revenue growth by market

Reported mobile revenue growth—top 5 European markets

Service revenue growth by operator group

Mobile service revenue growth versus peers

Contract net adds in top 4 European markets

Anecdotal evidence of changes in data traffic

Europe average mobile network speeds (Mbps)

Mobile operators gifts to customers to assist with COVID-19 impact

COVID-19 related financial guidance changes (or lack thereof)

Europe ‘top 5’ GDP vs service revenue growth

German converged customer net adds (000)

T-Mobile versus Vodafone contract ARPU growth

Recent and forthcoming spectrum auctions

Spectrum auction results in Germany

Vodafone tower/network share deals

Approaches to Huawei across Europe

Intra-EU calling prices—Euro cents per minute prior to cuts

IFRS 15 effect of indirect and direct mobile contract distribution

BT/EE total revenue and service revenue growth (IFRS 15)

Vodafone total revenue and service revenue growth (IFRS 15)

O2 total revenue and service revenue growth (IFRS 15)

H3G total revenue and service revenue growth (IFRS 15)

O2 mobile service revenue and total mobile revenue growth

T-Mobile mobile service revenue and total mobile revenue growth

Vodafone mobile service revenue and total mobile revenue growth

Potential drag from out-of-contract customers spinning down

Contract net additions (000)

Service revenue growth

Reported mobile service revenue growth by operator

Contract net additions (000)

Service revenue growth

Service revenue growth by operator

European MTR rates (Euro cents)

Regulatory impact—top 5 European markets

Regulatory impact by market

Service revenue and service revenue growth

European MNO consolidation timeline