Report Overview

UK mobile market in Q4 2019 – Trends steady, mixed outlook

The UK mobile market was steady this quarter at around -2% ahead of out-of-contract notifications hitting from February

The mobile sector is playing an important role in tackling COVID-19 and is likely to be relatively resilient in the short term with a broadly-neutral financial impact. Longer term it will be exposed to the fortunes of the economy

Elsewhere, there have been green shoots of positivity in the outlook: some good regulatory news; a degree of price inflation; Carphone Warehouse’s retreat is a positive for the operators, and some financial drags will drop out as the year progresses

Contents

Executive summary: Trends steady, mixed outlook

UK mobile market: steady, in spite of appearances

Competitive performances: bouncing around

Assessing performance: neither service nor total revenue growth are perfect measures

Shifts in with-handset bundles and means of distribution driving revenue trends

Net adds: Vodafone still leading, O2 bouncing back

Churn edging up

ARPU flattish and distorted

Pricing: H3G price discount narrows

Pricing trending up on unlimited packages

Growth in data volumes accelerating again—and set to accelerate further

Financial performance: patchy disclosure, divergent momentum

COVID-19 network impact: challenging, but some resilience likely

COVID-19 financial impact: resilience again likely

End-of-contract legislation now in force

Automatic discounts will hit first, but only for some

Timing of out-of-contract initiatives will vary

All four operators have now launched 5G for mobile

More 5G spectrum to come—launch to ease capacity constraints

Carphone Warehouse scale back is a positive for the operators

Spectrum auction rules discourage H3G involvement

Huawei restrictions impact EE most in the short term, but will ultimately impact all

Shared Rural Network (SRN) agreement finalised

Nearing the end of the headwinds

Out-of-bundle pressure now steady

Contract price rises outlook better for some

Higher ALFs dragging EBITDA, especially for H3G, but refund some welcome news

Intra-EU calls cuts a drag for one more full quarter

List of charts/tables

Reported mobile service revenue growth

UK mobile market net adds (000s)

Reported mobile service revenue growth by operator

Reported total mobile revenue growth by operator

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

O2 totalrevenue and service revenue growth (IFRS 15)

Vodafone total revenue and service revenue growth (IFRS 15)

H3G total revenue and service revenue growth (IFRS 15)

IFRS 15 effect of indirect and direct mobile contract distribution

Contract net additions (000s)

Annualised contract churn

Contract ARPU growth

SIM-only share of contract subscriptions

‘Sweet spot’bundle with iPhone 6s/7/8/XR/11

SIM-only pricing by data allowance (GB)

12-month, SIM-only unlimited data pricing

Data volume growth by operator (year on year)

Data volume growth vs data usage per smartphone

EBITDA margin, last 12 months

Capex, last 6 months (£m)

Cashflow (EBITDA-capex) margin, last 12 months (£m)

Anecdotal evidence of changes in data traffic

Peak complaints about network service per 15 minutes

Offers to customers

UK underlying service revenue vs GDP growth

Potential drag from loss of ‘sleepers’

Discounts offered by each operator to with-handset customers out of contract for more than three months

Estimated drag from proposed discounts

Timing and impact of out-of-contract notifications and discounts

5G launch dates and plans

Spare capacity per operator (PB per year)

Timeline of UK mobile capacity

Spectrum holding by operator (MHz)

Huawei’s market shares

UK mobile coverage (% of landmass)

Outlook for change in mobile trends in 2019 by operator

Operators’restrictions on out-of-bundle spending before new regulation

MNO price increases in 2019

RPI-linked price increases in 2018, 2019, and expected 2020

Annual licence fees (£m per MHz per annum)

EBITDA drag from ALF change (excluding H3G 5G spectrum)

Bolt-on offers for international calls from mobiles