Report Overview

UK mobile market Q2 2019: Reality bites, and will bite some more

The UK mobile market suffered its worst performance in five years this quarter with Vodafone alone, somewhat inexplicably, bucking the trend

5G capacity is impacting pricing trends with SIM-only packages flattening and unlimited packages increasing in popularity and complexity

As the operators invest in solving rural coverage and rolling out 5G, they will continue to be hit by regulation. Out-of-contract notifications and discounts are next in a long series of assaults

Contents

Executive Summary

• Reality bites, and will bite some more
• Emerging headwinds

Market and competitive trends

• UK mobile market – worst performance in five years
• Competitive performances – Vodafone surprises
• Net adds – EE still dominates but others up on last quarter
• Continued positive momentum in churn reduction
• Vodafone bucks the sharply negative trend
• Pricing – bundles trending up and SIM-only flattening out
• Unlimited packages gain in popularity and complexity
• Data volume growth bolstered by Ofcom rulings
• Financial performance: patchy disclosure, divergent trends
• 5G to ramp up rapidly through 2019
• 5G launch to ease capacity constraints
• Rural coverage – an operator-led solution?

Emerging headwinds

• Several headwinds in 2019
• Out-of-bundle pressure continues to mount
• Contract price rise outlook greatly diminished
• Annual licence fees pop up again; a drag on EBITDA
• Intra-EU calls a drag this quarter, exacerbating next
• End-of-contract notifications a potential hit to EBITDA
• Automatic discounts for with-handset subscribers out of contract by >3 months

Appendix

• IFRS 15 reporting note
• Zero-rating
• Previous contract price increases for existing customers
• Spectrum

List of charts/tables

Figure 1. Outlook for change in mobile trends in 2019 by operator

Figure 2. Reported mobile service revenue growth

Figure 3. UK mobile market net adds (000s)

Figure 4. Reported mobile service revenue growth by operator

Figure 5. Contract net additions (000s)

Figure 6. Contract gross additions share

Figure 7. Annualised contract churn

Figure 8. Contract ARPU growth

Figure 9. SIM-only share of contract

Figure 10. ‘Sweet spot’ bundle with iPhone 6s/7/8/XR

Figure 11. SIM-only pricing by data allowance (GB)

Figure 12. SIM-only unlimited data pricing (£/month)

Figure 13. Data volume growth by operator

Figure 14. Data volume growth vs. data usage per smartphone

Figure 15. Capex by operator, last 6 months (£m)

Figure 16. EBITDA margin by operator, trailing 12 months

Figure 17. Cashflow (EBITDA-capex) margin by operator, last 12 months (£m)

Figure 18. 5G launch dates and plans

Figure 19. Spare capacity per operator (PB per year)

Figure 20. Timeline of UK mobile capacity

Figure 21. Landmass 4G coverage, 2018

Figure 22. Outlook for change in mobile trends in 2019 by operator

Figure 23. Operators’ restrictions on out-of-bundle spending before new regulation

Figure 24. MNO price increases

Figure 25. RPI-linked price increases in 2018 vs 2019

Figure 26. Annual licence fees (£m per MHz per annum)

Figure 27. Drag from ALF change on EBITDA (excluding H3G 5G spectrum)

Figure 28. Bolt-on offers for international calls from mobiles

Figure 29. Scenario analysis – revenue and EBITDA drag from EU calls price cap

Figure 30. Potential drag from out-of-contract customers spinning down

Figure 31. Potential drag from discounting out of contract >3 months

Figure 32. UK zero-rated data offers

Figure 33. Select previous MNO price increases

Figure 34. Mobile network operator spectrum ownership (both up and down MHz)