Report Overview


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UK Telecoms sector returns: Money’s too tight to mention


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GAIN ACCESS
Mobile sector returns are low, particularly for smaller-scale operators, with H3G earning less than its cost of capital. Regulatory initiatives, spectrum auctions and 5G look set to worsen this picture as H3G strives to gain viable scale
Back-book pricing is crucial to the returns of fixed challengers. Regulatory intervention is likely to lead to a waterbed effect in the fixed sector and exacerbate challenges in mobile
New entrant business case in full fibre is limited to de facto monopoly opportunities. There is the potential for BT’s returns to increase markedly if it gets full fibre right but new entrants’ inferior economics are unlikely to offer sufficient investor appeal

Contents

Regulatory initiatives threaten returns

Mobile returns low and very varied – scale is crucial

  • Returns even lower based on actual spectrum prices

Regulation drags mobile sector returns

Regulatory and policy support uneven?

Fixed reselling returns high, but vulnerable

Reseller returns highly vulnerable to back-book pricing

What return does Openreach really earn?

Infrastructure new entrants for wholesale monopolies only

Appendix 1 – Out-of-contract regulation

Appendix 2 – Methodology and Sources

  • Formula
  • Sources and adjustments

List of charts/tables

Figure 1: UK telecoms industry ROCE

Figure 2: Players with lowest returns in the UK telecoms sector

Figure 3: Industry ROCE without benefit of sleepers

Figure 4: ROCE using spectrum at current value

Figure 5: ROCE using spectrum at historic costs

Figure 6: UK mobile market service revenue growth

Figure 7: Outlook for change in mobile trends by operator

Figure 8: Mobile ROCE if all out-of-contract customers re-contracted

Figure 9: Fixed and mobile market revenue growth

Figure 10: Fixed-line ROCE

Figure 11: Fixed ROCE if all out-of-contract customers re-contracted

Figure 12: Openreach ROCE using various approaches

Figure 13: Contract status and price differentials by broadband provider

Figure 14: ROCE calculation and adjustments

Figure 15: Data sources

Figure 16: Adjustments made to reported figures