mobile revenue growth and outlook q2 2012 growth drops worse to come 2012082 0
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European mobile revenue growth and outlook Q2 2012
Growth drops, worse to come
Tim Hatt +44 207 851 0904 [email protected]
James Barford +44 207 851 0901 [email protected]
21 August 2012
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Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 2
1. Summary
2. Reported and underlying revenue growth
3. Country analysis
4. Appendix
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Executive summary: Growth drops, worse to come
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 3
• In this presentation we show our analysis of revenue growth trends for mobile operators in the top five European
markets (UK, Germany, France, Italy and Spain). The historical analysis is based on the published results of the
operators, although they include our estimates where their data is inconsistent or not complete. A copy of the
underlying data in spreadsheet format is available to our subscription clients on request• Reported mobile revenue growth across the top five markets in Europe dropped back in the June quarter, by 0.4ppts
to -3.7%. The regulatory impact felt by these markets mitigated slightly, so growth on an underlying basis (excluding
the impact of MTR cuts) declined by 0.5ppts to -0.9%
• While it is disappointing that underlying growth dipped, it is at least still above the level of growth seen in the
December 2011 quarter (-1.4%)
• The drop in the overall market in the June quarter was principally volume-led, with call volume growth dropping in
coordinated fashion across each of the five markets, suggesting a macro-led decline was to blame, although the drop
in volume growth is probably not quite as bad as it looks given that volumes were likely boosted in the March quarterby the leap year/extra day impact (around 1ppt)
• There is a strong north-south divide in performance; the northern European markets of the UK, Germany and France
are actually performing relatively well, with underlying growth improving in Q2. It is the southern markets of Italy
and Spain that continue to drag growth, with these markets suffering both from deteriorating macro environments
and competitive pricing
• Germany remains the strongest economy of the top five, with relatively high consumer confidence, and this has no
doubt helped the strong volume growth. It has also benefitted from an MTR cut holiday, although this will come to
an end from December
• The UK does not have quite such a strong economy, but performance has been helped by firm pricing and a healthy
data contribution, itself driven by the UK having the highest penetration of smartphone owners choosing to take a
data plan. The downside is that it still faces a stubbornly high regulatory burden, with this now higher in 2012 than it
otherwise would have been in light of a recent adverse regulatory ruling
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Executive summary: Growth drops, worse to come
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 4
• Volumes remain relatively healthy in France, and while pricing remains competitive, it has eased slightly in the
months following Free Mobile’s launch in January 2012. Three of the operators have not yet reported their results,
but based on Orange’s reporting and data published by the regulator, we estimate that underlying revenue growth
once again improved for the market as a whole, although growth for the incumbents dropped down. Free Mobileitself is likely still enjoying substantial subscriber net adds, although these appear to have slowed considerably in Q2,
allowing the other operators to return to net subscriber growth
• Italy’s mobile market growth dropped sharply, having briefly improved in the March quarter. This was a volume-led
decline, with pricing in this market also weak. It is difficult for the operators to raise prices given that consumes are
sapped of optimism and the market is dominated by prepay, making pricing differences between the operators more
transparent (which plays into the hands of smaller players and puts pressure on their larger competitors)
• Spain is beset not only by a deteriorating economy and consumer confidence (with unemployment running at 25%,
and youth unemployment over 50%), but also by a fierce pricing environment. The situation is not being helped bythe recent self-inflicted decision by most operators to abolish handset subsidies for new customers. While it can be
defensibly argued that a reduction in subsidies is appropriate (even overdue), their outright elimination is not; the
main effect so far has been to drive customers towards the smaller operators and MVNOs, whose discount/no-frills
offers are now more transparent, or to leave the contract market altogether now that the main incentive for getting
a contract (a shiny new handset included in the bundle) is gone
• The outlook for the European mobile market is bleak given that the regulatory impact will rise from the September
quarter and then again in the March 2013 quarter (bringing a combined 1.8ppt further headwind to growth), with
consumer confidence already very weak and deteriorating in July. The northern European markets are operating in
relatively stable competitive environments, but the southern markets of Italy and Spain face severe pricecompetition, with a high risk of further deterioration in underlying growth. We therefore expect European mobile
revenue growth to get worse before it gets better, with little prospect for significant improvement before H2 2013
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2. Reported and underlying revenue growth
1. Summary
3. Country analysis
4. Appendix
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 5
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Reported mobile revenue growth
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 6
• European mobile revenue growth dropped down in the June
quarter, by 0.4ppts to -3.7%
• The country level performances suggest a strong north-south
divide, with growth in the northern European markets actuallyimproving, while the southern markets of Italy and Spain worsen
• Among the operator groups, T-Mobile enjoyed a small
improvement in Q2, while TIM dropped sharply, reversing the
improvement of Q1; Telefonica’s growth continues to deteriorate,
driven by poor performance in its domestic market -1.1%-0.2% -0.1%
-1.8%
-3.0% -3.4%
-4.6%
-3.3% -3.7%
-6%
-4%
-2%
0%
2%
4%
6%
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar -12 Jun-12
[Source: Enders Analysis based on company reports]
Reported mobile revenue growth –Top 5 European markets
-15%
-10%
-5%
0%
5%
10%
Jun-10 Sep-10 Dec-10 Mar -11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Service revenue growth by market
UK Germany France Italy Spain
[Source: Enders Analysis based on company reports]
-15%
-10%
-5%
0%
5%
10%
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Vodafone FT T-Mobile TEF TIM
[Source: Enders Analysis based on company reports]
Service revenue growth by operator group –Top 5 Europeanmarkets
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Underlying mobile revenue growth
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 7
• The MTR impact lessened in Q2, which meant that underlying
growth actually dropped by 0.5ppts to -0.9%
• While this is a disappointment given that growth had (briefly)
ticked up in the March quarter (perhaps helped by the extra dayleap year effect), market growth is at least still above the level seen
in December 2011
• Germany and the UK remain the powerhouses of growth, with the
French market as a whole also improving. Unfortunately, Italy and
Spain both weakened in Q2
• The macro environment continues to be challenging across Europe,
although it is particularly acute in the southern markets, with both
GDP growth and consumer confidence dropping sharply in 2012
2.7% 1.6% 1.9%
2.6%3.6%
3.4%
3.2%
2.9%
2.7%-1.1%
-0.2% -0.1%
-1.8%
-3.0%-3.4%
-4.6%
-3.3%-3.7%
1.6%1.4%
1.8%
0.8% 0.6%0.0%
-1.4%
-0.4%-0.9%
-6%
-4%
-2%
0%
2%
4%
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Regulation Reported Underlying
[Source: Enders Analysis based on company reports]
Underlying service revenue growth –Top 5 European markets
-15%
-10%
-5%
0%
5%
10%
Jun-10 Sep-10 Dec-10 Mar -11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Underlying service revenue growth by market
UK Germany France Italy Spain
[Source: Enders Analysis based on company reports]
-40
-30
-20
-10
0
10
20
30
40
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
C o n s u m e r c o n f i d e n c e
R e a l G D
P g r o w t h
Key macro indicators
N. Europe S. Europe [Source: Enders Analysis based on Eurostat]
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• The MTR impact once again lessened in the June quarter, partially
mitigating the fall in mobile revenue growth
• Unfortunately, the progressive lessening over the last year has now
come to an end; the impact will rise from the September quarter assteep cuts in Italy come online, and we estimate a further rise
above 4% from the March 2013 quarter
• The timing of the various glidepaths across Europe means that the
aggregate regulatory impact will stubbornly remain above 3% until
the end of 2013, after which it will die down to manageable levels
before disappearing altogether as termination revenue becomes an
insignificant part of overall revenue
Regulatory cuts and outlook
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 8
3.8%
0.0%
3.7% 3.7%
1.8%2.5% 2.7%
1.8%
11.5%
1.5%
0%
2%
4%
6%
8%
10%
12%
14%
UK Germany France Italy Spain
Regulatory impact by market
Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 [Source: Enders Analysis]
2.6%
3.6%3.4%
3.2%2.9%
2.7%
3.3% 3.4%
4.5%4.0%
2.6% 2.6%
0%
1%
2%
3%
4%
5%
6%
Regulatory impact - Top 5 European markets
[Source: Enders Analysis]
ForecastActual
28.1%30.2%
51.8%
30.6%
3.2% 3.1% 3.4%0.9%
0%
10%
20%
30%
40%
50%
60%
2011 2012 2013 2014
Annual regulatory impact
Average termination rate cut Impact on service revenue
[Source: Enders Analysis]
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Overall growth drivers
• Call volume growth across Europe dropped
back sharply in Q2, reversing the
improvement seen in Q1
• While the drop was probably not as steep asit looks given that the March quarter likely
benefitted from the leap year/extra day
effect (an impact of around 1ppt), growth
dipped down in each of the top five markets,
suggesting ongoing macro weakness is to
blame
• Weakening volume growth was the main
driver behind the drop in mobile service
revenue growth, partially mitigated by firmed
pricing
• While the impact from inbound voice, SMS
and data varies by market, their aggregate
contribution to growth at the European level
was largely unchanged
9Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082]
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Outbound voice
price
Outbound voice
volume
Inbound voice SMS Data Service revenue
growth
Contributions to mobile service revenue growth
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 [Source: Enders Analysis based on company reports]
11.2%
8.3%
5.9%4.8%
2.1%3.2%
4.0%5.2%
5.8%5.2%
6.5%
4.3% 4.8% 4.3%
2.5%
5.3%
2.6%
0%
5%
10%
15%
Estimated market minutes growth –Top 5 European markets
[Source: Enders Analysis based on company reports]
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Country by country analysis
Market position on key metrics, June 2012
GDP growthUnderlying
premium/(deficit) toGDP
Underlying growth MTR impact Reported growth
UK -0.5% 2.7% 2.2% 3.8% -1.6%
Germany 1.2% 1.9% 3.1% 0.0% 3.1%
France 0.4% 0.0% 0.4% 3.7% -3.4%
Italy -2.4% -0.3% -2.7% 3.7% -6.4%
Spain -1.0% -9.2% -10.2% 1.8% -12.0%
Top 5 markets -0.5% -0.5% -0.9% 2.7% -3.7%
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 10
• The UK and Germany have the strongest underlying mobile
markets, with the UK driven by firm pricing (only a high MTR
impact drags its reported growth negative) and Germany by a
relatively strong economy• Underlying growth in France is also positive despite still heavy price
competition, but since it faces a high MTR impact, its reported
growth is negative
• Italy operates in a very weak economy and also suffers from
competitive pricing, with underlying growth firmly negative, and
reported growth even lower given the high MTR impact
• Spain remains by far the weakest market; while it already suffersfrom a weak macro environment and competitive pricing, recent
internal market changes (i.e. removing handset subsidies) has not
helped, with underlying growth now declining in double digits
Key (impact on growth) Positive Moderate Negative[Source: Enders Analysis]
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Vodafone performance
• Vodafone’s competitive performance
weakened slightly in the quarter, which was
mainly driven by weakened performances in
the UK and Italy
• It is still performing very well by historical
standards, with this particularly evident
relative to the incumbent operators, where it
continues to outperform by around 5ppts
-10%
-5%
0%
5%
Mobile service revenue growth
Vodafone Incumbents Other operators
Note: includes UK, Germany, Italy, Spain[Source: Enders Analysis based on company reports]
4.9%
-5.3%
0.0%
-6%
-4%-2%
0%
2%
4%
6%
Mar-09Jun-09 Sep-09Dec-09Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11Mar-12 Jun-12
Gap between Vodafone and competitors (ppts)
Incumbents Other operators Overall
Note: gap is difference in service revenue growth between Vodafone and competitorsIncludes UK, Germany, Italy, Spain
[Source: Enders Analysis based on company reports]
11Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082]
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Outlook
• European economic conditions continue to
remain very challenging, with aggregate
growth across the top five markets turning
negative for the first time since 2009• The UK, Italy and Spain are all in technical
recession, and on the EC’s latest economic
forecasts (issued May 2012), growth across
the top five markets is not expected to turn
positive until the March 2013 quarter
• Given that the MTR impact will rise from the
September quarter and again in Q1 2013, the
European mobile market is likely to face
significant economic and regulatory
headwinds through 2012 and into 2013
•
We therefore expect mobile revenue growthto get worse before it gets better, with
significant improvement unlikely before H2
2013
12Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082]
1.9%1.0%
-0.2%
-2.2%
-5.4%-5.2%-4.4%
-2.3%
0.7%1.9%2.1% 2.0%2.1%
1.4%1.2%0.8%0.0%
-0.5%-0.7%-0.4%
0.1%0.8%1.1%1.5%
-8%
-6%
-4%
-2%
0%
2%
4%
Real GDP growth
Actual Forecast [Source: Enders Analysis based on EC Spring Economic Forecast, May 2012]
2.1%1.3%
0.3%0.7%
-1.0%-2.0%
-3.5%-3.3%
-1.7%-1.1%
-0.2%-0.1%-1.8%
-3.0%-3.4%-4.6%
-3.3%-3.7%-4.3%-4.4%
-5.4%-4.9%-3.6%-3.6%
-8%
-4%
0%
4%
8%
Reported service revenue growth outlook
[Source: Enders Analysis based on company reports]
Outlook assumingunderlying growth
remains flat
Actual reportedgrowth
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3. Country analysis
1. Summary
2. Reported and underlying revenue growth
4. Appendix
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 13
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Contributions to mobile revenue growth
Top 5 European markets, Q2 2012
Voice priceVoice
volumeOutbound
voiceInbound
voiceTotal voice SMS Data
OtherMNOs*
Reportedgrowth
UK -1.2% -1.1% -2.3% -4.0% -6.3% -1.3% 6.0% -1.6%
Germany -4.3% 1.7% -2.6% 0.2% -2.4% 0.8% 4.7% 3.1%
France -11.4% 7.1% -4.4% -1.8% -6.2% 0.9% 1.9% -3.4%
Italy -6.7% 2.0% -4.7% -2.7% -7.4% -0.6% 1.6% 0.0% -6.4%
Spain -6.5% -4.5% -11.0% -2.3% -13.3% -2.1% 3.1% 0.2% -12.0%
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 14
• Below we show the key drivers of overall mobile revenue growth for
each market on a side-by-side basis; we explore the drivers in more
detail for each country on an individual basis in the following slides
• The percentages shown are contributions to overall revenue
growth; i.e. the impact of a change in a particular metric on overall
revenue growth
*In some cases detailed data for all the operators is not available; we have estimated where there are gaps, but forsome smaller operators this would be speculative, so we have shown their contribution separately
[Source: Enders Analysis based on company reports]
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UK focus
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 15
• Underlying growth in the UK nudged down slightly in the June
quarter, but at 2.2% remains one of the strongest in Europe
• Volumes continued to weaken, but the market continues to benefit
from relatively firm pricing and a healthy data contribution, drivenby rising penetration of smartphone customers with a data plan
• On the regulatory front, on 12 May 2012 Ofcom enacted a CAT
decision to speed up the MTR glidepath by a year; as a result, the
market will face a higher impact for the rest of 2012 than it
otherwise would have under the original proposals
• The outlook for the market remains challenging given the weak
economic outlook and high MTR impact until H2 2013, with mobile
revenue growth unlikely to improve significantly before then
-1.9%
-0.6%
2.9%
4.9%
3.3%
-1.4%-0.6%
-2.8%-2.1%
-1.6%
2.5%3.2%
2.8%
4.8%
3.1% 3.3%3.9%
1.7%2.4% 2.2%
-6%
-4%
-2%
0%
2%
4%
6%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Reported and underlying service revenue growth
Reported Es timated under lying
[Source: Enders Analysis based on company reports]
-15%
-10%
-5%
0%
5%
10%
15%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Minutes Revenue per minute
[Source: Enders Analysis based on company reports]
Outbound minutes and voice revenue per minute growth
-6%
-4%
-2%
0%
2%
4%
6%
Outbound voice Inbound voice SMS Data Service revenue
growth
Contributions to mobile service revenue growth
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
[Source: Enders Analysis based on company reports]
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UK market analysis
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 16
• EE improved its growth again in Q2, with it now growing at around
the same level as Vodafone, which dipped down a little
• Despite weak top line growth, O2 has markedly improved its
commercial performance over the last year, winning an increasing
share of contract customers, which should help its revenue growth
moving forwards as these feed through to the base
• H3G continues to perform very well with growth of around 15%, as
it benefits from the continued strong contract net adds from H2
2011 and into H1 2012
• It has commendably reduced its churn to a level similar to that of its
competitors , but this is likely to come under pressure in H2 as the
smartphone customers it acquired during its push in 2010 come up
for renewal
-10%
-5%
0%
5%
10%
15%
20%
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
EE Vodafone O2 H3G Virgin
[Source: Enders Analysis based on company reports]
Reported mobile service revenue growth by operator
0
50
100
150
200
250
300
350
EE Vodafone O2 H3G Virgin
Contract net additions (000)
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
[Source: Enders Analysis based on company reports]
0%
5%
10%
15%
20%
25%
EE Vodafone O2 H3G
Annualised contract churn
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
[Source: Enders Analysis based on company reports]
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UK financial performance
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 17
• Margins have gradually increased at Vodafone over the last year, while
they remain subdued at EE and O2
• All of the operators will have enjoyed a dual benefit from falling prepay
volumes and lower subsidies to acquire these customers, but other
factors are also at play
– EE increased its contract retentions by 9% in H1, with its margin
dropping down
– O2 has pulled back on the contract retention drive it made in Q1,
but weak revenue growth is still driving negative operating leverage
• Capex dropped down at EE in H1, although the spend for it and its
competitors is roughly in line with seasonal trends
• Vodafone’s strong cost control and stable top line growth mean it nowhas the highest cashflow margin among the big 3 operators
20.4% 22.7%
26.6%
18.8%
24.0% 23.5%
0%
5%
10%
15%
20%
25%
30%
35%
EE Vodafone O2
EBITDA margin by operator, last 12 months
Jun-10 Dec-10 Jun-11 Dec-11 Jun-12
Note: Vodafone figures are for the 12 months to March and SeptemberEE excludes fixed line and restructuring costs
[Source: Enders Analysis based on company reports]
221
353
302
245
356
309
0
50
100150
200
250
300
350
400
EE Vodafone O2
Capex by operator, last 6 months (£m)
Jun-10 Dec-10 Jun-11 Dec-11 Jun-12
Note: Vodafone is for the 6 months to March and September; EE excludes fixed line[Source: Enders Analysis based on company reports]
649 719 710
9.8%
13.3%12.1%
0%
5%
10%
15%
20%
-
300
600
900
1,200
1,500
1,800
EE Vodafone O2
Cashflow Cashflow %
Note: Vodafone is for the 12 months to March; EE excludes fixed line[Source: Enders Analysis based on company reports]
Cashflow (EBITDA-capex) margin by operator12 months to June 2012 (£m)
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Germany focus
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 18
• The German mobile market remains one of the strongest in Europe,with underlying growth rising in Q2, by 0.2ppts to 3.1%
• The market continues to operate in relatively benign economic
conditions, and while volume growth nudged down in Q2, this wasmore than made up for by firmer pricing
• At the operator level, growth improved for Vodafone and T-Mobile,although growth for both of the smaller operators remains robust
• Looking forward, the market will continue to enjoy the MTR holidayuntil the end of November (i.e. Q3 and most of Q4); the regulator hasyet to specify whether/when MTRs will fall further beyond this, butour current expectation is that cuts will be implemented around theend of 2012/start of 2013, bringing a renewed regulatory headwind
• While growth may therefore improve in the short term, it is likely tocome under renewed pressure from the end of 2012
0.6%
2.9%3.8%
3.0%
-0.6%-1.1% -1.0%
0.2%
2.9% 3.1%
2.6%2.9%
3.8%4.7% 4.5%
4.0% 3.9% 3.7%2.9% 3.1%
-6%
-4%
-2%
0%
2%
4%
6%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Reported and underlying service revenue growth
Reported Estimated u nderlying
[Source: Enders Analysis based on company reports]
-15%
-10%
-5%
0%
5%
10%
15%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Minutes Revenue per minute
[Source: Enders Analysis based on company reports]
Outbound minutes and voice revenue per minute growth
-15%
-10%
-5%
0%
5%
10%
15%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11Mar-12 Jun-12
Service revenue growth by operator
T-Mobile Vodafone O2 E-Plus
[Source: Enders Analysis based on company reports]
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Launch of Free Mobile: six months on
• Orange is the only French mobile operator to
have reported so far, but the French regulator
ARCEP has reported subscriber figures for the
total market, MVNOs as a group and the totalvolume of number ports
• The evidence suggests that Free Mobile
subscriber acquisition has slowed dramatically
since Q1, with number port volumes down
dramatically, and both Orange and the
MVNOs as a group returning to positive
contract net adds in Q2 after declines in Q1
• However, Free Mobile is likely still enjoying
strong growth in absolute terms, with number
ports still above their historical norms; we
estimate that it gained 0.8m in Q2 (with a
reasonably wide range of uncertainty around
this)
• As discussed in our report Launch of Free
Mobile [2012-021] , the challenge for Free will
come in Q3 2012 and beyond as its voice and
text termination rates are forced to convergewith its competitors
19Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082]
0.2 0.2
-0.4
0.10.20.5
-0.5
0.40.3 0.2
-0.1
0.20.0 0.0
2.6
0.80.7 0.9
1.61.4
-1
0
1
2
3
Sep-11 Dec-11 Mar-12 Jun-12
Contract net additions (m)
Orange SFR and Bouygues* MVNOs Free* Market
*Estimate made for Q2 2012 as not yet reported[Source: Enders Analysis based on company reports, ARCEP]
0.5 0.60.7 0.8 0.7 0.7
1.0
2.6
1.4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Numbers ported in France (m)
[Source: ARCEP]
Free Mobile launch,10 January 2012
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France focus
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 20
• Orange is the only operator to have reported, but based on
ARCEP’s reporting of subscribers, we estimate that underlying
market revenue growth rose again in the June quarter to 0.4%
• While this is an improvement at the market level, Orange’s growthdeclined and we estimate growth also weakened for the other two
incumbents
• The market had been hit by competitive pricing in the quarters
leading up to Free’s launch in January 2012, and while there has
been some firming in the June quarter, pricing remains very weak
• The outlook is more positive, as the MTR impact has likely reached
its peak and will fall in Q3, providing a boost to reported revenue
growth of around 1.3ppts and a further boost of 0.7ppts in Q1 2013
-0.6% -1.1%-0.4% -0.7%
-2.3% -2.5%
-4.6%
-6.5%
-4.6%-3.4%
3.4%2.9% 2.6% 2.4%
0.9% 0.8%
-2.5%
-4.2%
-0.8% 0.4%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Reported and underlying service revenue growth
Reported Estimated underlying
Note: includes our estimate for Free Mobile[Source: Enders Analysis based on company reports]
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Minutes Revenue per minute
Outbound minutes and voice revenue per minute growth
Note: includes our estimate for Free Mobile[Source: Enders Analysis based on company reports]
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Service revenue growth by operator
Orange SFR* Bouygues*
*Estimate for June 2012 quarter as not yet reported[Source: Enders Analysis based on company reports]
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Italy focus
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 21
• The mobile market in Italy dropped back sharply in the Junequarter, with underlying growth returning to negative territoryafter a brief respite in Q1
•
The drop was principally volume led, with this not being offset byany firming in pricing
• The fall in growth was felt at each of the largest three operators;H3G defied the wider market fall, with its growth continuing to rise,although it has done this largely by increasing spend to acquirecontract customers, which will hit margins moving forwards
• The outlook for the market is very tough; Italy is already inrecession, while the MTR impact will rise steeply (c.4ppts) from Q3and remain elevated for the next year, with mobile revenue growth
likely to deteriorate in H2 2012 and remain subdued until H2 2013 atthe earliest
-2.6% -3.0%-3.6% -3.7%
-5.9% -5.6% -5.7%-6.5%
-3.7%
-6.4%
0.0% -0.3%-1.1% -0.9%
-3.1% -2.7% -2.4%-3.0%
0.1%
-2.7%
-8%
-6%
-4%
-2%
0%
2%
4%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Reported and underlying service revenue growth
Reported Estimated u nder lying
[Source: Enders Analysis based on company reports]
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Minutes Revenue per minute
Note: includes TIM, Vodafone and WIND[Source: Enders Analysis based on company reports]
Outbound minutes and voice revenue per minute growth
-20%
-15%
-10%
-5%
0%
5%
10%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Service revenue growth by operator
TIM Vodafone Wind H3G
[Source: Enders Analysis based on company reports]
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Spain: impact of SAC elimination
• Three of the operators in Spain recently moved
away from the traditional handset subsidy
model for new customers (but not upgrades) in
favour of a handset-financing structure, with
Telefonica implementing the change in March,
Vodafone in April and Yoigo in May
• While this has helped with churn and outgoing
number ports, it has hit new customer sign-ups
much harder, with both Telefonica and
Vodafone now suffering significant contract net
losses
• Part of the problem is that the removing the
subsidy on the handset as part of a larger bundle
makes the price of the actual mobile service
more transparent, which tends to favour the
smaller operators and MVNOs, who have
historically marketed lower price/no frills offers
for precisely this reason
• The aggregate contract market growth for the
mobile operators (i.e. excluding MVNOs) has
dropped dramatically, partly due to losses toMVNOs, but also due to a general market
slowdown; without subsidies, many are
choosing not to take out a contract, either
picking prepay or not getting a mobile at all
• A reduction in new subscriber handset subsidies
in Spain was long overdue, but their elimination
is having unintended consequences
371 387
286369
-128 -118
-500
-400
-300
-200
-100
0
100
200300
400
500
Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Contract net additions (000)
TEM* Vodafone Orange Yoigo Total MNO
*Adjusted in March 2012 quarter for one-off c.800k disconnection[Source: Enders Analysis based on company reports]
1,464
1,268
1,408 1,447 1,462
1,059
0
200
400
600
800
1,000
1,200
1,400
1,600
Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Total number ports (000)
[Source: Enders Analysis based on CMT, company reports]
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 22
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• Mobile revenue growth continues to move downwards in Spain, with
it falling 1.5ppts to -10.2% on an underlying basis in the June quarter
• Spain is by far the weakest European mobile market, with volumes
dropping (driven by weakening consumer confidence), and pricingfailing to make up for this
• Growth continues to fall at all of the operators, with Telefonica and
Vodafone’s growth languishing in double digits, with the recent SAC
change not helping
• Looking forwards, the outlook remains difficult: Spain is in recession
with unemployment running at 25% and confidence deteriorating.
The regulatory impact will at least not get any worse before
September 2013, although it will then rise by 3.5ppts, adding afurther headwind to growth
Spain focus
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 23
-20%
-10%
0%
10%
20%
30%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Service revenue growth by operator
TEM Vodafone Orange Yoigo
[Source: Enders Analysis based on company reports]
[Source: Enders Analysis based on company reports]
-4.8% -4.1% -4.4% -5.0% -4.5% -4.9% -5.6%
-8.1%
-10.5%-12.0%
-1.8% -1.4% -1.7% -2.7% -2.3% -2.9%-3.6%
-6.2%
-8.7%-10.2%
-15%
-10%
-5%
0%
5%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Reported and underlying service revenue growth
Reported Estimated u nderlying
[Source: Enders Analysis based on company reports]
-15%
-10%
-5%
0%
5%
10%
15%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Minutes Revenue per minute
Outbound minutes and voice revenue per minute growth
Note: includes Telefonica, Vodafone and Orange[Source: Enders Analysis based on company reports]
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4. Appendix
1. Summary
2. Reported and underlying revenue growth
3. Country analysis
Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082] 24
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Reported mobile service revenue
Service revenue €m Market share Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
EE 1,834 33% -2.6% -1.9% -4.0% -2.5% -1.1%
O2 1,510 27% -4.5% -4.8% -8.6% -8.3% -7.9%
Vodafone 1,479 27% 1.5% 2.2% 0.3% 0.2% -0.6%
H3G 516 9% 7.1% 11.6% 14.0% 14.0% 14.4%Virgin 166 3% -2.0% -0.4% 0.1% 1.3% 4.0%
UK 5,505 100% -1.4% -0.6% -2.8% -2.1% -1.6%
Vodafone 1,727 35% 0.6% -0.2% 0.9% 4.1% 4.8%
T-Mobile 1,690 34% -3.4% -3.1% -1.6% -1.8% -0.9%
KPN 791 16% -0.5% -0.6% 1.2% 4.2% 3.0%
O2 789 16% 0.1% 1.9% 2.1% 10.5% 8.5%
Germany 4,997 100% -1.1% -1.0% 0.2% 2.9% 3.1%
Orange 2,350 43% -0.2% -3.5% -4.5% -4.7% -5.8%
SFR* 1,854 34% -6.5% -6.6% -8.7% -7.0% -7.5%
Bouygues* 1,116 20% -0.2% -3.7% -6.7% -7.4% -7.9%
Free Mobile* 199 4%
France 5,519 100% -2.5% -4.6% -6.5% -4.6% -3.4%
Vodafone 1,669 36% -2.6% -4.9% -6.4% -4.5% -8.6%
TIM 1606 35% -10.3% -7.5% -7.0% -3.7% -7.5%
Wind 954 21% 0.0% -1.0% -2.3% -0.1% -3.1%
H3G 385 8% -9.7% -12.3% -15.2% -7.8% 0.5%
Italy 4,614 100% -5.6% -5.7% -6.5% -3.7% -6.4%
TEM 1,369 40% -8.2% -8.9% -13.0% -17.8% -18.5%
Vodafone 1,053 31% -10.1% -10.5% -10.7% -11.6% -12.1%
Orange 758 22% 2.8% 3.5% 0.3% -1.2% -2.1%
Yoigo 217 6% 42.8% 24.9% 22.2% 25.4% 3.7%
Spain 3,397 100% -4.9% -5.6% -8.1% -10.5% -12.0%
25Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082]
*Estimate made for June 2012 quarter as not yet reported[Source: Enders Analysis based on company reports]
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Disclaimer
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Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082]