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European mobile revenue growth and outlook Q2 2012 Growth drops, worse to come

Tim Hatt James Barford +44 207 851 0904 +44 207 851 0901 tim.hatt@endersanalysis.com james.barford@endersanalysis.com

21 August 2012

1. Summary 2. Reported and underlying revenue growth 3. Country analysis 4. Appendix

Mobile revenue growth and outlook Q2 2012: Growth drops, worse to come [2012-082]

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and this has no doubt helped the strong volume growth. the northern European markets of the UK. with this now higher in 2012 than it otherwise would have been in light of a recent adverse regulatory ruling Mobile revenue growth and outlook Q2 2012: Growth drops. The historical analysis is based on the published results of the operators. but performance has been helped by firm pricing and a healthy data contribution. suggesting a macro-led decline was to blame.7%.4%) • The drop in the overall market in the June quarter was principally volume-led. so growth on an underlying basis (excluding the impact of MTR cuts) declined by 0. by 0. with these markets suffering both from deteriorating macro environments and competitive pricing • Germany remains the strongest economy of the top five.5ppts to -0. France. The regulatory impact felt by these markets mitigated slightly.Executive summary: Growth drops. The downside is that it still faces a stubbornly high regulatory burden. It is the southern markets of Italy and Spain that continue to drag growth. Germany and France are actually performing relatively well. with underlying growth improving in Q2. Italy and Spain). although the drop in volume growth is probably not quite as bad as it looks given that volumes were likely boosted in the March quarter by the leap year/extra day impact (around 1ppt) • There is a strong north-south divide in performance. with call volume growth dropping in coordinated fashion across each of the five markets. worse to come • In this presentation we show our analysis of revenue growth trends for mobile operators in the top five European markets (UK. although they include our estimates where their data is inconsistent or not complete. Germany. worse to come [2012-082] 3 . it is at least still above the level of growth seen in the December 2011 quarter (-1. 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.4ppts to -3. although this will come to an end from December • The UK does not have quite such a strong economy.9% • While it is disappointing that underlying growth dipped. It has also benefitted from an MTR cut holiday. with relatively high consumer confidence. itself driven by the UK having the highest penetration of smartphone owners choosing to take a data plan.

but also by a fierce pricing environment. This was a volume-led decline. worse to come [2012-082] 4 . worse to come • Volumes remain relatively healthy in France. Three of the operators have not yet reported their results. 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%. allowing the other operators to return to net subscriber growth • Italy’s mobile market growth dropped sharply. with consumer confidence already very weak and deteriorating in July. the main effect so far has been to drive customers towards the smaller operators and MVNOs. having briefly improved in the March quarter. with a high risk of further deterioration in underlying growth.8ppt further headwind to growth). with pricing in this market also weak. and while pricing remains competitive. but based on Orange’s reporting and data published by the regulator. 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. we estimate that underlying revenue growth once again improved for the market as a whole. their outright elimination is not. it has eased slightly in the months following Free Mobile’s launch in January 2012. although these appear to have slowed considerably in Q2. but the southern markets of Italy and Spain face severe price competition. The northern European markets are operating in relatively stable competitive environments. although growth for the incumbents dropped down. While it can be defensibly argued that a reduction in subsidies is appropriate (even overdue). with little prospect for significant improvement before H2 2013 Mobile revenue growth and outlook Q2 2012: Growth drops. whose discount/no-frills offers are now more transparent. We therefore expect European mobile revenue growth to get worse before it gets better. It is difficult for the operators to raise prices given that consumes are sapped of optimism and the market is dominated by prepay. The situation is not being helped by the recent self-inflicted decision by most operators to abolish handset subsidies for new customers. Free Mobile itself is likely still enjoying substantial subscriber net adds. and youth unemployment over 50%).Executive summary: Growth drops.

Country analysis 4. worse to come [2012-082] 5 . Reported and underlying revenue growth 3.1. Appendix Mobile revenue growth and outlook Q2 2012: Growth drops. Summary 2.

0% -3.7% • The country level performances suggest a strong north-south divide.8% -3. while TIM dropped sharply.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] -3.Reported mobile revenue growth • European mobile revenue growth dropped down in the June quarter.4% -4. reversing the improvement of Q1. worse to come [2012-082] 6 . T-Mobile enjoyed a small improvement in Q2.7% Service revenue growth by market 10% 5% Service revenue growth by operator group – Top 5 European markets 10% 5% 0% -5% -10% -15% Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 UK Germany France Italy Spain 0% -5% -10% -15% 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] [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops.1% -1.2% -1.1% -0.4ppts to -3. with growth in the northern European markets actually improving. Telefonica’s growth continues to deteriorate. while the southern markets of Italy and Spain worsen • Among the operator groups. by 0.3% -3. driven by poor performance in its domestic market Reported mobile revenue growth – Top 5 European markets 6% 4% 2% 0% -2% -4% -6% -0.

1% 2. Italy and Spain both weakened in Q2 • The macro environment continues to be challenging across Europe.0% -1.7% -0.6% 0.6% -1.6% 0. Europe S.7% 0% -2% -4% -6% Regulation -1.6% Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Reported Underlying 3.6% -0.8% 0.9% -0.3% 2.0% -3.9% • While this is a disappointment given that growth had (briefly) ticked up in the March quarter (perhaps helped by the extra day leap year effect).8% 1. with both GDP growth and consumer confidence dropping sharply in 2012 Underlying service revenue growth – Top 5 European markets 4% 1.2% 1. Europe Consumer confidence 7 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 UK Germany France Italy Spain [Source: Enders Analysis based on company reports] [Source: Enders Analysis based on Eurostat] Mobile revenue growth and outlook Q2 2012: Growth drops.1% 1. which meant that underlying growth actually dropped by 0. with the French market as a whole also improving.2% -3. market growth is at least still above the level seen in December 2011 • Germany and the UK remain the powerhouses of growth.4% 1.6% 2.4% 3.5ppts to -0.4% -4.4% 2% -0.Underlying mobile revenue growth • The MTR impact lessened in Q2.9% 2.8% -3.4% 3.7% -3.9% [Source: Enders Analysis based on company reports] Underlying service revenue growth by market 10% 5% 0% -5% -10% -15% Key macro indicators 4% 3% Real GDP growth 2% 1% 0% -1% -2% -3% -4% 40 30 20 10 0 -10 -20 -30 -40 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 N. although it is particularly acute in the southern markets. worse to come [2012-082] . Unfortunately.

0% 2.2% 3.5% 0.6% 6% 4% 2% 0% UK Jun-12 Sep-12 Germany Dec-12 France Mar-13 Jun-13 Italy Spain 3.4% 0.9% Average termination rate cut [Source: Enders Analysis] .9% [Source: Enders Analysis] Regulatory impact by market 14% 12% 10% 8% 11.6% Actual Forecast 4.1% 3.4% 2.5% Annual regulatory impact 60% 50% 40% 30% 51.8% 28. after which it will die down to manageable levels before disappearing altogether as termination revenue becomes an insignificant part of overall revenue Regulatory impact .4% 3. partially mitigating the fall in mobile revenue growth • Unfortunately.7% 1.5% 4. worse to come [2012-082] 8 3.6% 3.3% 3.Top 5 European markets 6% 5% 4% 3% 2% 1% 0% 2.6% 2.2% 3.8% 3. the impact will rise from the September quarter as steep cuts in Italy come online.5% 20% 10% 0% 2011 2012 2013 2014 Impact on service revenue [Source: Enders Analysis] Mobile revenue growth and outlook Q2 2012: Growth drops.0% 2. the progressive lessening over the last year has now come to an end.6% 3.7% 2. 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 2013.2% 30.7% 3.7% 1.8% 1.8% 2.1% 30.Regulatory cuts and outlook • The MTR impact once again lessened in the June quarter.

1% 3. reversing the improvement seen in Q1 • While the drop was probably not as steep as it looks given that the March quarter likely benefitted from the leap year/extra day effect (an impact of around 1ppt). suggesting ongoing macro weakness is to blame Estimated market minutes growth – Top 5 European markets 15% 11. worse to come [2012-082] .3% 2.2% 10% 8.2% 4.8% 6.2% 5.6% 0% [Source: Enders Analysis based on company reports] • Weakening volume growth was the main driver behind the drop in mobile service revenue growth.3% 2.0% 5.2% 4.5% 5. growth dipped down in each of the top five markets.Overall growth drivers • Call volume growth across Europe dropped back sharply in Q2.3% 4.3% 5.8% 4. SMS and data varies by market.8% 2.9% 5% 4.5% 5. partially mitigated by firmed pricing • While the impact from inbound voice. their aggregate contribution to growth at the European level was largely unchanged Contributions to mobile service revenue growth 8% 6% 4% 2% 0% -2% -4% -6% -8% Outbound voice Outbound voice Inbound voice price volume Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 SMS Data Service revenue growth [Source: Enders Analysis based on company reports] 9 Mobile revenue growth and outlook Q2 2012: Growth drops.

3% -9.7% Reported growth -1. worse to come [2012-082] 10 Underlying growth 2. with underlying growth now declining in double digits Market position on key metrics.9% 0.8% 2.1% -3.4% -6.7% 1. recent internal market changes (i.7% -10.2% 0.4% -2.0% -0.7% 1.e. June 2012 GDP growth UK Germany France Italy Spain Top 5 markets Key (impact on growth) -0.2% 3.0% -0. with underlying growth firmly negative.6% 3.8% 0.2% -0. its reported growth is negative • Italy operates in a very weak economy and also suffers from competitive pricing.5% 1.1% 0. removing handset subsidies) has not helped.4% -12.0% 3.0% -3.5% Negative [Source: Enders Analysis] Mobile revenue growth and outlook Q2 2012: Growth drops.9% MTR impact 3. while it already suffers from a weak macro environment and competitive pricing. 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.Country by country analysis • The UK and Germany have the strongest underlying mobile markets.7% 3. and reported growth even lower given the high MTR impact • Spain remains by far the weakest market.5% Positive Moderate Underlying premium/(deficit) to GDP 2.4% -1.2% -0. but since it faces a high MTR impact.4% -2.7% .

Italy. where it continues to outperform by around 5ppts Note: includes UK. with this particularly evident relative to the incumbent operators. which was mainly driven by weakened performances in the UK and Italy Mobile service revenue growth 5% 0% -5% -10% Vodafone Incumbents Other operators • It is still performing very well by historical standards. Italy.3% Mar-09 Jun-09 Sep-09Dec-09Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Incumbents Other operators Overall 0. Germany.0% 4. worse to come [2012-082] 11 .Vodafone performance • Vodafone’s competitive performance weakened slightly in the quarter. Spain [Source: Enders Analysis based on company reports] Gap between Vodafone and competitors (ppts) 6% 4% 2% 0% -2% -4% -6% -5. Germany.9% Note: gap is difference in service revenue growth between Vodafone and competitors Includes UK. Spain [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops.

1% 1.4% 1.1% Actual Forecast [Source: Enders Analysis based on EC Spring Economic Forecast.4% -5.3% -4.1% -1.3% -0. with aggregate growth across the top five markets turning negative for the first time since 2009 • The UK.1% 1.7% -4.1% -0.5% -3.9% 1.5% 1.6% -3.6% -5.6% -3.4% -4.1% 2.2% -1.4% 1. Italy and Spain are all in technical recession. worse to come [2012-082] 12 .0% -3.3% 0.0%2. the European mobile market is likely to face significant economic and regulatory headwinds through 2012 and into 2013 • We therefore expect mobile revenue growth to get worse before it gets better.0% -1.3% -3.0% 1.2% -2.8% 0.2% -2.Outlook • European economic conditions continue to remain very challenging.0% -3.5%-0.9% 1.1% 0.7% -1.4% Actual reported growth 2. and on the EC’s latest economic forecasts (issued May 2012).2% 0.8% 0.9% -4.0% 2.7% -4.7% 0.4% -0. growth across the top five markets is not expected to turn positive until the March 2013 quarter Real GDP growth 4% 2% 0% -2% -4% -6% -8% -0.7% 0. May 2012] • Given that the MTR impact will rise from the September quarter and again in Q1 2013.8% -2.4% -3.3% -3.3% Outlook assuming underlying growth remains flat [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops.2% -5. with significant improvement unlikely before H2 2013 Reported service revenue growth outlook 8% 4% 0% -4% -8% -0.

Reported and underlying revenue growth 3. Summary 2.1. Appendix Mobile revenue growth and outlook Q2 2012: Growth drops. Country analysis 4. worse to come [2012-082] 13 .

4% -6.4% -12. Q2 2012 Voice price Voice volume -1.8% Total voice SMS Data Other MNOs* Reported growth -1.7% -6. we explore the drivers in more growth.1% -3.0% 0.6% -2.4% Inbound voice -4.1% Outbound voice -2.0% 0.7% 1.4% -6. but for some smaller operators this would be speculative.0% -2.9% 6.3% 0.1% 1.3% -1.2% -6.6% 3.5% 2. i.6% 3.4% UK Germany France Italy Spain -1. we have estimated where there are gaps.0% -4.0% *In some cases detailed data for all the operators is not available.7% -2.3% -11.7% -11.4% -13.3% -2.2% -4.2% -7.1% 1.Contributions to mobile revenue growth • Below we show the key drivers of overall mobile revenue growth for • The percentages shown are contributions to overall revenue each market on a side-by-side basis.3% -2.9% -6.7% 7.8% 0.e.5% -4.2% -1.6% -4.0% 4. worse to come [2012-082] 14 . so we have shown their contribution separately [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops. the impact of a change in a particular metric on overall detail for each country on an individual basis in the following slides revenue growth Top 5 European markets.1% 0.3% -0.

6% -1.8% 2. on 12 May 2012 Ofcom enacted a CAT decision to speed up the MTR glidepath by a year.UK focus • Underlying growth in the UK nudged down slightly in the June quarter. worse to come [2012-082] 15 .7% 2. but the market continues to benefit from relatively firm pricing and a healthy data contribution. with mobile revenue growth unlikely to improve significantly before then Reported and underlying service revenue growth 6% 4% 2% 0% -2% -4% -1.9% 4.6% 2.6% -2.8% -2.9% 3.2% remains one of the strongest in Europe • Volumes continued to weaken.4% 2. but at 2.9% -0.2% 2.1% -1.5% 3.4% -0. as a result.9% 1.8% 3.2% -6% Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Reported Estimated underlying [Source: Enders Analysis based on company reports] Outbound minutes and voice revenue per minute growth 15% Contributions to mobile service revenue growth 6% 4% 2% 0% -2% -4% -6% 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 voice Inbound voice SMS Data Service revenue growth Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 [Source: Enders Analysis based on company reports] [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops. driven by rising penetration of smartphone customers with a data plan • On the regulatory front. 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 2013.3% 3.1% 4.3% 3.

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%. worse to come [2012-082] 16 . 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 . O2 has markedly improved its commercial performance over the last year. which dipped down a little • Despite weak top line growth. with it now growing at around the same level as Vodafone. 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 Reported mobile service revenue growth by operator 20% 15% 10% 5% 0% -5% -10% Jun-11 Sep-11 EE Dec-11 Vodafone Mar-12 O2 H3G Jun-12 Virgin [Source: Enders Analysis based on company reports] Contract net additions (000) 350 300 250 200 150 100 50 0 EE Vodafone Jun-11 O2 Sep-11 H3G Dec-11 Virgin Mar-12 Jun-12 Annualised contract churn 25% 20% 15% 10% 5% 0% EE Vodafone Jun-11 Sep-11 O2 Dec-11 H3G Mar-12 Jun-12 [Source: Enders Analysis based on company reports] [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops.UK market analysis • EE improved its growth again in Q2.

last 12 months 35% 24. EE excludes fixed line [Source: Enders Analysis based on company reports] Note: Vodafone is for the 12 months to March. EE excludes fixed line [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops. but other 25% factors are also at play – EE increased its contract retentions by 9% in H1. worse to come [2012-082] 17 .800 1. 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 now has the highest cashflow margin among the big 3 operators EE Vodafone Jun-10 Dec-10 Jun-11 O2 Dec-11 Jun-12 Note: Vodafone figures are for the 12 months to March and September EE excludes fixed line and restructuring costs [Source: Enders Analysis based on company reports] Capex by operator.8% 13.0% 26.5% • All of the operators will have enjoyed a dual benefit from falling prepay 30% volumes and lower subsidies to acquire these customers. while they remain subdued at EE and O2 EBITDA margin by operator.UK financial performance • Margins have gradually increased at Vodafone over the last year. but weak revenue growth is still driving negative operating leverage 0% • Capex dropped down at EE in H1.8% 5% – O2 has pulled back on the contract retention drive it made in Q1. with its margin dropping down 20% 10% 15% 20.6% 23.4% 22.3% 719 20% 12.200 900 600 9.1% 710 15% 10% 5% 0% 200 150 100 50 0 EE Jun-10 Vodafone Dec-10 Jun-11 O2 Dec-11 Jun-12 649 300 EE Vodafone Cashflow O2 Cashflow % Note: Vodafone is for the 6 months to March and September.7% 18. last 6 months (£m) 400 350 300 250 221 245 353 356 302 309 Cashflow (EBITDA-capex) margin by operator 12 months to June 2012 (£m) 1.500 1.

e.9% 0.9% 3. although growth for both of the smaller operators remains robust Reported and underlying service revenue growth 6% 4% 2% 0% -2% 0.9% 2.7% 2. growth improved for Vodafone and T-Mobile.2% 3. the market will continue to enjoy the MTR holiday until the end of November (i. bringing a renewed regulatory headwind • While growth may therefore improve in the short term. this was more than made up for by firmer pricing • At the operator level.0% • Looking forward.6% -1.1% -1.7% 4.9% 2. worse to come [2012-082] 18 .Germany focus • The German mobile market remains one of the strongest in Europe.2ppts to 3.8% 4.8% 3.0% 3. with underlying growth rising in Q2. it is likely to come under renewed pressure from the end of 2012 Reported Estimated underlying [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-11 Mar-12 Jun-12 Minutes Revenue per minute Service revenue growth by operator 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 T-Mobile Vodafone O2 E-Plus [Source: Enders Analysis based on company reports] [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops.1% • The market continues to operate in relatively benign economic conditions.6% 2. Q3 and most of Q4). but -6% our current expectation is that cuts will be implemented around the Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 end of 2012/start of 2013. by 0. and while volume growth nudged down in Q2.0% -0.6% 2.9% 3.1% 3.5% 4. the regulator has -4% yet to specify whether/when MTRs will fall further beyond this.1% 3.

6 Free Mobile launch. ARCEP] Mobile revenue growth and outlook Q2 2012: Growth drops.2 2.0 1.9 0.4 Contract net additions (m) 3 2 1 0.6 1. MVNOs as a group and the total volume of number ports • The evidence suggests that Free Mobile subscriber acquisition has slowed dramatically since Q1.5 2.0 2.7 0.8 0.5 1.3 0 -0.7 0.4-0.8m 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 converge with its competitors Numbers ported in France (m) 3.5 Mar-12 MVNOs Jun-12 Free* Market 0.0 SFR and Bouygues* *Estimate made for Q2 2012 as not yet reported [Source: Enders Analysis based on company reports.5 0.1 0.7 0. but the French regulator ARCEP has reported subscriber figures for the total market.2 0.0 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 [Source: ARCEP] 0.0 1. and both Orange and the MVNOs as a group returning to positive contract net adds in Q2 after declines in Q1 • However.2 0. 10 January 2012 1.8 0.1 -1 Sep-11 Dec-11 Orange -0. worse to come [2012-082] 19 .4 0.2 0.2 0.6 1.Launch of Free Mobile: six months on • Orange is the only French mobile operator to have reported so far. Free Mobile is likely still enjoying strong growth in absolute terms.0 0. with number port volumes down dramatically.0 0.7 2. with number ports still above their historical norms.4 0.5 0. we estimate that it gained 0.6 0.5 0.

5% -4.6% -3.9% 2.4% 2. but based on ARCEP’s reporting of subscribers.France focus • Orange is the only operator to have reported. and while there has been some firming in the June quarter. worse to come [2012-082] 20 .4% -4. Orange’s growth declined 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 2012.4% • While this is an improvement at the market level.6% -6. providing a boost to reported revenue growth of around 1.4% -0.3% -2. we estimate that underlying market revenue growth rose again in the June quarter to 0. as the MTR impact has likely reached its peak and will fall in Q3.5% 3.8% -0.4% Outbound minutes and voice revenue per minute growth 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 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 our estimate for Free Mobile [Source: Enders Analysis based on company reports] Service revenue growth by operator 6% 4% 2% 0% -2% -4% -6% -8% -10% Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Orange SFR* Bouygues* *Estimate for June 2012 quarter as not yet reported [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops.9% 0. pricing remains very weak • The outlook is more positive.6% 2.8% -2.6% -1.3ppts and a further boost of 0.5% -4.7% -2.7ppts in Q1 2013 Reported and underlying service revenue growth 6% 4% 2% 0% -2% -4% -6% -8% -10% Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Reported Estimated underlying Note: includes our estimate for Free Mobile [Source: Enders Analysis based on company reports] -0.1% -0.4% 0.2% 0.

with underlying growth returning to negative territory after a brief respite in Q1 • The drop was principally volume led.1% -0.7% -5.4ppts) from Q3 and remain elevated for the next year.7% -3.9% -2. H3G defied the wider market fall.6% -3. while the MTR impact will rise steeply (c.6% -5.Italy focus • The mobile market in Italy dropped back sharply in the June quarter. although it has done this largely by increasing spend to acquire contract customers.1% -1.1% -2.0% -3.9% -5.7% -2. with this not being offset by any firming in pricing • The fall in growth was felt at each of the largest three operators.5% Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Reported Estimated underlying [Source: Enders Analysis based on company reports] Outbound minutes and voice revenue per minute growth 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 Service revenue growth by operator 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 TIM Vodafone Wind H3G Note: includes TIM. which will hit margins moving forwards • The outlook for the market is very tough.7% 0.0% -3.0% -0. with mobile revenue growth likely to deteriorate in H2 2012 and remain subdued until H2 2013 at the earliest Reported and underlying service revenue growth 4% 2% 0% -2% -4% -6% -8% -2.6% -3.3% 0. Italy is already in recession.7% -6.4% -3. worse to come [2012-082] 21 . with its growth continuing to rise.4% -6. Vodafone and WIND [Source: Enders Analysis based on company reports] [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops.

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.059 . 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 also due to a general market slowdown.000 800 600 400 200 0 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 [Source: Enders Analysis based on CMT.400 1. worse to come [2012-082] 22 1. partly due to losses to MVNOs.464 1.447 1. with Telefonica implementing the change in March.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. who have historically marketed lower price/no frills offers for precisely this reason • The aggregate contract market growth for the mobile operators (i. but their elimination is having unintended consequences -128 -118 Mar-11 Vodafone Jun-11 Orange Sep-11 Yoigo Dec-11 Mar-12 Jun-12 Total MNO *Adjusted in March 2012 quarter for one-off c.408 1.600 1. without subsidies.462 1. which tends to favour the smaller operators and MVNOs.200 1.268 1.e. it has hit new customer sign-ups much harder. Vodafone in April and Yoigo in May Contract net additions (000) 500 400 300 200 100 0 -100 -200 -300 -400 -500 TEM* 371 387 286 369 • While this has helped with churn and outgoing number ports. excluding MVNOs) has dropped dramatically.800k disconnection [Source: Enders Analysis based on company reports] Total number ports (000) 1. company reports] Mobile revenue growth and outlook Q2 2012: Growth drops.

with the recent SAC -10% change not helping -8.1% -10.6% -8. and pricing failing to make up for this Reported and underlying service revenue growth 5% 0% -1.0% with unemployment running at 25% and confidence deteriorating.8% -4. with Telefonica and Vodafone’s growth languishing in double digits.5ppts to -10. worse to come [2012-082] 23 .9% -3.2% -5% • Growth continues to fall at all of the operators.5% -4.4% -5.7% -2.7% -10.5% • Looking forwards.8% -1.1% -4.2% -4. adding a further headwind to growth [Source: Enders Analysis based company reports] [Source: Enders Analysis based on 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-11 Mar-12 Jun-12 Minutes Revenue per minute Service revenue growth by operator 30% 20% 10% 0% -10% -20% Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 TEM Vodafone Orange Yoigo Note: includes Telefonica. Vodafone and Orange [Source: Enders Analysis based on company reports] [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops.7% -2. Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 The regulatory impact will at least not get any worse before Reported Estimated underlying September 2013. although it will then rise by 3. with volumes dropping (driven by weakening consumer confidence).3% -2.Spain focus • Mobile revenue growth continues to move downwards in Spain.0% -4.9% -5.2% on an underlying basis in the June quarter • Spain is by far the weakest European mobile market.5ppts.4% -1. the outlook remains difficult: Spain is in recession -15% -12.6% -6. with it falling 1.

Reported and underlying revenue growth 3. worse to come [2012-082] 24 . Country analysis 4. Appendix Mobile revenue growth and outlook Q2 2012: Growth drops.1. Summary 2.

3% 22.6% -7.2% -6.6% -10.6% -8.116 199 5.5% 2.5% -8.727 1.0% 1.510 1.5% 3.4% 4.8% 4.7% -0.0% -3.0% -7.8% -4.7% -6.3% 14.4% -18.9% -3.4% -0.7% -12.0% -1.7% -8.2% -6.5% -3.9% -4.4% -10.3% 0.1% 0.6% -1.3% -15.1% -1.5% -6.8% -7.6% -4.2% 2.0% 8.0% *Estimate made for June 2012 quarter as not yet reported [Source: Enders Analysis based on company reports] Mobile revenue growth and outlook Q2 2012: Growth drops.5% -1.1% -7.3% 0.9% -0.8% 0.0% Mar-12 -2.519 1.5% -12.854 1.0% -2.8% 2.7% -4.0% -1.5% -3.8% 42.6% 14.1% -1.1% 4.4% -7.397 31% 22% 6% 100% -10.9% -10.6% -10.2% -3.2% 11.7% -5.3% -2.1% -0.5% 0.6% -4.997 2.5% 24.0% -8.2% 10.0% 0.6% -0.3% -5.5% -6.1% 0.2% 25.669 1606 954 385 4.6% 1.505 1.1% -5.6% -3.9% Dec-11 -4.2% -4.053 758 217 3.6% -3.9% -1.5% 3.7% -17.2% -8.9% -5.5% Vodafone Orange Yoigo Spain 1.479 516 166 5.4% 0.4% -4.2% 14.5% -0.6% -4.5% -8.5% 7.690 791 789 4.7% 0.1% -11.8% -3.7% -6.6% -0.5% -7.6% 1.350 1.6% 0.9% -1.5% -2.9% 3.1% -0.8% -0.834 1.1% 2.8% Jun-12 -1.4% -0.0% -12.2% -2.614 1.5% -6.5% 1.7% -7.Reported mobile service revenue Service revenue €m EE O2 Vodafone H3G Virgin UK Vodafone T-Mobile KPN O2 Germany Orange SFR* Bouygues* Free Mobile* France Vodafone TIM Wind H3G Italy TEM 1.9% -4.1% -2.9% -7.5% -13.0% -9.369 Market share 33% 27% 27% 9% 3% 100% 35% 34% 16% 16% 100% 43% 34% 20% 4% 100% 36% 35% 21% 8% 100% 40% Jun-11 -2.4% -8.1% -7. worse to come [2012-082] 25 .1% -2.1% 3.1% -2.2% Sep-11 -1.6% 4.

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