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Market Landscape and Forecast Mobile Operators, UK 2018-2022

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Market Landscape and Forecast Mobile Operators, UK 2018-2022 December 2018 Update Topics Covered . Operator landscape . 5G . Other market developments . Market forecast Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 2 Operator Landscape Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 3 O2 Continues "Customer-Led, Mobile-First" Strategy . O2 Custom plans seek to improve billing transparency and flexibility – Choice of upfront cost and how to spread the remaining amount – Builds on flexible tariffs and O2 Refresh concept . Partnership with Netflix rekindled in run-up to Christmas 2018 – Limited-period subscription again offered to new and upgrading customers . Range of initiatives seek to build on customer-led image – New "breathe it all in" marketing campaign – New loyalty programme to reward tenure – Priority continues to seek to create greater brand engagement . Recent offers for music fans include interaction with 3D avatar . Financial and operating results continue to impress – Good net additions, low churn, high net promoter score and brand loyalty – Major network outage on 18 December unlikely to have long-lasting impact . Telefonica waiting on clarity on Brexit before initial public offering of stock Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 4 Vodafone Claims to Have Its "Mojo" Back after Recent Woes . Contract churn falling, net promoter score at "best ever" level – Complaints falling, billing system troubles resolved . Wide range of new initiatives to regain standing in consumer market – Recent launch of loyalty programme, VeryMe – Youth brand Voxi now selling mobile phones through PayPal deal . Zero upfront cost and zero interest . Flexible contracts that can be paused or cancelled at any time – Recent updates to TOBi chatbot ("TOBification") . Can now handle 32 types of customer enquiry . And sell SIM-only and handset plans – Update to V by Vodafone trackers in September 2018 . Vodafone seeking disruption in home broadband – Gigafast Broadband went live in Milton Keynes in September 2018 . Free installation and router, unlimited usage – 10 UK cities now included in partnership with CityFibre Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 5 Three Ups Focus on Segmentation, Readying for Big Push in 5G . Focus on branding and partnerships for better segmentation – Three, iD, Superdrug, Smarty, Relish, Wuntu, EasyJet, Snapchat and others – Aims to become the UK's "best loved brand" . Good momentum from Wuntu rewards app – 1.1 million active customers, more than 400 partners . Go Binge replacing Feel at Home as leading message – Now has nine partners, but Vodafone Pass has more . Lack of scale remains an overarching challenge – Operator has ambitious goals to double the size of its business . Spectrum assets point to strong push in 5G – Greater focus on home broadband with fixed wireless access – Capitalize on pent-up demand for mobile data – Opportunity to overcome continued perception of a poor network Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 6 BT Makes Major Update to Consumer Strategy . 24 new products and services launched as part of major overhaul . BT Plus — its new converged service — was the highest profile – The best of BT: 4G, fastest fibre speeds, premium customer care – Already has more than 500,000 customers following launch in May 2018 – Reflects operator's focus on retention, rather than acquisition . Range of other initiatives have steadily been introduced – Partnership with Enjoy for mobile phone repair – Mobile data gifting and zero-rating of BT Sport for EE customers – Launch of connected home services – Amazon Prime Video available on BT TV set-top box – "Stay connected" promise – Upgrade Anytime plans offer flexibility in smartphone purchase – New Flex plans are a hybrid of contract and pay-as-you-go . Branding conundrum appears little closer to resolution – EE brand here for the long term, set to lead in 5G Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 7 BT Moves to Boost Its BT Plus Converged Offer . Launch of Complete Wi-Fi in November 2018 seeks to add further value – Guarantees "strong reliable signal" in the home . For now, only available to Plus customers for £5 per month . Could lay foundations for launch of further services in the home . Access to broadband, mobile, TV and Wi-Fi from multiple devices with a single bill – The best of BT: 4G, fastest fibre speeds, premium customer care – Mix-and-match bundles (TV and mobile are optional add-ons) . BT is rightly positioning BT Plus at a premium – Wary of eroding value, as seen in other markets – Reflects BT's focus on retention and upselling, not acquisition . The UK is only tentatively moving into converged consumer services – BT Plus will not radically change the UK's laggard position – But the operator has hinted at major enhancements in 2019 . If this triggers a response, the market could finally accelerate Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 8 Sky Mobile Slowly Making Impact As It Extends Partnership with O2 . Understood to have around 750,000 subscribers as at December 2018 – Yet to fully exploit extensive content assets . Strong marketing investment; it still has the firepower to disrupt . Renewal of mobile virtual network operator (MVNO) deal with O2 shows commitment to mobile – Sky customers will gain access to 5G as soon as O2 launches . Cooperation on 5G testing . Premium content and 5G could form a potent mix . Comcast acquisition should see little impact in medium term – US company has guided that it plans to keep Sky's operations independent . Recent initiatives appear to be resonating well – Option to redeem unused data on phones and accessories – Launch of tablets with data rollover . And option to share data "piggybank" between five different SIMs in a household Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 9 5G Current Status and Market Forecast Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 12 Operators Engage in Trials ahead of Commercial 5G Launches . In October 2018, Vodafone switched on 5G at a site in Salford – It claims to be first in the UK to carry full 5G traffic over a commercial network – It began trials in seven UK cities in 4Q18 – Impressive demonstration of UK's "first holographic call using 5G" . From England football captain Steph Houghton (in Manchester) to Newbury (see top right) . BT began trials in east London and Canary Wharf in October 2018 – Focus on deployment (obtaining planning permission, managing power outputs and so on) and assessing customer experiences and usage – Recent 5G broadcasting trial at Wembley stadium (see bottom right) . O2 has run trials in four test beds in England, Wales, Scotland and Northern Ireland – Every FTSE 100 company invited to participate – Big focus on public sector and the benefits to cities and communities – Aim is to seek feedback from customers and partners . Focus on virtual and augmented reality and live streaming Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 14 Government Initiatives Seek Leadership in 5G, Next Spectrum Auction Looming . West Midlands selected in September 2018 as UK's first multi-city 5G test bed . Initial focus on the health, construction and automotive sectors . Overarching ambition to drive economic growth for the region . Project is set to receive an initial £50 million of funding . £16 million test bed connects Bristol University, King's College London and University of Surrey – King's College London has installed 3.5 GHz and 26 GHz networks at its site, using Ericsson infrastructure . £25 million allocated to six projects to become test beds for 5G systems – Focus on areas including rural communities, tourism, transport and healthcare – Led by small and medium businesses, universities and local government . Bold forecasts see big benefit from 5G in the UK – Department for Digital, Culture, Media and Sport says 5G could boost GDP by £173 billion between 2020 and 2030 . Auction of 700 MHz spectrum — earmarked for late 2019 — will be vital to 5G coverage in UK – Sale will almost certainly include some form of coverage obligation – 3.6 GHz airwaves likely to be sold off at the same time Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 16 5G Forecast: Key Assumptions for Market Development . Mobile broadband – Mobile broadband will be the leading use of 5G in the next five years. Adoption of 5G technology in smartphones will be driven by a need for speed and bandwidth, as data usage per device grows quickly . Our current forecast assumes that EE, Vodafone and Three will launch their 5G networks in the second or third quarter of 2019, with O2 following suit in early 2020 . 5G-enabled devices – 5G-enabled smartphones are expected to arrive on the market in 2Q19 – In the second half of 2019, all major Android makers will have a 5G-enabled smartphone on the market – The first 5G-enabled iPhone will be launched in 2020, and so dampen 5G adoption in late 2019 and early 2020 . Fixed wireless access – We expect that at least Three and EE will start offering fixed wireless access services as soon as networks are launched – For Vodafone and O2, this is also a viable strategy – However, high penetration of high-speed fixed-line broadband will limit the appeal of fixed wireless to niches . Machine-to-machine (M2M) and the Internet of things (IoT), and mission-critical will be important uses of 5G connectivity, but the numbers will be small within the forecast period Market Landscape and Forecast: Mobile Operators, UK, 2018-2022 © CCS Insight 18 5G Connections Are Forecast to Surpass 800,000 by the End of 2019 5G connections by type, UK Connections (M) % of total 70 68 80% Mission-critical 60 70% 54 M2M and IoT 60% 50 50% Fixed wireless access 40 37 40% 66 30 Mobile broadband 21 53 30% 20 37 20% 5G as % of total connections 10 10 21 3 10% 0.05 10 5G mobile broadband as % of mobile 0 3 0% phone and data device connections 2019 2020 2021 2022 2023 2024 2025 .
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