* Underlying improvement expected to continue — We expect 3Q14 results in
European mobile to build on the underlying improvement in service revenue decline
seen in 2Q (despite the adverse timing of Easter), with MTR phasing assisting 3Q
growth rate by another c.90bp qoq. Deal activity remains high. Fixed-line assets are
still in demand, as demonstrated by an offer for Get in Norway. Closing of the O2/E+
deal in Germany could result in similar deal attempts in Italy, among others.
Organically we expect continued focus on 4G and fibre connections.
* Investment still rising, All-IP savings targets to see higher profile — We expect
continued upward pressure on capex with more operators stepping up investment in
4G and particularly local fibre broadband. We also expect savings from All-IP
migration to see higher profile following Telia’s (Buy) example. Elisa (Buy) is well
underway with its All-IP migration as is DT (Buy) – we expect DT to feature it at its
December investor event, which we see as a positive catalyst.
* Vodafone to trade better revenue trend for lower margin — We expect
Vodafone to show some further underlying improvement in its service revenue
decline at -2.8% organically vs -4.2% last quarter. We expect FY 1H15 EBITDA to
be weak at £5.7bn but within the full-year guidance, albeit we anticipate some
trimming of the higher estimates among consensus and revise our FY15E EBITDA
forecast down slightly due to revising the accounting policy at Ono.
* Scandinavia mainly benign — In 3Q14, we expect Sweden, Norway and Finland
to have seen mainly benign competition with the Danish mobile market much
tougher. Spain we still expect to be weak and affected by migration to SIM-only from
higher ARPU subsidised plans. We expect Italy fixed line to be weak but we think
mobile will improve beyond the 200bp or so benefit from the phasing of MTRs
* Competitive pressures in B2B and EM — We expect B2B to be under pressure
across the board as companies continue to optimise purchasing. We also expect
greater profile for new entrants in Kazakhstan and Nepal, which are set to affect
Tele2 and Telia with Telenor facing aggressive competition in Thailand and Pakistan
and potentially seeing more price competition on data in India from 3G players.
* Changes Summary — We make minor estimate changes ahead of 3Q results,
however no ratings or target price changes are made.