UK Mobile Connections Set to Recover from Covid-19

Strong competition will continue to spur vibrant market

The UK is one of Europe’s most competitive mobile markets, characterized by inexpensive tariffs, established network brands and a vibrant landscape of mobile virtual network operators (MVNOs).

Twice a year, CCS Insight publishes its Market Landscape and Forecast report covering telecom operators in the UK. This detailed outlook evaluates leading recent events specific to the UK and how they affect our forecast on various indicators, including 5G subscriptions, convergence, data usage, SIM-only, churn, enterprise customers and average spending.

Our latest analysis of the landscape showed that at the end of June 2020, the UK reached 93.9 million mobile connections. This includes machine-to-machine (M2M) connections at just over 10 million and nearly 15 million subscribers to MVNOs.

Machine-to-machine connections aside, we expect a small overall drop in total connections for 2020. Covid-19 is mainly to blame for this; the pandemic has already hit the consumer prepaid market hard and is expected to lower enterprise connections slightly as some businesses are sadly forced to close or scale back amid the recession. However, we expect both segments to bounce back relatively quickly as economic conditions improve.

O2 is the market leader based on the total network connections, reaching 34.1 million in June 2020. The figure comprised 19.8 million direct subscriptions, 8.7 million subscriptions to virtual partners — notably Tesco Mobile, Sky and Lycamobile — and some 5.6 million M2M connections, many of which arising from the Smart Metering Implementation Programme, which O2 says represents one of the world’s largest contracts in the Internet of things.

Despite a tough recent period of uncertainty over Telefonica’s long-term commitment to the UK market, O2 has done really well to maintain share and preserve customer loyalty. Initiatives such as Custom Plans and the Priority experience scheme have played an important role.

According to our estimates, BT had 28.8 million total network connections, although it no longer reports official figures. The total is made up of about 22.2 million connections from its mobile brands — BT Mobile, EE and Plusnet — as well as about 4 million connections with virtual providers, predominantly Virgin Media.

In November 2019, Virgin Media announced it will switch MVNO provider from EE to Vodafone (see Virgin Media Puts the Phone Down on EE). This was a big win for Vodafone and endorsed strong recent momentum for its network. However, Virgin Media’s planned merger with O2 is likely to see these customers eventually move to the O2 network (see Urge to Merge at Virgin and O2).

After a turbulent few years, Vodafone has been working to turn around performance in its emotive home market. It has taken much more of a challenger mentality of late, evidenced by its launch of speed-tiered unlimited data tariffs and its decision to offer 5G service at no extra cost. This has helped it stabilize customer losses and improve churn. We estimate total network connections at 20.2 million in June 2020.

Under new CEO Robert Finnegan, Three is set to continue a strategy of targeting customers wanting mobile services that deliver value for money and tariffs with large volumes of data. Total network connections of about 10.8 million mostly include Three-branded subscribers and customers of virtual operator iD, which is owned by Carphone Warehouse. However, we expect the new CEO to start a bigger push into the enterprise world, which could start to see Three finally make headway in business and M2M connections in the coming years.

UK mobile connections (M) by operator, June 2020

O2BTVodafoneThree
Retail19.822.2*17.69.6
Wholesale (MVNO)8.74.0*0.7*1.2*
M2M5.62.6*1.9*0.1*
Total34.128.820.210.8

* Denotes estimated figure; actual figure not disclosed
Figures may not add up to stated total because of rounding
Source: CCS Insight Market Landscape and Forecast: Telecom Operators, UK, 2020-2024

Unlike some other markets in Europe, like France and Italy, where disruptive new operators are upsetting the status quo, the UK mobile market has remained relatively stable in recent times, characterized by record-low churn. Challenger brands and MVNOs continue to fight fiercely at the entry level, but the UK has long moved on from a land-grab battle to build market share. Retention and upgrade are the leading focus points these days.

The sorry recent demise of Carphone Warehouse is a good example of the transition away from an acquisition-led approach. The third-party retailer has been caught in the crossfire of lengthening device replacement cycles and continued apathy on the UK’s high streets, forcing it to close all 531 standalone stores earlier in 2020 (see Instant Insight: Carphone Warehouse Closes Standalone UK Stores). The subsequent withdrawal of O2 and EE — to focus on selling to customers directly — could be the nail in the coffin of a much-loved UK brand.

Contract churn has remained low so far in 2020, partly because mobile phone stores closed during the Covid-19 lockdown. However, we expect to see a slight rise; in the near term, tough economic conditions will prompt some customers to shop around for a better deal, and Ofcom’s text-to-switch programme introduced in July 2019 has smoothed a traditionally cumbersome process to change network provider.

We also expect the pandemic to stir near-term growth in the prepaid market. This segment saw a sharp fall earlier in the year as people became confined to their homes, often connected to home broadband to access the Internet. As people evaluate their financial priorities in the aftermath of the crisis, prepaid services could see a temporary resurgence; refreshed offers from O2 and Vodafone appear focussed on this opportunity.

Apple’s recent announcement of 5G-enabled iPhones brings welcome opportunity for operators to push their 5G credentials (see Instant Insight: Apple Reveals 5G iPhone 12 Portfolio), so expect to see some major campaigns over the coming weeks. This, coupled with plummeting prices for 5G handsets from a range of manufacturers, is why we expect more than half of all mobile phones shipped in 2021 to be 5G-enabled.

Good growth of 5G, supported by rising availability of unlimited data plans, is likely to lead to strong growth in mobile data traffic in the coming years. We forecast average usage per customers to exceed 33GB per month in 2024.

Against the backdrop of the planned merger between O2 and Virgin Media, the gradual recovery from the pandemic, the hotly anticipated arrival of 5G-enabled iPhones and a greater emphasis by operators on bundled services, the UK mobile market is set for a lively few years ahead.

CCS Insight’s Market Landscape and Forecast: Telecom Operators, UK is part of our Telecoms Operators service suite. For further information, please see here or contact us.