Voice revenues and ARPU sliding: can data come to the rescue?
No doubt you’ll have seen the Vodafone results by now. In case you haven’t, the headline news is that Vodafone has said that its five prong strategy, formed in May 2006, is now no longer suited to current markets. The company has said it is going to cut £1 billion a year from its operating costs, reflecting a re-forecast missing £1 billion in future revenues.
So it might be useful to take a look at some of the underlying stats within Vodafone. One KPI the company produces publicly is its monthly revenues per user – where there is clear evidence of decline almost across the board in Europe.
In Germany for the quarter ended December 2006, total (ie contract and prepaid) average monthly mobile revenue per user (ARPU) stood at €20.9, with contract ARPU at €36.7 and prepaid at €7. Now, total ARPU is at 16.8, with contract ARPUs at €32.4 and prepaid at €4.6.
In Italy, current total ARPU stands at €21.7, down from €25.6 for the quarter ended December 2006. In Spain, the drop is from €35.1 to €33.3 over the same period. In the UK, ARPUs now stand at £22, versus £23.5 for 4Q 2006.
Ireland is down, as are Greece and Portugal. The only countries to have shown growth in ARPU over this same period, from December 2006 to September 2008, are the Netherlands, where ARPUs have risen from €31.7 to €35.6 over the period, and Malta.
So what is driving this picture?
Well, lets look at voice minutes in the same period. In fact, across Europe, voice minutes have risen from just under 40 billion minutes in the quarter to December 2006, to over 48 billion minutes in the quarter just reported. In Germany, Italy, Spain and the UK, there have been similar rates of growth in voice minutes. Indeed in Germany, where ARPU decline is marked, voice minutes rose from 8.65 billion minutes to over 11.5 billion minutes.
So, it’s not that people are making fewer calls, or talking for shorter times. Although we knew that already. But look at voice revenues. Across Europe, voice revenues dropped 5% on an organic basis for the quarter just ended. Incoming voice revenue decreased. Outgoing voice revenue decreased. Roaming revenue declined.
Overall service revenues declined in Spain, in the UK and in Germany. And rose only 0.9% in Italy.
So what can we look to for some encouragement? The obvious place to look is at data services, and one place to look for that is in the net additions of 3G devices. What we see here is that across Europe as a whole, in the quarter to September 2008, Vodafone’s European operations had an additional net 2.6 million 3G devices under management. In the big four markets (Germany, UK, Italy, Spain), the operator had nets additions of between 484,000 (Italy) and 691,000 (UK) over the quarter.
That looks OK. It certainly outranks total net adds for the period in question, hinting at significant upgrade activity to 3G devices.
And look at data revenues over the past six months. Data revenues for Europe for the quarter ended September 2008 stand at £593 million. That’s up 23.5% on an organic basis on the 30 September 2007 figure.
So voice is down and data is up. But voice revenues for Europe total £4.5 billion while data revenue for the quarter stood at £593 million.
A 5% hit to £4.5 billion is going to be felt harder than a 20% rise in data revenues of under £0.5billion. Mobile data is the smallest segment of Vodafone’s European income: smaller than its fixed line revenue, and smaller than its messaging revenues. Messaging and fixed line revenues were roughly stable, quarter on quarter, by the way.
So the good news is that although data revenues are rising, the bad news is that they are the only thing that are on the up. And they still account for a small chunk of overall turnover.
Faced with this scenario, where only data, broadband and enterprise services offer growth opportunity, it’s little wonder Vodafone is getting the cutting shears out.
Its strategy is now focused on four key areas: to drive operational performance, pursue growth opportunities in total communications, execute in emerging markets and strengthen capital discipline.
It is time, it seems, to pull in and hunker down. If you are a Vodafone supplier, you better be able to meet one of these priorities.