Speeding up the networks but not revenue growth
Europe’s networks are speeding up. Operators have in many cases brought forward planned capital investment to upgrade WCDMA networks with HSDPA, and to expand EDGE coverage in many areas where 3G cannot reach. Faced with flat growth and decreasing margins on voice and text services, operators have made it their strategy to increase revenue growth with the introduction of high speed data services. And to make the user experience good enough to truly unlock music, TV and gaming services, there was a realisation a while ago that only HSDPA would provide the speeds required in areas of high demand.
Because the worrying news for mobile operators is that core revenue and service growth is flat. And it’s not just Vodafone, with it’s widely publicised travails, feeling the squeeze. The final quarter of 2004 saw European mobile service revenue growth slow form 5.8% in Q4 2004 to 5.1% in Q4 2005. Voice revenue growth slowed only very slightly quarter to quarter. And data services as yet do not appear to be running to the rescue. For the first time since the industry began EBITDA growth was flat, year on year. And ARPU fell in most European markets, continuing a trend that began at the end of 2004. Pulling these figures together, Credit Suisse estimates that the mobile industry will grow by 4-5% in 2006, and EBITDA actually decline.
Not everyone buys into quite such a gloomy picture. Wireless Intelligence reports that “real” minutes of use in fact rose 6% on Q4 2005, against reported growth of 2%. If you take into account the phenomenon of multiple device ownership in Europe, “we can conclude that far from regional usage growth being low and slow, individuals are actually trending their usage upwards quite nicely quarter by quarter” Robin Hearn, principal analyst, reported. “In Italy,” Hearn reported, “the difference between each of the reported and ‘real’ user metrics is at its most extreme and MoU/user is no exception. Italy has suffered declining aggregate reported MoU/user during 2005, culminating in a 4% decline in Q4. However, this is shown to be purely a function of multiple connections, because when the analysis is carried out at the individual user level, ‘real’ MoU/user is following a steadily increasing trend. And far from declining year-on-year, in Q4 2005 it actually jumped 6% from the same quarter a year earlier.”
So, according to Hearn, an individual user is actually spending more time on the phone, not less. But can we see this reflected in ARPUs? It appears not. Italy’s operators suffered a10.0% decrease in ARPU in Q4 2005, hit hard by cuts in mobile termination rates.
Whichever way you slice it, mobile operators are looking at flat to slow service revenue growth, so the imperative of increasing the share of profitable mobile data services becomes just that.