UK data revenues grew by just 5% – despite the 22% Group headline figure
By Keith Dyer
The industry is always keen, for obvious reasons, to understand just how much voice and messaging revenues are falling off and how much data revenue is growing. The wider industry narrative is that traditional revenues are falling and that data revenues need to come to the rescue. Yet data revenue growth itself, whilst steady, is not enough either to plug the first gap or to justify the network investments carriers need to make to support the required growth in data traffic. It's a viscious cycle that has carriers chasing investments deeper and deeper into a broken future. Meanwhile, WhatsApp, Google, NetFlix and Apple stroll off lighting cigars with £50 notes.
Vodafone's latest quarterly results contained breakdowns on revenues* in each sector, by country. So what, given the limited scope available, do they tell us, and do they support the current orthodoxy, as outlined above?
Whither voice?
Vodafone's Q1 results show that the broad picture of declines in voice revenues continues. In Europe as a whole, Q1 voice revenues were down 9.3% from this time last year. In Germany, for example, voice revenue fell from £802 million to £720 million – a drop of around 10%. Italy and Spain saw similar drops in percentage terms, with the UK also showing a decrease, albeit a smaller one at around 5%.
What of voice volumes as a percentage of overall revenues? In Germany mobile voice still accounts for about 53% of mobile service revenue. In Italy voice accounts for 63%, in Spain 73% and in the UK 51%. So voice is still providing the majority of service revenue, despite its decreasing share. In Spain, its percentage is very high because messaging revenues are very low, as we are about to find out.
The obvious, and well understood, conclusion is that voice is still the largest revenue stream for a T1 like Vodafone in major European markets. It is also on the decline, year on year, at somewhere around 5-10%
Getting the message?
What of messaging revenues? Well, overall in Europe, messaging revenue decreased 0.6% on a reported basis, and increased 2.8% on an organic basis. If you look at this across the four big countries, there were actually increases in messaging revenues in the UK (9.4%) and Germany (14.5%) and a small decrease in SMS revenues in Italy (-7%). Spain, however, is seeing SMS revenues tumble much faster. In Q1, SMS accounted for £79 million in Q1 2011. This year it generated just £54 million: and that £54 million is beginning to look insignificant against voice revenues of £639 million and data revenues of £171 million in the quarter.
This looks specific to the Spanish market at the moment. Telefonica Spain too has seen revenue from SMS tumble, with non-SMS data now accounting for 80% of all data revenues – a much higher percentage than in most markets.
Messaging revenues versus data
Messaging revenues are not yet the third line of revenue for all Vodafone's in-country operations. In Germany and Spain, data has now overtaken messaging. In the UK and Italy, it has not.
In Germany data revenues stand at £395 million, against SMS/MMS sales of £229 million. In Italy messaging revenue is just ahead, generating £197 million compared to data's £178 million. In Spain, as we have seen, messaging is off the cliff, whilst data has grown from £142 million to £171 million this quarter. In the UK, messaging is in fact still way of head of data, generating £324 million in Q1 2012, whilst data rose only slightly to £220 million. In Italy, messaging revenue did fall but it still generated £22m more than data for the quarter. Perhaps by the next couple of quarters that balance will have shifted the other way.
Data revenues
Although across the whole Vodafone group data revenues were up 22%, in Europe growth was much less strong. In fact, data revenues grew only 15% across Europe. In the UK, data revenues grew only 5.7% (whereas messaging grew 9.4%). In Germany data growth stood at the European average of roughly 15%, but was matched by messaging growth. In Spain data revenues grew 20% and in Spain by 11%.
Conclusions
The blanket picture of "traditional revenues falling, data must come to the rescue, yet data growth is too slow to match the required investment" is far from the whole story. Messaging revenue in particular seems to be very reactive to in-country conditions, and therefore it is too easy to state either that messaging revenues are under threat or bouyant. In the UK, data revenues grew only 5%, outperformed in growth terms by messaging revenues, in Germany data and mesaging revenue growth were matched. In Spain and Italy, data was on the up, as messaging revenues decllned.
One view might be that that leaves the UK operator much more exposed to an attack on messaging from its OTT competitors. Another might be that UK consumers are still ready and willing to pay for operator messaging, as opposed to Spain where messaging value is seemingy being destroyed.
You also have to view increases in data revenues against the in-country market background. Again, in Spain, where data revenues increased by a healthy looking 20% overall revenues fell by 11%, due to an understanable fall in voice revenues, as well as that steep mesaging decline we have aleady noted.
So although this is a global industry, it still appears to act in a very local manner.
* I received a note of caution on revenue allocation from analyst Dean Bubley of Disruptive Analysis. Dean reminded me (via Twitter) that when an operator sells bundles of voice, messaging and data, there is potential to "fudge" revenue allocation across those segments. For what it's worth, and without being more than usually naive, I think, for the time being, you have to take, even if you don't want to trust, the results as given. If Vodafone is somehow knowingly playing about with the numbers, then it will only come back to haunt it. And again, I think the variation in country performance shows that local conditions are likely to be very influential at the moment.