Will mobile operators turn around declining revenues?

Faced with intense pressure on voice revenues, mobile network operators need to achieve significant growth in the revenue from mobile data services and mobile messaging. However, following years of disappointing revenue growth, some operators in Western Europe will have to do much better with mobile data services if they are to achieve significant increases in overall mobile revenue.

In a previous post, Mark Heath discussed the downward trend in the voice revenues of mobile network operators, caused by a combination of intense competition and price regulation. For mobile network operators to stabilise or, ideally, increase overall mobile revenues, they need to boost mobile data revenues, while maintaining significant mobile messaging revenues. In this endeavour, the success of mobile network operators in Western Europe is patchy, as demonstrated by recent results published by Vodafone.

I’m often asked by investors and analysts if, and when, we see a significant turnaround in the revenues of mobile network operators. Currently, it’s difficult to see any clear indications of such a turnaround. While there are positive signs of mobile data revenue growth in some markets, such as the UK, results in other markets are variable. Meanwhile, the downward pressure on voice revenues counteracts the gains from non-voice services. We need to be able to see a clear upward trend across multiple markets. It’s also essential that mobile operators are able to maintain their mobile message revenues.

Let’s look at the positive signs. Vodafone UK has experienced significant growth in mobile data revenue over the past five years, as shown in the figure below, alongside year-on-year increases in mobile messaging revenue. The relatively strong revenue performance of mobile messaging and mobile data services has finally enabled Vodafone to reverse a relatively strong decline in overall mobile revenue per customer, caused by a significant fall in voice revenue. In the year to March 2011, mobile messaging and mobile data services accounted for annual revenue per customer of about GBP100. This was 18% higher than the previous year. In the five year period to March 2011, revenue per customer for the combination of mobile messaging and mobile data increased by 71% (which is equivalent to a 14% annual increase on average). While mobile data has been the dominant driver to this (with revenue increasing by 151% in the five years to March 2011), mobile messaging revenues increased by 41% during the same period.

Breakdown of mobile revenue per customer in the UK

In comparison to the UK’s solid performance on non-voice services, Vodafone’s operations in Germany, Italy and Spain have performed less well, as shown in the figure below.

• There has been a significant gulf between the UK and the other Western European countries in terms of absolute mobile data and mobile messaging revenue. For example, the annual revenue per customer in Spain from mobile data and mobile messaging services was only GBP51.9, compared with GBP100.1 in the UK.
• While the UK experienced significant growth in revenue in the year to March 2011, with a clear uplift evident in the chart, Italy and Spain experienced no such improvement, and the situation was essentially static.

Annual mobile messaging and mobile data revenue per customer in selected European countries

Spain and Italy achieved significant increases in mobile data revenues, of 9% and 16%, respectively, in the year to March 2011, compared with the previous year. However, these increases were offset by declines in mobile messaging revenues. Without a solid foundation of stable mobile messaging revenues, increasing mobile data revenues will have limited impact on overall mobile revenues.

Breakdown of mobile revenue per customer in Spain

Breakdown of mobile revenue per customer in Italy

So, it seems that mobile operators have more to worry about than declining voice revenues. In the case of Vodafone, there are positive signs from the UK market, but more worrying trends in Spain and Italy. The prospect of a combined decline in both mobile voice revenues and mobile messaging revenues is bleak indeed. However, the Vodafone UK experience suggests that this may not be inevitable. At the very least, these substantial differences provide a great opportunity for benchmarking and learning, so that successful services, techniques and pricing models can be identified and replicated in other markets.