Mobile service mix
In recent years the mobile service mix has evolved rapidly from little more than voice telephony and text messaging to a complex set of services with diverse characteristics in terms of performance requirements, data consumption, pricing, revenue per megabyte and revenue share models, to name just a few. Understanding the service mix is crucial for network operators and service providers alike, but this is a major challenge. Based on extensive research in this area, this page contains a selection of our blog posts on the mobile service mix.
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Social networks to displace SMS text messaging?
In May 2011, I wrote my article ‘Will Mobile Messaging Revenues Decline?’, in which I discussed declining messaging revenues experienced by Vodafone Spain. As I reported, in the year to March 2011, there was a 13.8% decline in mobile messaging revenue compared with the previous year, from GBP400 million to GBP345 million. The publication by Ofcom of its ‘International Communications Market Report 2011’ on the 14th December 2011, which contains interesting market research on the adoption of social media, has prompted me to revisit this important topic as we near the end of 2011.
Mobile industry concern about the possible negative effects of social media on SMS revenues has increased during the year. Back in April 2011, KPN in the Netherlands attributed a 10% annual decline in SMS revenues to changing consumer behaviour, where mobile applications and data services provide an alternative to traditional voice and SMS. KPN’s recent results for the quarter ending September 2011 show a further decrease of voice and SMS service revenues in the Netherlands. Among KPN’s mobile consumer customers, the number of mobile-originating SMS messages per subscriber fell substantially to 50 in the quarter ending September 2011, compared with 55 in the previous quarter.
Messaging revenues for Vodafone Spain also declined significantly to GBP77 million for the quarter ending September 2011, compared with GBP88 million for the previous quarter.
The uptake of social media has been impressive. In Ofcom research undertaken during October 2011, 79% of UK consumers claimed to have visited a social networking website. Among the 18-24 year age group, the proportion was 92%.
Of those consumers with a social networking profile, the most popular site was Facebook. 71% of people with a social networking profile in the UK stated that they visited a social networking website at least once a day. 32% of 18 to 24 year olds in the UK claimed to visit a social networking website five times a day or more.
The increasing penetration of smartphones is encouraging access to social networking sites via mobile phones. The Ofcom survey during October 2011 revealed that smartphone penetration has already reached 50% in the UK and Germany, with Italy (48%) and France (44%) just behind. According to Ofcom, 43% of UK consumers access their social networking profile page via an app or the web browser in their mobile phone.
The most popular function on social networking sites is communication with friends and family. 85% of those interviewed in the UK with a social networking profile use it to communicate with existing friends and family. 49% of those with a social networking profile in the UK agreed that social networking had significantly changed the way they communicate with people.
The challenge for mobile operators during 2012 is now to minimise any net loss of revenue from the migration of messaging traffic from SMS to social media sites.
To all our regular readers, I hope you have a restful Christmas, ready for the challenges in 2012! Thank you all for your continued support.
About the author:
Mark Heath is co-founder of telecom strategy and telecommunication consultancy company Unwired Insight. He provides regular in-depth analysis on LTE and 4G, and has co-authored over 40 research reports on the biggest issues in the telecom industry.
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.
About the author:
Alastair Brydon is co-founder of telecom analysis and telecom consultancy company Unwired Insight. He provides regular in-depth analysis on LTE and 4G. He has written over 40 reports on the biggest issues in the wireless industry.
Mobile voice to account for only half of mobile revenues by 2012
Despite increases in the penetration of smartphones discussed in a previous post, the outlook for mobile network operators remains challenging. My analysis of the latest data from Vodafone shows that the combination of intense price competition and price regulation is causing mobile voice revenues as a proportion of total mobile revenues to drop significantly. In the UK, voice will account for only about half of mobile revenues by March 2012.
Across Western Europe, the voice revenues of mobile network operators are being squeezed, through a combination of:
- intense price competition
- cuts in mobile termination rates, forced by telecommunication regulators.
Over the last five years, voice revenue per customer has generally decreased significantly for Vodafone, in Germany, Italy, Spain and the UK, as shown in the figure below. Over the five years to March 2011, voice revenue per customer has declined 42% in the UK, 36% in Germany, 29% in Italy and 21% in Spain.
Annual mobile voice revenue for selected European countries
Mobile network operators have been able to avoid even steeper declines by encouraging voice usage, for example by offering bundled tariffs and stimulating fixed-mobile substitution.
In general, there have been increases in the number of voice minutes per customer, as shown in the figure, below. However, these have not been sufficient to reverse the decline in voice revenues. In the five year period until the end of March 2011, the number of voice minutes per customer in Vodafone’s networks increased by 33% in Germany, 19% in the UK, 13% in Italy and 11% in Spain.
Average monthly number of voice minutes per customer for selected European countries
Compared with declining voice revenues, mobile data revenues, in general, have continued to increase, driven by greater adoption of mobile broadband services and the rapid take-up and usage of smartphones.
As a result, mobile voice revenues as a proportion of total mobile revenues are decreasing significantly, as shown in the figure, below. Among Vodafone’s four largest Western European mobile markets, the UK generates the greatest mobile data revenues, resulting in the lowest proportion of mobile voice revenue. In the year to March 2011, voice accounted for only 57.1% of mobile voice revenue for Vodafone UK, from 62.4% for the previous year – a drop of 5.3 percentage points. In the five year period up to March 2011, voice revenue as a proportion of total mobile revenue (from voice, messaging and data services) decreased by 22.6 percentage points.
Voice as a proportion of mobile revenue in selected European countries
We expect the downward pressure on voice revenues to continue. For example, in the UK, over the next four years there will be substantial reductions in mobile termination rates, driven by the UK telecom regulator, Ofcom. Mobile termination rates are the wholesale charges that mobile operators make to other network operators to connect calls to their networks. From the beginning of April 2011, Ofcom enforced a reduction in mobile termination rates from 4.18 pence per minute to 2.66 pence per minute for all UK mobile operators.
As shown in the figure, below, mobile termination rates will continue to fall year-on-year, to reach 0.69 pence per minute by March 2015. This roughly corresponds to an 80% reduction in termination rates over the next four years.
New mobile termination rates set by UK telecom regulator Ofcom in March 2011
In its latest annual results report, Vodafone expects that these termination rate cuts will have a significant negative impact on revenue growth during the 2012 financial year.
The pressure on voice revenue demonstrates the critical need for mobile network operators to generate increased revenues from mobile data services, to help prevent significant falls in overall mobile revenues. Despite increasing penetration of smartphones, which will boost mobile data revenues, mobile network operators will continue to face major challenges in sustaining their existing mobile revenues.
About the author:
Dr Mark Heath is co-founder of telecom strategy and telecommunication consultancy company Unwired Insight. He provides regular in-depth analysis onLTE and 4G, and has co-authored over 40 research reports on the biggest issues in the telecom industry.
