Vodafone results
As a major global player in the mobile industry, analysis of the Vodafone group provides invaluable insight into major trends and the implications of various strategic choices. We regularly track Vodafone's results and this page provides a selection of articles containing analysis of those results.
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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.
Will mobile messaging revenues decline?
With analysis from Vodafone’s latest annual results for the year ending March 2011, Mark Heath asks a big question that has major repercussions for mobile network operators. Are we now seeing the decline of mobile messaging revenues?
Mobile messaging in general and SMS in particular have proved highly-lucrative services for mobile network operators. In the year to March 2011, Vodafone generated a total revenue of GBP4.1 billion across Europe from mobile messaging. Despite the launch of 3G services many years ago, which offered the prospect of a much broader set of mobile data services, SMS has continued to be a major revenue generator. In the UK alone, for the year to March 2011, mobile messaging generated a revenue of £1.15 billion for Vodafone, compared with £762 million for all other mobile data services.
The impressive revenue from SMS is despite it being a very simple service relative to other mobile data services, without stringent requirements such as low latency and high data rates. Even though the amount of data that can be sent with an SMS – 160 characters – is so small, mobile network operators have been able to charge significant amounts. The result is that the revenue per megabyte of an SMS is substantially higher than all other mobile services: $1000 per megabyte compared with about USD1 per megabyte for voice telephony and USD0.01 per megabyte (or less) for mobile broadband services.
Mobile network operators are now beginning to see significant data revenues beyond mobile messaging, and I’m sure they have been hoping that this would generate strong increases in overall mobile data revenues. However, coupled with this, there is a risk of diminishing messaging revenues, which could more than offset growth in other mobile data services. This could reverse the progress that mobile network operators have made in the last few years to grow their overall mobile data revenues, as well as sending shockwaves to investors.
Buried within Vodafone’s latest annual report document is a detailed breakdown of service revenue, by service type. Analysis of this data reveals some interesting trends. In at least two countries in Europe, revenue from mobile messaging has declined.
In Spain, the total annual revenue generated from mobile data services was GBP882 million in the year to March 2011, which was actually slightly less than the previous year (GBP888 million). While there was a healthy 10.0% increase in mobile data revenue excluding mobile messaging, there was a 13.8% decline in mobile messaging revenue, from GBP400 million to GBP345 million.
In Italy, a relatively strong 16.7% increase in mobile data revenue excluding mobile messaging was offset by a 5.0% decline in mobile messaging revenue.
At the very least, declines in mobile messaging revenues will make it more difficult to turn the take-up of mobile data services and increases in smartphone penetration into substantial continued increases in overall mobile data revenues.
These numbers do not come as a shock, as I am seeing significant changes of behaviour closer to home. My own children have made a significant contribution to operator SMS revenues and messaging volumes over the last five years. However, I am noticing significant changes in their behaviour. No longer are they glued to their mobile phones sending texts. Instead, social media and Facebook, in particular, have taken more of a hold. They now spend time messaging their friends on Facebook, using their own PCs supplemented by a combination of mobile devices, including notebooks, an iPad and their mobile phones (all principally using a WiFi connection).
Compared with a messaging platform that requires a mobile phone, Facebook and similar services have some important advantages. They can be accessed by a broad range of devices, including PCs, and they can generally better handle group communications. Finally, many people perceive these services as free.
There may be challenging times ahead as mobile network operators are forced to get to grips with the full impact of the Internet, when it starts to threaten one of its key sources of revenue.
About the author:
Mark Heath is co-founder of telecommunication consultancy and research company Unwired Insight. He provides regular in-depth analysis of mobile broadband services. Mark has produced many reports in the area of wireless telecoms.
