Mark Heath reviews the findings of Ofcom’s 2010 report on the international telecoms market.
UK telecom regulator Ofcom published, in December 2010, a very interesting report on the international telecoms market, in which it compares the UK mobile industry with other countries. The report covers a variety of issues, including the current state of 3G services, fixed–mobile substitution and the progress of mobile data services.
Firstly, let’s consider the state of 3G services from a global perspective. It’s nice to see that Ofcom’s report warns that claimed peak rates from HSPA services (for example, 3.6Mbps or 7.2Mbps) should be treated with caution. The report states, “in all countries, there is a large gap between theoretical speeds and the actual speeds being delivered”. The report refers to research carried out by measurement company Epitiro in the UK in June 2009, which found download speeds averaged about 1Mbps.
The report also recognises that the evolution of mobile networks towards LTE is occurring at a different pace in different countries, with the UK and France being LTE laggards.
Compared to leading 3G countries in the world, such as Japan, 3G penetration is still relatively low in many European countries, particularly in Germany, France and the UK. Ofcom reports that, at the end of 2009, 3G penetration as a proportion of total mobile connections, was 24% in Germany, 25% in France and 32% in the UK. While these penetration levels are substantially lower than Japan (96%), they are also lower than the USA (39%).
One of the topics I have written about in a number of reports is fixed–mobile substitution. The Ofcom document provides interesting statistics on the extent to which voice traffic has fallen on fixed networks. Ofcom claims that fixed voice volumes declined in most countries in the five years from 2004 to 2009. In both the USA and Japan, fixed-line call volumes decreased by 46% over the period. As yet, UK fixed operators have not suffered to the same extent, with fixed-line call volumes decreasing by 18% over the same timescale.
The statistics that I found the most interesting in the report related to the increase in mobile data revenues over the 2004–2009 period. I remember reading many 3G investment plans around the time of the 3G auctions in Europe, which predicted substantial increases in overall ARPU, driven by dramatic rises in mobile data revenue. However, those predicted increases have not materialised. Even now, Ofcom reports that SMS accounts for the majority of mobile data revenue per connection in most countries. While many mobile network operators have announced that they have generated significant increases in mobile data revenue as a proportion of total revenue, this does not tell the complete story. The fact is that voice revenue (and, hence overall revenue) has declined signficantly. Therefore, a much less misleading measure is the absolute mobile data revenue generated. In terms of this particular measure, the telecom industry has not made the progress that I expected. For example, in Germany, the average mobile data revenue in 2004 was the equivalent of GBP4 per month. In 2009, the average mobile data revenue was still GBP4 per month. Spain, Italy and the UK have only made very modest improvements (GBP3 to GBP4, GBP3 to GBP4 and GBP3 to GBP5, respectively).
So, the big challenge now for mobile network operators is to launch 4G services and achieve significant growth in data revenue, such that overall ARPU can noticeably increase regardless of whether mobile voice revenues continue their decline.