As the mobile operator reporting season gets underway, I’ve watched KPN’s announcement of surprisingly weak figures with interest. Traditionally, the first of the European operators to report, KPN usually provides some of the themes we’ll see from other operators.
The KPN board pointed to two major challenges: the continued drag on revenue of cuts in mobile termination rates and — more surprisingly — a change in customer behaviour that caught it unawares. During the first quarter, more and more KPN subscribers cut down on text messages and switched to communicating via social networks, instant messaging and services like Skype.
KPN has long been held up as a benchmark for other European operators, thanks to its tight cost management and an impressive command of its competitive positioning. This has made the news that it’s been caught out by a shift in behaviour all the more surprising. It’s not just the change, but also the speed that was unexpected. The fact that it appears to be accelerating is also of concern. KPN has certainly taken notice — it’s already planning new tariffs and additional cost-cutting to maintain its financial performance.
This must be worrying for all operators. After a shaky start, the huge adoption of smartphones had been seen as a good thing, with most networks confident they’d see revenue increase as more people started to use these sophisticated devices. Vodafone believes every feature-phone user on its network spends an extra €2 to €10 a month once they adopt a smartphone.
But the question is, are KPN’s subscribers in the Netherlands different in some way to any other European subscriber? KPN thinks so. In its quarterly report it said it doesn’t expect to see the same behaviour in its Belgian and German operations.
I can’t see how this will be the case. People in the rest of Europe have access to the same smartphones, the same applications (Skype, Viber, BBM, WhatsApp and Facebook), similar tariffs and the same vibrant online communities that the Dutch have. How can they not eventually display the same behaviour as their Dutch counterparts?
Of course, operators will hope this is a blip rather than a trend, but it’s far more likely that the Dutch experience is an early indicator of more to come and not an isolated national experience. Most European operators should now be asking their customer management teams to track this type of behaviour very closely in their own operations. Vodafone and T-Mobile will have surely already demanded answers from their operations in the Netherlands.
If KPN’s experience is indeed the start of a trend, it’ll have a profound effect on how mobile operators construct their businesses in the future. It’ll change how tariffs are put together, with data likely to become the major constituent and voice minutes and texts reduced to supporting roles.
Device subsidies may come under even greater pressure and operators may even choose to reduce the incentives for smartphones until they can get to grips with this new behaviour. KPN and others will need to walk a thin line between offering new tariffs and overpricing data to recover lost revenue.
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