Several prominent themes emerged from CCS Insight’s Operator and Market Review for 1Q11, which was published last week. Here are my top four trends from the report.
Possible changes in messaging revenue
KPN’s announcement that its Dutch performance had been hit by “changing consumer behaviour” that took a chunk out of its SMS revenue was one of the major talking points of the first-quarter reporting season.
New CEO Eelco Blok said that growing use of Internet-based messaging applications and services had resulted in significantly fewer text messages and fewer voice calls outside bundles. KPN was so concerned by this new trend that it’s introduced new tariffs and additional cost cutting in a bid to maintain performance for the rest of the year.
Other operators commented that they’re closely watching for signs of such “cannibalisation”, but none of them seem to have been hit in the same way as KPN. In fact, T-Mobile Netherlands said its SMS revenue had grown 8 percent year-on-year. Orange has seen no evidence of cannibalisation and pointed to strong growth of messaging revenue in France. O2 admitted that voice revenue in the UK had been affected by subscribers making the most of their tariffs and using fewer out-of-bundle minutes, but it maintained that the number of text messages per customer still grew by 16%.
If KPN’s experience is the beginning of a larger industry trend rather than an isolated occurrence, operators will need to change the way they construct their tariffs plans and carefully review how they offer data services to subscribers. The operator community will be examining the impact of KPN’s swift response when it announces its 2Q11 results in late July.
Lower tariffs to stimulate demand
Faced with sluggish growth, some European operators have slashed tariffs in a bid to stimulate mobile usage. In Italy for example, TIM saw outgoing minutes rise by nearly 20 percent in response to keen pricing, although it still posted an 11 percent drop in mobile service revenue.
In Spain, where tough economic conditions continue to weigh heavily, Telefonica alluded to the early skirmishes of a price war when it spoke of “strong price-oriented competition”. In France, Orange has heavily reduced tariffs ahead of the launch of fourth mobile operator Iliad, while price reductions contributed to a 12 percent fall in revenue for T-Mobile in Hungary.
Fewer prepaid subscribers in mature markets
As operators continue to focus on high-value contract subscribers, the number of prepaid customers fell in several major markets, including France, the Netherlands and the UK.
Operators have successfully shifted pay-as-you-go users to more lucrative contracts, helped by continued demand for smartphones. Both O2 and Everything Everywhere commented recently that they’re reducing or removing prepaid subsidies to compensate for cuts in mobile termination rates, and focusing on retention rather than acquisition.
The number of prepaid users in Western Europe grew less than 1 percent in the 12 months up to the end of the first quarter, compared with a 5 percent increase in contract subscribers. Almost three-quarters of mobile users in France now have a contract subscription, and in the UK contract customers are set to overtake prepaid users in the next 12 to 18 months.
Investments in growth markets
As growth in Europe slows, many operators are re-assessing their businesses. France Telecom said it’s considering various options for every one of its European operations, including disposal. It hopes to expand further into Africa and the Middle East through acquisition and recently created a joint venture to take a 44 percent stake in Korek Telecom in Iraq.
Vodafone continues to look at divesting interests in which it does not have a controlling interest. Recent moves include the disposal of its stake in French operator SFR to Vivendi and the sale of its holding in Polish operator Polkomtel.
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