Top Themes from European Operators’ Results in 4Q10

CCS Insight’s European Operator and Market Review for 4Q10 was published earlier this month. Here are my top four trends from the report.

North–South Divide

Economic and competitive pressures continue to present tough challenges in Spain, Italy and the Balkans, while operators in the UK, Germany and Netherlands reported generally healthy results.

Tariff cuts have had a minimal impact on Spanish consumers, who continue to reign in their spending. Vodafone has reduced prices by more than 10 percent over the past year, but it’s seen only a 1 percent rise in outgoing voice usage. Alongside Telefonica, it posted yet another fall in service revenue in Spain in 2010.

In Italy, both Vodafone and TIM recorded a double-digit decline in revenue as the effects of low prices and regulation took hold. And tough economic conditions in Greece and Romania weighed heavily on Deutsche Telkom, which posted a surprising net loss in 4Q10 of €582 million.

UK networks recorded the most impressive results this quarter. Data usage and growth in contract subscriber numbers helped Vodafone and O2 post strong revenue figures in the fourth quarter.

Regulatory Effects

The impact of lower mobile termination rates (MTRs) was a key theme in many operators’ fourth-quarter reports, with CEOs again complaining of heavy-handedness by regulators.

KPN said that MTRs dented group revenue by €180 million in 2010, a figure it sees rising to €500 million this year. Vodafone commented that service revenue growth would have been 4.6 percent in the fourth quarter had MTRs not dragged it down to 2.5 percent.

UK regulator Ofcom recently announced an 80 percent cut in termination rates over the next four years. It claimed that because MTRs apply only to voice calls and data continues to take a greater share of revenue, the impact will become less significant as time goes on.

Unsurprisingly, mobile operators have criticised the decision, though data now accounts for around 35 percent of operators’ revenue in the UK — O2 leads the way, exceeding 40 percent for the first time in 4Q10.

New Revenue Streams

With regulation hitting mobile voice revenue, operators are rightly eyeing new sources of income.

O2’s financial arm, O2 Money, currently has more than 800,000 customers in the UK. Alongside O2 Media, it forms part of the operator’s strategy to offer innovative products and capitalise on the opportunities presented by mobile data.

Vodafone continues to look to vertical markets and enterprise solutions. It recently announced contracts with the UK Metropolitan Police and disaster relief agency Telecoms Sans Frontieres. Revenue from fixed lines now accounts for around 8 percent of the total, boosted by growth of nearly 5 percent in the year to 4Q10.

And Orange is becoming the leading proponent in near field communications, claiming that over half of new smartphones in Europe will run contactless services by the end of this year. Orange’s parent, France Telecom, recently bought a stake in video-sharing site Dailymotion, part of a strategy to work with content providers to acquire new customers and capture additional sources of revenue.

Strong Contract Growth

Smartphones continue to drive growth in contract subscribers, and operators again reported healthy numbers. In the UK, contract subscribers were up 10 percent year-on-year and now account for 46 percent of the market. France (8 percent growth) and Spain (7 percent) also recorded impressive figures.

Interestingly, with smartphone prices coming down, operators in the UK are now looking to reintroduce 12-month deals, a move that will surely result in further growth in the contract segment during this year.

The CCS Insight Operator and Market Review consolidates and analyses information provided by European and US network operators into a consistent and easily understandable format. Published within 10 working days of the final results being announced, it offers insights into complex mobile operator markets. The reports focus on subscription growth (total, postpaid and prepaid), ARPU, revenue, EBITDA, capital expenditure, churn, revenue from non-voice services and other performance metrics. For more information, see here.