Mobile revenue: What goes up...
Fixed services will gain share of total Western European telecoms revenue during the next five years, according to Analysys Mason. Or, put another way, mobile operators are watching their revenues flatten and fall as Western European mobile markets become saturated and difficult economic times cause European consumers to tighten their belts.
At the same time, European fixed operators, while also experiencing revenue declines, are hurting less, hence the changing revenue share between the sectors. And it's not necessarily a temporary 'blip'. The researchers expect mobile to claim a decreasing share of telecoms revenue for the next five years. Important: they don't expect fixed to grow, just to shrink less.
One prescription to this mobile broadband value 'problem', offered by many analysts and equipment and software vendors, is the 'fight-back' strategy involving commoditisation-avoidance. This approach usually involves more 'customer experience management', personalisation, revenue-generating service investment, telco-friendly regulatory change and so on. The objective here is to invest to reclaim the high ground and avoid bit-pipe hell.
The alternative school of advisors might still support many of these techniques, but only as an assist to an inevitable transition: a way of keeping the books balanced as the operators "transform their tariffs to accelerate the process of becoming data operators and to get to the less-risky position that fixed operators currently occupy," as Analysys Mason puts it.
One school thinks carriers can re-group around new technology and push together to maintain their full service status; the second school, of which Analysys Mason appears to be a member, sees commoditisation as advantageous in many respects as it tends to de-risk infrastructure investment, reduce the cost of capital and make carriers less prone to macro-economic ups and downs. But not only this, data carriage is just inevitable. This is the way the market will push players whether they like it or not - it has happened on the fixed side and it will happen in mobile. Get with the programme.
So, here are some of the specific factors that are causing the mobile model its problems, as laid out in Analysys Mason's two latest reports: Western Europe telecoms market: trends and forecasts 2013–2018 and The struggling Western European operator business:
Voice is holding mobile back: mobile has more legacy non-data services compared with fixed-line or cable and this indicates that data-centricity still has a long way to run for most mobile operators. Overall retail service revenue from services other than IP data accounted for 76 per cent of the total for mobile in 2012 in Western Europe.
Fixed operators, on the other hand have already lowered their exposure to voice revenue (mostly because mobile operators have taken the market from them). The analysts point out that line rental has traditionally been counted as voice, but the perceived value of line rental is shifting inexorably to broadband.
Generally, a naked broadband service still incurs a line rental element that costs about two-thirds of the cost of a full line rental. Assuming this, 67 per cent of fixed operator revenue (excluding content) in Western Europe came from data in 2012 - the inverse of the mobile operator experience.
Also pointed out: "unit costs of mobile transport as it moves to IP are declining, and it is a moot point whether the growth in the volume of mobile data is strong enough in Europe to make total transport costs increase. For voice and messaging, costs will decline fast because there is no growth in volume. Over-the-top (OTT) services represent a different – though not directly equivalent – service model, whose production costs are a fraction of those of traditional mobile voice services. Operators can respond with lower-cost models, but declining costs and a competitive market will tend inexorably to declining revenue.
"Mobile voice appears to be the most discounted part in the marketing of quadruple-plays. The knock-on effect is a swift erosion of the value of mobile voice in the market as a whole. For example, almost all of the revenue and EBITDA erosion caused by Free Mobile’s entry to the French market (with an entry-level EUR2 per month offer when bundled with a fixed triple-play) was attributed to mobile, whereas revenue attributable to fixed-line services did not shift from its long-term trajectory. (see - France's fourth mobile player proves its competitive worth)
Mobile data will never be less expensive than that of disruptive fixed players, but MNOs can do two things to compete claims Analysys Mason:
- They need to convince their customers that signing up to a big plan is an attractive option. Faster device refresh times are key here.
- They need their customers to believe that their incremental usage of mobile data is inexpensive. The kind of multi-device plans that have proven effective in the USA are key here, although AT&T and Verizon’s prices would be unthinkable in Europe. We note that some – and not just the data-centric mobile-only plays – have started to offer multi-device plans but there is a long way for the European sector to go.