Mobile operators face a depressing reality of stalled customer growth and declining ARPU, Softbank chairman and CEO Masayoshi Son told a capacity crowd at the Mobile World Congress yesterday.
“Subscriber growth has stalled and ARPU is falling - dropping 42% over five years. Mobile data traffic also is growing like hell, which means a lot more capex.”
He said that five years ago operators still had an opportunity to expand penetration, so even though ARPU was in decline, it was okay because subscribers were growing.
“But looking to the next five years subscribers won't grow by ten times any more, just 1.5 times, and ARPU will fall 1.4 or 1.5 times." If you look at the simple mathematics, the two cancel each other out and there is zero growth in profitability.
The result is market values remaining flat for the major operators over the past several years. “Investors see the future and see no more growth in market value -- that's the depressing reality.”
He pointed to Cisco mobile data traffic forecasts that see a 30-fold increase in the next five years. But he said if you look out ten years that's 30x times 30x, which is more than a thousand times increase. “So capex is increasing like hell -- only John Chambers will be happy,” he joked.
Yet anther reality, he said, is that “Apple and Google take all the upside and operators are becoming a dumb pipe.”
He said there are only two ways for operators to increase their value -- increase market share by taking customers from competitors and increase ARPU.
Facing these market realities, Son said Softbank make the risky bet to spend more than $20 billion (€14.7 billion) in cash to obtain Vodafone Japan.
Most people considered him crazy at the time, particularly after losing $4 billion in the previous four years while it made another big bet on fixed-line broadband. Investors welcomed the takeover with a 60% drop in the share price.
But that bold risk has paid off, with Softbank's earnings increasing five-fold over five years by increasing its market share and expanding ARPU.
“We delivered on boosting data ARPU. Voice ARPU dropped, but it was offset by increasing data ARPU. We were one of the few companies to increase total ARPU. So sometimes craziness gives a good result.”
Son said the mobile internet is his big bet over the next 20 to 30 years. “Data ARPU can go up if you bet more aggressively than your competitors.”
He explained that the “depressing reality” of declining ARPU and slowing sub growth is based on the number of people in the world. “It's not a depressing reality; it's exciting when you look at the number of M2M connections and people to machine connections.”