Following Vodafone's statement about the impact of the macro-economic downturn on its operations in Spain, we set out to ascertain how much Europe's top mobile network operators (MNOs) have been affected by the gloomy economic climate in Europe's top five markets.
Specifically, we looked at how quarterly year-on-year revenue growth rates have changed over the 18 months to the end of June 2008. In our recently published report Europe's top MNOs unfazed by credit crunch‾, we profiled the operations of Orange, O2/Telefonica, T-Mobile, TIM and Vodafone, focusing on their operations in France, Germany, Italy, Spain and the UK.
Apart from a few isolated incidents, Europe's big MNOs have proved largely resilient to the credit crunch. In France, the three MNOs (Bouygues, Orange and SFR) enjoyed a steady increase in their organic revenue growth rates in the period under review.
The results were more mixed in Germany, Italy and the UK: while some MNOs in those markets posted declining growth rates, other MNOs operating in the same market, and facing the same operational conditions, enjoyed better performance.
In Spain, where there is a more visible credit-crunch, impact on Vodafone and Telefonica, Orange's revenue growth rate has seen an undulating trend of improvements and declines.
Mobile services are quasi-utility
The anxiety over the impact of the credit crunch has been partly fuelled by the belief that the increasing cost of basic necessities will diminish the money available for telecoms services.
However, the seeming immunity of MNOs to the credit crunch suggests mobile services have become a quasi-utility service, with people's dependence on mobile somewhat beginning to mirror their dependence on traditional utility services such as gas and electricity.
In this instance, customers generally seem to have kept their mobile phones and do not appear to have abandoned mobile services in the face of an economic downturn. Voice and data traffic volumes have generally increased, confirming that subscribers are using mobile services more. The falling per unit cost of voice and messaging traffic is largely due to cuts in roaming and termination rates.
New mobile services have helped too
MNOs have also managed to mitigate the effects of the credit crunch with a plethora of new mobile services. Accordingly, despite falling per unit costs, they continue to ramp up their revenue growth rates. Ringtones, music downloads, MMS and wallpapers all boosted mobile services revenues in the past 24 months. Today, mobile broadband is the most obvious new service and is largely driving growth for European MNOs.
We have seen Orange and Vodafone attribute their performance to the positive effects of mobile data services, especially mobile broadband. Indeed, mobile broadband has validated the multi-billion euro investments in 3G networks and given operators an entire new market to target. As these services are in their early growth stage, MNOs should be able to leverage additional revenues to ride out the credit crunch.
Regulation poses the biggest threat
While MNOs will be relieved that they have, so far, managed to withstand the economic downturn, they must be wary of continued regulatory pressure on their businesses. In many of the markets where revenues are falling, we observed that cuts in termination and roaming rates had the most impact on revenue growth rates.
Given that European regulators are still advocating more cuts in mobile data roaming, and are pondering an overhaul of the entire tariff structure for mobile services, MNOs face a daunting challenge for the future.