Emerging markets drive mobile service revenues
Voice and messaging revenues will come under increasing pressure, but mobile data revenue growth won’t be enough to fill the gap. Maturing markets, the cost of rolling out new network technologies, intense competition, and the growing threat from OTT players will force operators to reduce their cost bases and review their strategic roadmaps in order to survive.
Emerging markets will fuel connections growth
There will be sustained mobile connections growth across the globe between 2012 and 2017, but Africa, Asia-Pacific, and the US will be the primary growth drivers. Africa will be the most prolific growth region, with connections increasing at a compound annual growth rate (CAGR) of 6.5% to reach 935 million in 2017.
While connections growth in Asia-Pacific will begin to slow, the region’s 4.4 billion connections in 2017 will make it the greatest contributor to global connections. Growth in the region will largely be driven by the “big three” emerging markets of China, India, and Indonesia, which will have 3 billion connections between them in 2017.
North America shows that developed regions can excel
The performance of North America, and in particular the US, is surprising given that it is a mature region. Ovum expects connections in North America to grow at a CAGR of 4.2% over the forecast period to reach 486 million in 2017. This growth is more in line with emerging markets and will mainly be fueled by a dramatic increase in the use of smartphones and shared data plans. The aggressive rollout of LTE networks will also have a positive impact on the US market.
Revenues need to be stabilized
Revenue stabilization strategies will continue to be critical for operators. The most worrying region is Western Europe, where revenues will decline at a CAGR of 1.4% over the forecast period. Eastern Europe will see its revenues fall at a CAGR of 0.4% between 2012 and 2017. However, mobile revenues will grow at a CAGR of 4.2% in South and Central America, 3.8% in Africa, and 1.9% in both Asia-Pacific and the Middle East.
Despite being a mature region, North America will continue its strong performance, with mobile revenues expected to grow at a CAGR of 3.2% over the forecast period. This shows that operators in developed markets can continue to prosper if the market conditions are suitably attractive for them. The size of the US market, relatively high pricing, and a lower threat from OTT players means that US operators are yet to experience the challenges faced by their European counterparts.
Data will increase in importance, but operators should ignore voice at their peril
Voice will continue to be a key component of operators’ revenue bases, generating $573 billion and accounting for 52% of total mobile service revenues in 2017. However, in some markets, the importance of non-voice revenues will grow considerably over the forecast period. In 2017, non-voice revenues will account for 66% and 52% of total mobile revenues in North America and Western Europe respectively.
Voice revenues will decline in Eastern Europe, Asia-Pacific, and the Middle East between 2012 and 2017. This is a worrying trend for operators and will place a greater reliance on non-voice services to make up the deficit. The decline in voice revenues will largely be due to a reduction in prices, which will be caused by increased competition from both traditional and OTT players.
Data revenues are also being impacted by market maturity
Revenues from non-voice services will increase at a CAGR of 8.2% over the forecast period, rising from $357 billion in 2012 to $531 billion in 2017. Mobile broadband and messaging will account for the majority of non-voice revenues over this period. Messaging revenues, which have traditionally been the mainstay of mobile data revenues, will diminish in many markets due to price declines and the impact of OTT social messaging services.
While total global messaging revenues will increase at a CAGR of 3.5% over the forecast period, this is much lower than that of mobile broadband, which is expected to increase at a CAGR of 15%. Mobile broadband growth will be fueled by small-screen devices (mostly smartphones), both in terms of connections and revenues. However, year-on-year growth rates will slow significantly throughout the forecast period.
Continued market pressures will force operators to make robust responses
LTE is the long-term next-generation network choice for most operators, with Ovum forecasting that LTE connections will increase from 44 million in 2012 to 937 million in 2017. However, HSPA will continue to be the dominant data technology over the forecast period, with 2.9 billion connections expected in 2017.
The transition to 4G networks will not happen quickly, and operators will need to find ways to make their businesses more profitable and cost efficient to fund the considerable investments required. Operators will have to adopt robust responses to deal with market pressures and the threat from OTT players. New business models that focus on adopting a LEAN (low-cost enabler of agnostic networks) approach will dominate operator strategy. Network optimization, service and tariff innovation, and creative approaches to partnerships will also be important.
Carrie Pawsey is a senior analyst for industry, communications and broadband at Ovum. For more information, visit www.ovum.com/