With the new decade beginning, it is worth reviewing European developments in mobile services markets since the millennium. Subscriber penetration increases continued to outpace expectations, but usage growth was disappointing throughout the decade in voice and in data services--apart from SMS--until a couple of years ago. Prospects for operator revenue and earnings growth remain constrained due to perilous economics in mobile broadband with spectrum costs, weak strategic positions in mobile internet, an abundance of wireless operators and barriers to consolidation.
Penetration and usage
European mobile services markets matured last decade. Whereas most Europeans now have mobile phones, it is surprising how few calls they make on them.
Subscriber penetration tripled to 130 per cent in Western Europe, while usage has remained pretty frugal with average minutes of use rising less than 20 per cent to 150 per month. Whereas East European penetration averaged only 5 per cent at the beginning of the decade, it is now approaching the West European average and MoUs are 40 per cent higher. In contrast, US subscriber penetration continues to lag at 90 per cent, but with 800 MoUs. These differences are driven by high prices per minute and low or non-existent monthly minimums with the dominance of prepaid calling and with relatively high call termination charges in Europe.
Price wars have not generated sufficient additional adoption and use to maintain declining revenues. Regulated price controls on international roaming and call termination are stimulating demand somewhat, but average European prices are still much higher than in nations such as the USA and India. With the trend towards text-based communication with SMS, email and IM it seems unlikely European MoUs will ever reach anywhere near US levels.
3G and mobile broadband
3G was pretty disastrous for European operators until the latter part of the decade. With spectrum auctions at the beginning of the decade resembling the game of musical chairs in several major nations including Germany and the UK, the contrived scarcity forced operators to bid dangerously large sums of money. This nearly bankrupted some large operators such as KPN Telecom and the financial shock generally impeded deployment of 3G services. The first 3G phones were unattractive to consumers with poor battery performance, bulky form factors and inadequate data capabilities. Operators had to subsidize these costly devices much more than their 2G counterparts to encourage 3G adoption with use of the new spectrum and infrastructure.
Five years after the initial 3G service launches starting in 2003, 3G is a major success in its evolved form with HSPA. It is so cost-effective that decommissioning some 2G capacity is typically worthwhile for the additional capacity and cost efficiencies. And at last, all the elements in the mobile data services ecosystem are in place, as Apple and its carrier partners demonstrate with the user-friendly iPhone, App Store and HSPA networks.
Whereas auctions are the fairest way of selecting winners and losers, it makes no sense to saddle the sector with massive spectrum costs. If the objective is--as it should be--to provide deep penetration and affordable mobile broadband to people and places where there is no alternative broadband access, spectrum should be allocated on the basis of deployment and service commitments rather than maximizing payments to government.
Monetising the mobile Internet
Miniscule until 2005, this market segment is now growing rapidly but mobile operators have not yet figured out how to capitalize on it significantly beyond the transport charges to which most fixed network operators have been relegated. Meanwhile, Apple is cleaning up with gross profits of $400 on every iPhone bought by operators for an average of $610 last quarter and sold with subsidies to consumers at prices ranging down to nothing on some 24 month contracts. Apple's App Store including its payment system bypasses operators completely...Continued