Asia Pacific will remain the growth engine and is expected to account for 3.8 billion connections by 2015, 52% of the global total. However, it is the Big Three - China, India and Indonesia - that continue to drive growth for the entire industry. They are set to have 2.8 billion connections in 2015, representing 72% of regional connections and 38% of the global total.
However, even the big three are not immune from "emerging maturity" as urban markets become increasingly saturated and competition intensifies. Therefore, growth rates are expected to decline rapidly toward the end of the forecast period. By 2013, none of the big three will enjoy double-digit connections growth.
South and Central America, Eastern Europe and the Middle East are maturing even more rapidly. Their annual growth for connections from 2009 to 2015 is 4.5%, 3.2% and 6.5% respectively. The regions are certainly not as mature as the world's most developed markets, but neither are they hotbeds for phenomenal growth.
In contrast, Africa is the last truly emerging region. Its 15% CAGR from 2009 to 2015 is the highest for all regions, and by 2015 the region will have 1.1 billion connections. Despite this high growth, penetration will only have reached 94% (the lowest of any region), with real penetration far lower due to multiple SIM ownership.
In developed markets connections growth will be far slower as only multiple device ownership will stimulate demand. To this end, device vendors are betting on economic recovery to stimulate sales of higher-margin, data-centric devices.
The most prominent feature of our latest mobile revenue forecasts is the impact of the economic downturn. Every region shows a marked slowdown in revenue growth between 2008 and 2009. The result is that we have cut our revenue outlook for 2014 by 4%. The $1 tillion global revenue mark will not be reached until 2015, compared to 2014 in our previously published figures. This is set against the backdrop of a 9% upward adjustment to our connections forecasts for 2014.
The changes highlight a decreased ARPU outlook, with the global average reaching just $138 a year in 2015. In part, this ARPU drop is a result of growing price competition and penetration into rural areas in emerging markets. However, all regions see declining ARPU as a result of market saturation forcing more intensive price competition.
The economic crisis is another contributing factor, forcing operators to lower pricing more aggressively. But this results in new end-user expectations and, once economies have stabilized, it will be very difficult for operators to raise prices again.
Operators must also anticipate significant declines in the contribution to revenues from mobile termination rates during the next few years. Continued downward pressure on mobile termination rates is largely due to a new costing methodology prescribed by the European Commission, which allows for the recovery of far fewer costs than the current approach. A focus on costs will become increasingly vital to ensure that margins are not impacted.
Data stems the decline
Voice will continue to be the single greatest contributor to mobile operator revenues globally in 2015. However, total global voice revenues are forecast to fall at 1.4% annually from $659.8 billion in 2009 to $607.9 billion in 2015. Operators need to defend mobile voice revenues and margins, but it is clear that global revenue growth is very much dependent on data services.
Total global data revenues are forecast to grow 11% annually to reach $392.9 billion in 2015, driven by North America, Western Europe and Asia Pacific. It must be noted that data revenue growth in North America and Western Europe is particularly impressive considering that both regions have far fewer connections than Asia Pacific. Asia Pacific does contain significant developed data markets, but it is predominantly its sheer volume of connections that make it the largest single region for data revenues.
North America continues to be a particularly interesting data market. In 2010 data revenues in the region are set to overtake those in Western Europe for the first time. Thereafter, the region's data revenues will continue to grow to the end of the forecast period, while Western Europe will experience a slowdown.
One data opportunity generating operator interest is machine-to-machine communications. There has been a stream of announcements over the last 12 months, although the ecosystem needed to generate viable margins is only just beginning to materialize.
With network traffic growing from the demand for data, operators are turning their attention to next-generation network access technologies to rationalize data transport costs.
LTE is expected to make a rapid impact from 2011 onward, and will reach 300 million connections by 2015. In marked contrast, mobile Wimax will be overtaken by LTE in 2013, despite its time-to-market advantage, reaching 80 million connections in 2015. However, HSPA will dominate high-speed data access to 2015. HSPA will grow at a CAGR of 45.7% between 2009 and 2015, to reach 1.87 billion connections in 2015.
Nonetheless, it is vital that operators recognize that new network technologies are unlikely to generate new revenues. The primary function should be to reduce costs. During the next five years, we believe that increasing revenue and margin pressures will eventually lead to the world of SMART (services, management, applications, relationships and technology) and LEAN (low-cost enablers of agnostic networks) players.
Operators will strive to become SMART players, but few will succeed. Therefore, most operators will need to adopt the LEAN role. In emerging markets, the adoption of LEAN strategies is already apparent, with profitability, innovation and pragmatism forming the bedrock of success. The Indian model of outsourcing shows just how many costs can be stripped from a mobile operation.
Ultimately, our forecasts suggest that the years of boundless mobile growth are ending. Operators must pragmatically face the new reality to maximize returns to their investors.
Steven Hartley is a principal analyst for Ovum