Mobile operators in Western Europe may face a severe contraction in revenue, if data growth remains dangerously slow, Analysys Mason warns.
According to a new report by the firm, Western Europe is forecast to have the lowest growth in mobile data traffic out of the eight regions of the world, with a compound annual growth rate (CAGR) of just 29% from 2012 to 2017. This is equivalent to a growth multiple of 3.6, which is far below the worldwide growth rate of 40.8%.
By comparison, emerging Asia-Pacific and Latin America will see their mobile network traffic grow by a multiple of 9.1 and 6.8 during the same period of time respectively.
The main barriers to growth in Western Europe are device saturation, delays in the availability of 4G, as well as the greater propensity of consumers to use Wi-Fi, the firm said.
Growth in mobile data traffic will not be enough to stop a contraction within the mobile industry in western economies. Data revenue growth is already offset by tariff rebalancing, and together with the loss of core voice and messaging revenue to over-the-top players, and some erosion of operators’ position in device distribution, this contraction could be severe, the research firm said.
On top of this trend, network costs are predicted to fall fast. According to the report, unit transport costs are declining at about 30% per annum, so network costs would be balanced if data traffic grew annually at 42%. However, because data traffic is predicted to grow by only 29% in Western Europe, overall costs will fall.
According to Rupert Wood, principal analyst and author of the report, this is not the good news for operators it might appear to be on the surface.
“In an uncompetitive market, falling [network] costs would lead to rising margins, but in a mature, competitive market such as Western Europe they result in a contracting business,” he said.
In other words, it's not getting dangerously expensive to cater for demand; it is getting worryingly cheap to transport what little demand there is.
“Forecasting mobile data traffic has been bedeviled by analyst excitability, vendor and operator interests, spectrum lobbyists, and wildly mobile-centric views of device ecosystems,” explained Wood. “Open-loop forecasts with headline-grabbing growth rates simply don’t tally with long-term trends in transport costs or any plausible increase in operator revenue.”
To help ward off the specter of ‘managed decline’, Wood advised mobile carriers to either boost traffic growth or increase the unit value of what growth there is.
Mobile operators could adopt numerous strategies, which include offering bigger handset and multi-device bundles, and targeting the light-user end of the fixed broadband user base with some serious fixed-to-mobile substitution offers.
These involve getting users to pay for data that most of the time they could get for no additional cost, and they will also place even more stress on the handset subsidy model.
“Ultimately, mobile operators in developed economies are going to have to get used to being the victims, not the perpetrators, of disruptive substitution,” explained Wood. “Fixed and Wi-Fi can do most of what mobile does (except the wide-area/mobility bit) at a fraction of the price to the end user, but mobile can do only a fraction of what fixed and Wi-Fi can because of its inherently limited capacity.”