If we needed any further reminder, this week has only served to highlight what a harsh, unfriendly place the European market is for mobile operators and vendors right now as they grapple with a plethora of challenges ranging from bleak macro economic conditions to price wars within national boundaries.
In Spain, subscribers are playing fast and loose with their providers, switching plans to get better and cheaper deals. And no wonder, given reports that Spain's unemployment rate has reached 27 per cent; expensive mobile phone bills are simply not an option for many people. The smaller, nippier and cheaper MVNOs on the market have benefited from the situation, and unlike the three main incumbent operators have gained subscribers from rivals. What's more, the Spanish mobile market is actually shrinking as people cancel their contracts altogether.
Now, Telefonica's Movistar, Vodafone Spain and Orange Spain are fighting back with an increased focus on bundled services: for example Movistar Fusion offers a single plan including fixed broadband and voice, TV and mobile services.
It will take some time for multi-play strategies to seep through, but industry observers believe multi-service bundles will be a key customer retention strategy in future as they will help bind customers to several discounted services from the same operator. On the downside, this presents a considerable challenge to mobile-only players in future.
Multi-play is certainly a strategy that has long been utilised by France's operators: France Telecom-Orange, Bouygues Telecom and SFR all provide some form of quad-play, with Orange France offering a particularly well-integrated approach with Orange Open.
Nevertheless, as has been well documented, France's operators experienced a major set-back at the start of last year, when Free Mobile unleashed a mobile price war with a €19.99 price plan including 3 GB of data, unlimited WiFi and unlimited texts in France. Compared to what was available in France at the time, this was an incredibly cheap plan for mobile data and it's no wonder that so many people rushed to exploit it in a market also suffering from growing unemployment and a decline in buying power.
Since then, France's three incumbents have been trying to respond with their own low-priced offers and an increased focus on multi-service bundles. They certainly have several advantages over Free Mobile, which lacks the sophisticated range of offers from its rivals, but the path back to revenue growth is a long and rocky one.
France Telecom this week clearly articulated the pain that the operators have suffered over the past 14 months, describing the ongoing price war as "ferocious." The operator also made explicit that it believes LTE (or "4G") services will be its salvation by allowing it to "recreate value," thus spelling out what many operators hope to achieve with the new, faster services in the future.
Will LTE be able to fulfil these hopes for further grow? Certainly France Telecom is initially looking to add value through the simple equation of charging more for its "forfaits," but is a premium on LTE services sustainable? Experiences so far of EE, which offers LTE services in the UK, would suggest that LTE is no panacea, at least not yet. Despite a head start of several months and a major marketing campaign, EE still reported a decline in revenue in the first quarter of 2013, along with a fall in its overall subscriber base.
It's still early days for LTE in Europe, but a recent report by AD Little and Exane BNP Paribas titled European telecom operators: 4G – going faster, but where? came to the conclusion that LTE will not restore pricing power in the European mobile industry any time soon. "We see no capacity shortage before 2020 at the earliest, and it will be difficult for leading mobile operators to create sustainable differentiation," the report observed.
The report added: "We continue to model revenue decline for European telcos: 1.8 per cent CAGR through 2016e, including -2.6 per cent CAGR in mobile. The sector could return to growth if LTE smartphones generated data ARPU of €17/month by 2016e, i.e. €7 higher than today's data ARPU on 3G smartphones – this is a stretch."
For sweaty palmed operators looking for a way out of their current pricing challenges, this is probably not what they want to hear. But it is now incumbent on them to find new ways of creating value and differentiating themselves beyond just charging more for higher data speeds. As a start, the AD Little/Exane BNP Paribas report strongly advises the introduction of shared data price plans for several devices – moving beyond the basic two-device data multi-SIM plans of several operators in Europe and replicating the family data plans provided by US operators.
The good news is that moving to LTE is a "no brainer," as the report has it: the analysts believes that LTE will be a commercial success and will appeal to consumers frustrated by 3G data speeds. There are ways for operators to create value and differentiate themselves, with data sharing plans, multi-play offers, value-added services such as cloud storage among some of the options. A better attempt at marketing the value that LTE can bring to consumers, rather than focusing on the technology itself, is also desirable, not to mention a simplification of how they structure their price plans. --Anne