By Anne Morris
Recent first-quarter results published by operators across Europe provided a stark reminder of the issues they continue to face, with revenues flat or down and profitability tough to reach.
It's not all doom and gloom, however. There are opportunities for operators to exploit their biggest assets and maintain average revenue per user, particularly as they roll out LTE services, according to analysts and executives from operators and vendors. There are several major opportunities that lie ahead for operators and a variety of ways operators are pursuing them.
A premium on LTE data plans
The LTE market is relatively nascent in Europe and many operators are still working out their pricing strategies for new LTE data plans. Some operators such as 3 UK have said they do not plan to charge a premium for LTE service.
EE in the UK charges an average £5 premium on its LTE plans, and stressed that it believes this premium is sustainable in future based on its performance so far. "We absolutely believe a premium will be sustainable," an EE spokesperson said. "We are very clear on rolling out the best and fast 4G services."
EE in the UK charges a premium for its LTE service.
Although EE will face LTE competition later this year, the spokesperson said the company is buoyed by the start it has made, and cited figures it believes backs up its strategy. The company said a global benchmark for LTE success is where LTE subscribers account for 10 per cent of the postpaid base after 24 months. The company's stated goal of 1 million users by the end of the year would represent 8 per cent of its subscriber base and give it eight months to reach the target of 10 per cent within 24 months.
EE highlighted that premium pricing is not just based on the higher speeds of LTE, but includes unlimited calls and texts and value-added services such as Deezer and EE Film. Indeed, adding value to mobile plans through the inclusive services such as cloud storage, free music and TV services and contact back-up is gaining momentum, as operators see this as a way of hooking higher-value customers and enterprises.
Nevertheless, analysts see charging a premium on LTE pricing as a short-term move that at best is offered by those first to market but is unsustainable. Analysys Mason analyst Chris Nicoll noted that U.S. operators have been successful in not adding a premium to LTE services. The value with LTE, he said, is not charging more just for faster services but the ability to differentiate on services. "The bigger the pipe, the more you can do with it," he said.
A key change that LTE is bringing to data pricing strategies is a move away from unlimited bundles and towards tiered pricing. "This is encouraging," commented Bertrand Grau, principal at Arthur D. Little. "Most operators have abandoned unlimited data and are looking at capped plans. We think this is an encouraging sign for LTE operators to increase ARPU."
However, Grau warned that pricing challenges will continue, and indeed, unlimited will not disappear. In the UK, for example, 3 UK has already said it will not abandon its "all you can eat" data strategy, and there are indications that unlimited plans will remain a core strategy of challengers such as Hutchison Whampoa's 3-branded operators.
The ability to share data between several devices and users is seen as an important strategy for operators to ramp up revenue and retain customers by allowing them to have one plan for all their devices, or to provide single data plans for families and small businesses.
"The evolution now is the multi-devices plan," observed Nicoll. "This increases ARPU without increasing the price for individual users."
Europe's operators have yet to embrace the multi-device model beyond two devices. Indeed, a recent report from ABI Research suggests that only 5 per cent of mobile subscribers globally have the option to subscribe to multi-device shared data plans, such as those provided by AT&T and Verizon Wireless in the United States.
Verizon Wireless has spearheaded the growth of shared date plans in the U.S. market.
Operators in Europe are making tentative moves in the direction of multi-device or multi-SIM plan. Indeed, the option to share data between a smartphone and a tablet or laptop is available at several operators in Europe including national operators within the Orange and Vodafone groups.
"We are looking at shared data," confirmed Daniel Gurrola, vice president of mobile strategy at the Orange group. "This is part of our roadmap."
EE noted that Orange in the UK, which along with T-Mobile UK is now owned by EE, already has Orange Connected plans for smartphones and tablets. "Shared plans are something for us to evaluate," the EE spokesperson said.
As things stand, TeliaSonera is the only European operator to have launched a multi-device plan for up to seven devices, although Turkcell also provides large-volume Shared Internet Packages.
Multi-service/converged fixed and mobile plans
Combining fixed and mobile plans is a key strategy for operators to compete with cable and fixed telecoms operators that are adding mobile to their triple-play offers through MVNO services. Spain's leading operators on the mobile market have been hard hit by competition from cheaper MVNO services, and multi-play is now a major strategy on the market. For example, Telefónica's Movistar is heavily marketing the quad-play Fusion bundle, and both Vodafone Spain and Orange Spain offer the ability to bundle services.
Earlier this year, Telefónica said Fusion has already helped to stabilise its customer losses, with 1.5 million people signing up to the quad-play offer by the end of January.
"Mobile alone is not enough," said Leonard Sheahan, senior director product marketing at Oracle Communications. Pooling mobile and fixed service "is a way they can increase revenues," by hooking users in and keeping them.
France is another leading quad-play market with offers such as Orange Open, and a multi-play strategy is expected to be adopted by other operators elsewhere. Vodafone is certainly stepping up its convergence strategy; the operator recently signed a deal in Germany to enable it to use Deutsche Telekom's VDSL network for its own high-speed broadband and TV services, and is ramping up its fixed assets in other markets such as Portugal.
"Fixed and mobile offers are a good way to limit churn," added Arthur D. Little's Grau. "And it's not a show-stopper for mobile-only players, as they can establish a partnership with fixed players."
Often cited as one of the biggest threats to operators today, over-the-top players are challenging operators at a number of levels. Web-based messaging apps are hitting voice and text revenue, while web-based storage and video services are causing network congestion.
"Messaging is the most apparent threat," said Orange's Gurrola. He added that Orange is initially tackling this through unlimited SMS, and is seeing some success with this strategy.
OTT apps such as WhatsApp continue to cut into operators' revenue streams.
Oracle's Sheahan thinks operators are slow to take measures that could help them better deal with such threats--such as opening up their networks to third parties and applying policy management to deal with revenue settlement. "A lot is down to IT agility," Sheahan commented. "Network teams tend to be more cautious; IT tends to be more progressive."
Sheahan said operators are looking for proven ways to open up their networks, but whatever they do, "they need to do something; operators are on a hiding to nothing with the OTT situation as it is now," he said. Companies like Dropbox "are killing networks!"
For now, operators are bundling in unlimited texts and voice calls as part of plans to mitigate the impact of web-based messaging apps. They are also looking ahead to Joyn and Rich Communications Services to help them compete by offering their own IP-based services. Gurrola said RCS 2.0 would be the platform that will allow the development of third-party applications.
Of course, cutting costs is an ongoing project for operators, particularly in today's economic environment and amid more challenging regulatory conditions such as lower mobile termination rates and caps on roaming charges.
Network sharing is an obvious way to go. Many operators would also love to be able to drop expensive subsidies on smartphones and tablets, but a viable alternative would then be required due to the cost of today's high-end devices.
Although he noted that SIM-only options are already available in several markets, Gurrola said subsidies are still the best option in several markets for now. Indeed, Orange Spain benefited when Telefónica and Vodafone Spain dropped handset subsidies and haemorrhaged subscribers as a result. "I still see operators taking a significant role in funding the devices," said Gurrola. "The services and the devices go hand in hand."
Analysys Mason's Nicoll said other device-financing options are emerging. Programmes such as O2 Handy in Germany and Vodafone Red Hot already offer alternative leasing plans for devices. Nicoll said he thinks that offering a mix of options ranging from full subsidies to partial or no subsidies will help expand the potential customer base.
Nicoll added that device exclusivity is probably on the way out. Operators are less prepared to spend vast amounts of money upfront to be able to offer a particular device on an exclusive basis for six months.
Learn from the U.S. experience
Nicoll strongly recommends that Europe's operators take on board the lessons U.S. operators have learned through the deployment of LTE. They have avoided premium pricing for LTE, launched shared data plans to increase ARPU, focused onj high-end smartphones to drive LTE adoption, and have shown that being first to market is important, but being "best to market" is critical to success. Early LTE market entrants that do not have a national coverage in less than 2.5 years are less likely to be successful, Nicoll said.