Analysis: The effect of mobile broadband on operator revenue

Analysis: The effect of mobile broadband on operator revenue

Wireless Intelligence - Calum Dewar

Is mobile broadband ARPU making up for the decline in voice?

Executive summary

 Although mobile broadband ARPU (average revenue per user) has not completely offset declines in voice revenue for mobile operators at the global level, it has gone some way to stabilise falling blended ARPUs for those operators who have deployed mobile broadband networks and built up a high level of smartphone penetration within their customer base. A global study of the difference in blended ARPU between mobile broadband operators and those operators that do not provide mobile broadband services shows that the latter group have seen their average blended ARPU decrease at twice the rate of that of the former over the past five years. While a lack of reported data on the subject means that it is not possible at this time to identify a direct relationship between mobile broadband ARPU and blended ARPU, the findings above are reinforced by case studies of selected operators who, despite seeing falling voice ARPU, have all maintained stable blended ARPU since launching mobile broadband networks in 2005. Operators have been increasingly looking to mobile broadband technologies – which comprise CDMA2000 1xEV-DO, WCDMA, WCDMA HSPA, TD-SCDMA, WiMAX and now LTE - for revenue generation as global cellular

 ARPU continues its long term downward trend. Voice prices hit rock-bottom in parts of the developing world in 2011, while multiple device ownership and competition from MVNOs is diluting operators’ ARPU in the developed world. Although the gap is narrowing, voice ARPU is still falling faster than total ARPU, suggesting that some operators have been able to effectively monetise mobile broadband networks to compensate for declining voice revenues. This has been possible as a result of these new networks gaining traction at a record rate of growth, currently accounting for more than 20% of global connections compared to just 3% in 2005. The greater availability of high-speed networks has in turn generated a significant rise in smartphone ownership, with global smartphone penetration now at around 10%. As smartphone ARPU is typically double that of non-smartphone users, this phenomenon has subsequently played a significant role in stabilising blended ARPU.

Global context: the long term decline in ARPU

 Total worldwide revenue for the cellular industry passed the US$1 trillion mark in 2009 and continues to grow steadily – indeed we expect the figure to reach US$1.1 trillion this year. However, the rapidly increasing number of global mobile connections combined with intensifying competition in the industry has, over time, inevitably forced down ARPU. There are now more than 800 mobile operators worldwide, an increase of more than 40% over the last ten years, and the race by operators to build market share in some developing countries (such as those in the Indian subcontinent or East Africa) caused call prices to drop as low as US$0.01 per minute in 2011. The fact that these rates are generally only available for on-net calls has also led to an abundance of multiple SIM users in some markets, thereby driving ARPU down further.

 The multiple SIM effect has also impacted negatively on ARPU in high-penetration markets in the developed world, albeit in a different way, as people acquire second and third devices/connections which they then tend to use less than their primary one. Another feature of these mature markets is the establishment of mobile virtual network operators (MVNOs), which can further lower ARPU by expanding the market into lower-spending segments. As a result of all these factors, blended ARPU, that is the average of all service revenue across the customer base expressed monthly, has declined at the worldwide level from around

 Source: Wireless Intelligence

 Despite positive trends in global data revenues, voice services remain the core revenue generator for most operators and still represent 70% of the cellular industry’s total revenue. Figure 1 also shows how global voice ARPU has changed since 2001, when the use of messaging and other services was still at a relatively low level. Subsequently, voice ARPU at that time was higher than blended ARPU at around US$46, yet voice has since declined at a rate of 13% per annum – somewhat faster than blended ARPU – and currently stands at around US$12. The widening gap between voice and blended ARPU has come about largely as a result of the increasing popularity of messaging and data services, which have both cannibalised voice revenue to some extent while providing new revenue streams of their own.The effect of mobile broadband on operator revenue

 The commoditisation of messaging services, mainly through ‘unlimited’ tariffs and bundled packages, has limited their potential as a revenue generator, leaving data - and particularly the promotion of smartphones and mobile broadband services - to form the core of most major operators’ revenue growth strategies.

 For example, voice accounted for 59% of Vodafone Group’s recurring revenue in 2011, down from 63% at the end of 2010, while data-only revenue jumped from 12% to 15% over the same period. Subsequently, data revenue now makes up a greater proportion of Vodafone’s recurring revenue than messaging, which currently stands at 13% of total.

The rise of mobile broadband technologies

Mobile broadband technologies, which include CDMA2000 1xEV-DO, WCDMA, WCDMA HSPA, TD-SCDMA, WiMAX and now LTE, have seen an extremely rapid adoption rate and now make up more than 20% of total global connections (see Figure 2), up from around 3% in 2005 – the launch year for WCDMA HSPA, which now accounts for the majority of mobile broadband networks. WCDMA HSPA is the fastest growing wireless technology ever, with a rate of adoption in its first six years some ten times greater than the take up of GSM mobile phones when they were first introduced in the mid-1990s. This has in turn contributed to a rapid rise in the popularity of smartphones, the penetration of which now stands at around 10% globally, and in at least one country (Singapore) is now greater than 50%.

 

Source: Wireless

As would be expected, there is considerable regional variation in mobile broadband penetration. Figure 3 shows mobile broadband connections as a percentage of total cellular connections at the regional level, and illustrates how 2G networks are still dominant across large parts of the world. USA/Canada is the clear leader in terms of mobile broadband penetration, with a subscriber base of 238 million split roughly halfway between the CDMA2000 1XEV-DO family of technologies and WCDMA HSPA, save for an increasing proportion of LTE. Western Europe is the only other region with a mobile broadband share of more than 25%, and has the highest absolute total of connections with 248 million, around two-thirds of which are WCDMA HSPA and just under a third WCDMA (the remainder being LTE). Some way behind, the Middle .. See More for this