Europe's ARPU Dilemma

In 2001 the year's favorite acronym in Europe's mobile industry was MVNO. It was all the rage, that virtual operator malarkey. But at the 3GSM event in Cannes earlier this year that FLA (four letter acronym) was decidedly old hat (or vieux chapeau, to the locals).

A major contender for this year's acronym crown is ARPU.

Every European mobile operator can talk until the mountain goats come home about how its priority is to increase its average revenue per user (ARPU). This is because their core GSM markets are either close to, or already at, saturation point, and the service providers need to hang on to their customers and make them spend more, especially on non-voice services, as price pressures hit voice revenues. And there's always the possibility that regulatory intervention could hammer the revenues currently swiped from high mobile-to-mobile, fixed-to-mobile, and international calls.

So the mainstays of the current strategies are to lose the customers that cost more than they spend (the prepaids that buy a top-up card once a year), convert regular prepaid users into postpaid (if they can pass the credit check), and get existing postpaid customers to use data services. Now that the GPRS networks exist (even if they are still experiencing teething problems) and there is a fair choice of GPRS handsets in the shops, increasing the use of existing WAP services is surely a priority (while being careful not to mention they are WAP services, of course).

To do this requires some nifty CRM systems and some marketing savvy. Oh, and a reality check in some (or many?) instances. And this is where the operators fall down.

For instance, in the U.K. both Vodafone Group PLC (NYSE: VOD) and O2 Ltd. expect "picture messaging" to be a major driver of increased ARPUs. Even if they manage to launch these services this year, Sir Christopher Gent and the other CEOs will not be seeing any meaningful revenue from such services until mid-to-late 2003 at the earliest. Even then there is no guarantee that multimedia messaging service (MMS) will be as big a hit with the public as short messaging service (SMS).

Meanwhile, operators can’t find their own ARPUs with two hands and a torch. In Italy, Telecom Italia Mobile (TIM) saw its ARPU decrease in the early first quarter of this year to €26.2 per month (falling below that of its major rival, Vodafone Omnitel); Orange SA is struggling to main its average user revenue in its key markets of France and the U.K.; T-Mobile does not expect its European ARPU to increase from the current level of about €25; and mmO2 saw its ARPU fall by 14 percent in its key territory, the U.K. (see MMO2: A Wireless Wimp?). Vodafone describes its ARPUs as stable, when in fact they've fallen (see Vodafone Turns Deep Red, Focuses on Cost Control).

So it's an uphill struggle to boost those averages – a struggle made worse by an inability to efficiently target their marketing efforts and sell anything other than voice and SMS services. They are pretty good at branding and are now beginning to come to grips with what can truly be achieved with SMS (the most fortunate accident ever for European mobile firms). Tellingly, this involves working closely with third-party content companies, basing services around TV shows and events. Maybe they will cotton on to WAP push at some point.

The operators are particularly terrible at helping their customers make the most of their handsets. Activating GPRS on a handset is a nightmare, let alone understanding how data access can be used, whether for fun, information, or business. O2 in the U.K. is a case is point – and an exercise in pure frustration.

KPN Mobile may be heading down the right road with its i-mode services, but it's too early to tell whether that will be well enough marketed to capture the imagination of twentysomethings in The Netherlands and Germany (see Euro I-Mode: So Far, So Good).

Simple – and I mean simple – explanations, either verbally at point of sale, by email, snail-mail, or on Websites, about available services, how they work, and what they cost would go a long way towards encouraging customers to spend more money, something they would likely do if only they knew how.

So, while there is obviously a lot of work to be done on future strategies – rolling out multimedia messaging, deciding what to do (or not) with WLAN, how to make the most of that UMTS license – a bit more focus on selling what is already available would do wonders for the bottom line, the share price, and investor confidence.

— Ray Le Maistre, European Editor, Unstrung
http://www.unstrung.com