Europe Faces Stagnant ARPUs

Europe's mobile operators should not expect mobile data usage growth to boost average revenue per user (ARPU) figures in the coming five years. Falling voice revenues and increased revenue sharing with third-party content providers means ARPUs will remain almost constant up to 2005, according to a new report from French consultancy Idate.

According to research led by Vincent Poulbere, a senior consultant in Idate's networks and services strategies department, monthly ARPU (from voice and data services) will be €29.2 in 2002. It will actually fall to €29.1 in 2005 and increase only slightly thereafter, to just more than €30 in 2007.

The main beneficiaries will be those third parties helping the operators deliver (hopefully) compelling content and services to their customers. Idate estimates they received only 5 percent of the mobile operators' data revenues in 2001, but by 2007 they will take an overall 25 percent cut of the operators' estimated €127.8 billion in data revenues.

These disappointing ARPU figures stem from increasing price pressure on voice services and the continued slow uptake of GPRS services. Poulbere believes GPRS will not significantly impact the revenues of Western European operators until 2004, while it will be 2006 before 3G makes any impact on the revenue lines.

In the meantime, the market will evolve through a number of phases, which Poulbere maps out in his report, "Mobile Data Services: latest development & market prospects" (September 2002):
  • 2000-2003: Person-to-person SMS. Its popularity has already made an impact on the bottom line of the mobile carriers, accounting for €9.5 billion in 2001. This is about 85 percent of all mobile data revenues and 10 percent of all revenues last year.
  • 2002-2005: Premium SMS. The application-to-person messaging that will become more prevalent as the marketing potential of SMS is realized and as the operators create revenue-sharing models. Idate believes this market could be worth €6 billion in 2004.
  • 2003-2005: Mobile office. Poulbere believes the carriers will begin to reap the benefits of increased mobile data usage by corporate customers armed with PDAs and laptops as more applications become available and more companies adopt wireless working strategies. Primarily based on access to messaging, the Internet, and intranets, with "directory services, diary management, and personal planning" also becoming popular. Such services will become the building blocks of the first 3G services, Poulbere believes.
  • 2004-2007: i-mode type portal. A lack of handsets and slow adoption following WAP's "negative impact" means portal-based content services will not deliver any significant revenue until 2004 at the earliest. But will the few service providers in western Europe that have adopted i-mode (KPN Mobile and E-Plus Mobilfunk GmbH, with BASE and Bouygues Telecom yet to launch) gain any advantage over their rivals by doing so? Will they gain additional experience from having delivered and marketed such services, giving them an edge when it comes to 3G service rollout? "Definitely not," Poulbere tells Unstrung. "Other operators, including the major ones such as Orange, Vodafone Group plc (NYSE: VOD), and Telecom Italia Mobile SpA (Milan: TIM), will develop equivalent services for the consumer markets."
  • 2004-2007: MMS and MMS Premium. While many operators have launched or are set to launch this year, the "industry appears to have overestimated the rate of adoption," says Poulbere. Compatibility issues (between infrastructure and terminals) and slow handsets adoption rates mean multimedia messaging will pick up from SMS from 2004 onwards.

    Just what this evolution will mean for technology usage is illustrated in the table below.

    Table 1: Number of mobile data service users, in Western Europe, by type of technology
    2002 2005
    Total cellular subscribers (millions) 311 340
    SMS only users 194 190
    GSM/WAP service users 30 7
    GPRS service users 1 69
    UMTS service users 0 5
    Source: IDATE, 'Mobile data services: latest developments and market prospects' (Sept 2002)

    The uptake of MMS is particularly important to GPRS, says Poulbere, as there is little else to entice consumers to purchase a GPRS handset. Those users that have GPRS handsets are generally not using the services offered by the network operators. The only other driver for non-corporate users is i-mode, but that is limited to a few territories, especially at present. As a result, by 2004 Idate believes that of the total number of mobile subscribers in Western Europe, fewer than 10 percent (about 30 million people) will be using GPRS services, though this will rise to 69 million by 2005.

    In 2006, however, of those people using mobile data services the majority will still be using SMS only, and it is not until 2007 that GPRS/3G users will make up the majority, accounting for an estimated 167 million users from a total mobile data user base of 281 million, according to Idate's figures.

    What will this do for revenues? Idate believes mobile data services will bring in €15.4 billion in 2002, rising to more than €27 billion in 2005 and €36.7 billion in 2007. The table below shows how much Idate believes various services will deliver in 2002 and 2005.

    Table 2: Revenues generated by mobile data services, in Western Europe, by revenue source
    2002 2005
    TOTAL Data Revenues (billion EUR) 15.4 27.3
    SMS person to person 11.7 8.4
    SMS application to person 2.6 5.4
    Portals 0.9 4.8
    MMS 0 4.6
    Modem / Mobile office 0.3 4.1
    Indirect revenues (marketing and m-commerce) 0 0.7
    TOTAL Voice Revenues (billion EUR) 89.5 90
    TOTAL Mobile Revenues (billion EUR) 104.9 117.3
    Source: IDATE, 'Mobile data services: latest developments and market prospects' (Sept 2002)

    The usual suspects will benefit from the high margins to be gained from the corporate sector. "Those operators with the biggest market shares in the corporate market today are the best positioned to make the most profit with mobile data services, and as a rule they are the incumbents and second entrants. These include Orange France, Vodafone, and O2 Ltd. in the U.K., T-Mobile and D2 Vodafone in Germany, TIM in Italy, and Telefónica Móviles SA in Spain. These are also the most active companies in delivering data services to corporates across GPRS, for example Vodafone's OfficeLive service and O2's Blackberry offering in the U.K."

    Poulbere also believes corporate users will more likely use PDAs with built-in WAN data access, rather than use their mobile phones as data access gateways for Bluetooth-enabled PDAs and laptops. "Of course, I believe Bluetooth plays a role in enabling PDAs to be connected to a GPRS network through a GPRS handset. But my feeling is that business users will buy a PDA with inbuilt GPRS, such as the Pocket PC 2002 or Handspring Inc.'s Treo. Bluetooth is a kind of facilitator for mobile data usage but I don't think people will buy a mobile phone because it has Bluetooth."

    As for how much advantage mobile operators might gain from adding wireless LAN services to their offerings, Poulbere is uncertain. "I am not sure whether a mobile operator taking an early step in making WLAN access available will gain a significant advantage over its competitors. On the contrary, it may face new issues, and have to solve them, earlier than its competitors."

    — Ray Le Maistre, European Editor, Unstrung
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