Despite numerous attempts to improve data revenue, voice was still the major source of income for mobile operators in Western Europe in 2006, representing 80.7% of total revenue. Voice revenue will continue to dominate for the next five years, according to a new Analysys Research report, The Western European Mobile Market: trends and forecasts 2007–12. However, voice ARPU has declined in most Western European markets (falling from EUR27.1 in 2002 to EUR24.4 in 2006, as shown in Figure 1).
Figure 1: Voice ARPU in Western Europe 2002–12 (Source: Analysys Research, 2007)
Previously, growth in the number of mobile subscribers has largely offset the negative effects of falling voice ARPU, leading to a steady increase in voice revenue in many markets. In 2006, however, a handful of countries in Western Europe (Germany, the Netherlands and Sweden, for instance) have for the first time recorded negative growth in voice revenue. These cases give a disquieting foretaste of what may happen in other mobile markets, if subscriber growth fails to make up for the erosion of voice ARPU. So, as most markets in Western Europe approach saturation, can mobile operators arrest the fall of voice ARPU? The quick answer is that, in the short term, they will find it very difficult to do so.
The decline in voice ARPU in many Western European markets in recent years has been caused largely by reductions in MTRs imposed by regulators and by intensifying price-based competition between operators – and these market conditions may be expected to continue over the next few years.
- Some regulators have already said that they will continue to push down MTRs: for example, the UK regulator, Ofcom, announced that MTRs would be reduced by a further 10–20% by April 2011, and the regulators in France and the Netherlands have stated that rates will come down over the next few years
- The increasing number of MVNOs, SPs and new entrants (for example, new 3G entrants) is likely to stimulate competition.
Aggressive FMS strategies, coupled with improved indoor coverage, could maintain ARPU in the medium term, given the right price strategies
Faced with cuts in MTRs and with price wars, some mobile operators have been attempting to bolster voice ARPU by offering home-zone type FMS solutions. German operators have been at the forefront of this type of offering, of which the first, Genion, was launched by O2 Germany. Unfortunately, home-zone FMS services by themselves have not constituted a viable remedy for the decline in voice ARPU – the increase in voice usage inspired by these solutions has failed to offset the much greater fall in call prices.
In order to preserve ARPU in the medium term, mobile operators need to be more aggressive in migrating voice minutes from fixed to mobile, putting special emphasis on increasing indoor mobile voice usage. To achieve the latter successfully, operators must first improve indoor network quality, which is a particular challenge for UMTS and HSPA networks.
Femtocell technology is emerging as an effective solution to problems with in-building coverage. For example, in early 2007 Ericsson (one of the small number of vendors that are advancing femtocell solutions – others include IPWireless, Nokia and Ubiquisys) unveiled its indoor HSPA-enabled access-point solution, which has a downlink speed of up to 14Mbit/s and uses DSL for backhaul. Mobile operators must have a clear stance on their femtocell strategies, which we believe will play a key role in arresting the fall of voice ARPU in the medium term.
As well as adopting technological solutions, mobile operators must ensure that their pricing strategies are designed to protect overall voice ARPU. Operators should introduce cheap-rate calls in the home, while maintaining a high premium for calls made elsewhere. The advantages of taking this approach are that offering the same prices as the fixed operators in the indoor environment enables effective competition against them, while protecting the mobile premium in the outdoor environment maximises voice ARPU.
In summary, voice ARPU is likely to continue to decline over the next three years, but could recover from 2011 onwards if operators can be more aggressive in migrating voice minutes from fixed to mobile with the help of femtocell solutions, and if they carefully plan their pricing strategies to protect overall voice ARPU.