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Western Europe’s mobile retail revenue will not grow again until 2014

Hilary Bailey Research Director, Head of Data

Mobile retail revenue will be higher in 2013 than 2010 in just five of the sixteen Western European countries we studied.

At the same time as many Western European mobile operators report revenue for 2011 significantly lower than that of the previous year, Analysys Mason has published its revised forecasts for these markets up to 2016. A variety of market forces are at play in the mobile markets of Western Europe, and here we examine which ones are the dominant factors in determining the shape of mobile revenue in some of these markets during the next five years.

We forecast that mobile retail revenue in Western Europe will fall steadily from EUR117 billion in 2010, reach its nadir in 2013 at EUR112.8 billion, and then climb slowly to reach EUR114.7 billion by 2016. This is more pessimistic than our previous forecasts, especially in the years 2011–2013, reflecting the heightening of key effects in particular markets. Mobile retail revenue will be higher in 2013 than 2010 in just five of the sixteen Western European countries we studied.

Figure 1: CAGR in mobile retail revenue by country, 2010–2013 and 2013–2016 [Source: Analysys Mason, 2012]

Figure 1: CAGR in mobile retail revenue by country, 2010–2013 and 2013–2016 [Source: Analysys Mason, 2012]

There are three key elements that are contributing to the downward pressure on mobile retail revenue:

  • Economic environment: Mobile revenue will decline significantly in countries where the economic outlook is particularly poor. Mobile customers in the worst-hit markets are seeking to minimise their spending on mobile in times of austerity. Contract users will seek out cheaper packages on renewal, and limit out-of-bundle spending, while prepaid customers will economise where they can. This applies to many of the southern European countries, but most notable are Greece and Portugal, where the OECD forecasts an overall decline in real GDP of 8.5% and 4.3% respectively between 2010 and 2013.1 In Portugal, fixed operators have retaliated in both the voice and broadband markets, which has compounded the effect of the economic climate.
  • Competitive forces in mature markets: Even in markets where the economy is less fragile, we are still seeing the effects of competitive forces at work. Operators are launching new pricing regimes in an attempt to reduce churn. In Spain, where an intense period of price competition in the summer of 2011 between Movistar and Orange hit mobile voice revenue, we expect mobile retail revenue in 2013 to be 8.5% below its 2010 levels. In France, we expect that the launch of Free in January 2012 will result in a similar decline during the same period. Some markets, such as Denmark and the Netherlands, are also feeling the impact of IP messaging cannibalisation of SMS revenue streams.
  • Slower take-up of mobile broadband: Until a year ago, it was still expected that mobile broadband revenue would grow strongly, and that together with mobile revenue from handset data services, it would help to redeem the mobile operators’ revenue streams that were diminished by declining voice and messaging revenue. However, this has not been the case. Growth in mobile broadband subscriptions, and therefore revenue growth, has slowed in most markets, and the subscriber base has even fallen in Portugal. At the third quarter of 2011, year-on-year growth in mobile broadband subscribers was less than 20% in ten countries in Western Europe, with Austria, Belgium, Ireland and the UK experiencing particularly slow growth. For more information about Analysys Mason’s forecasts for mobile broadband connections in Europe, see Mobile broadband connections in Europe: tablets have yet to make a noticeable impact.

In a minority of countries, mobile revenue growth will be strong until 2013, most notably in Sweden and Finland. It is no coincidence that these markets are among those with the most advanced mobile networks. On an LTE platform, mobile is a genuine contender in the broadband market and, perhaps more importantly, the quality of experience on smartphone applications is dramatically improved.

However, there are positive signs of (at least modest) revenue growth beyond 2013 in nearly all countries. Handset data revenue driven by the take-up of smartphones will begin to compensate for falling voice revenue. Smartphone take-up will be strongly influenced by user handset experience, which in turn depends on the roll-out of advanced mobile networks. It is therefore essential that mobile operators do not hold back from their network development, so that they will be poised to take advantage of pent-up demand for mobile data services when countries emerge from recession.

1 OECD Economic Outlook, No. 90, November 2011.