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Smartphones will outnumber other handsets by 2014 in Western Europe

Smartphones represented 23% of all active handsets in Western Europe in 2010, but this figure will have reached 72% by 2016.

Smartphone penetration is increasing rapidly in Western Europe. The number of smartphones will overtake that of other handsets by 2014, according to the latest forecasts from our Core Forecasts research programme.1 The mass adoption of smartphones will reinforce two trends that are already at play in the mobile market: the rationalisation of SIMs and the emergence of handset data services as the fastest-growing source of revenue for mobile operators.

Smartphones represented 23% of all active handsets in Western Europe in 2010. They will account for more than half by 2014, and will have reached 72% by 2016 (see Figure 1). In its latest report on the UK communications market, Ofcom estimates that more than a quarter (27%) of adults and nearly half (47%) of children aged 12–15 now use a smartphone.2 At first glance, it seems likely that the customer base can only expand: Western Europe’s population is still growing and people are adopting mobile services at an increasingly early age. However, we are also seeing evidence of a countervailing trend: the number of SIMs per customer is declining as bundles of cross-network minutes become more prevalent and the value of multiple-SIM ownership decreases. As a result, we expect the number of active handsets in the market to remain at about 2010 levels during the next five years. Smartphone ownership will reinforce this trend because individuals’ attachment to one multifunctional handset will further reduce duplication of subscriptions.

Figure 1: Active handsets by device type and smartphones' share of total handsets, Western Europe, 2010–2016 [Source: Analysys Mason, 2011]

Figure 1: Active handsets by device type and smartphones' share of total handsets, Western Europe, 2010–2016 [Source: Analysys Mason, 2011]

Smartphone pricing has started to decline significantly as sales have increased. We expect that consumers will be able to buy a reasonable quality Android handset for less than EUR100 by the end of 2011.3 This price point will make the smartphone accessible to the prepaid market, and thus drive take-up further. As the proportion of smartphone users grows, changes in handset usage will become apparent in the market overall. In our recent Connected Consumer survey, we found that more than 60% of high-end smartphone users browsed the Internet or used applications on their mobile handset, compared with only around 15% of users with other phones.

This shift in handset usage will affect the composition of operators’ revenue and reinforce a long-established trend in most of the developed world: that of declining or plateauing voice and messaging revenue, and rapidly increasing data revenue. We forecast that voice services will continue to be the main contributor to handset ARPU in Western Europe during the next five years, but their revenue will decline at a CAGR of –6% in nominal terms (see Figure 2). Messaging will remain a popular service – particularly among younger users. However, like voice, it is a mature service and its contribution to handset ARPU will decline – although less abruptly (at a CAGR of –1%) because it is not subject to the same regulatory constraints. Data services will become the second-largest contributor to handset ARPU by as early as 2014, either by cannibalising some of the value previously captured by voice and messaging (through services such as email and IM), or by offering the user an array of new services that are unavailable on basic handsets (such as browsing, application and video downloads). We forecast that data services will generate an average of EUR4.7 per handset in Western Europe by 2016.

Figure 2: Active handset ARPU by service type and data services' share of handset ARPU, Western Europe, 2010–2016 [Source: Analysys Mason, 2011]

Figure 2: Active handset ARPU by service type and data services' share of handset ARPU, Western Europe, 2010–2016 [Source: Analysys Mason, 2011]

Mobile operators will need to work hard to maintain handset ARPU at a relatively high level. They must ensure that they retain a strong retail relationship with their customers in the context of an increased threat from over-the-top players and third-party application stores. Operators can also consider supporting core communications services across a range of devices (such as laptops, tablet PCs and handsets) as a potential source of revenue.   


1 We distinguish here between the smartphone and non-smartphone. Smartphones have some characteristics of a PC, including multimedia capabilities (such as high-quality large screens, large memories and fast processors) and run under ‘open OS’ environments. Non-smartphones include both feature phones (those with data capability and some multimedia capability, such as MP3 players) and basic phones (which are voice- and SMS-capable, but lack GPRS capability).
2 Ofcom (London, UK, 2011), Communications Market Report: UK. Available at http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr11/UK_CMR_2011_FINAL.pdf.
3 Price excludes any mobile operator subsidy.