In our recently published Western European voice forecasts report, we predict that mobile retail voice revenue in Western European countries will contract by 7% in 2009, implying a slight improvement during the second half of the year on the trend in the first half (–8% in 1Q and 2Q 2009).1 Declining voice revenue is the result of less growth in traffic and of the tumbling value of the per-minute mobile spend on voice.
In August 2009, we commented on the first ever quarter-on-quarter decline in the total number of outgoing voice minutes in Europe during 1Q 2009.2 This was accompanied by a sharp fall in mobile retail voice revenue, compared with that in 4Q 2008 (–8%). Both traffic and spend picked up during 2Q 2009, yet the dynamics that were at play in 1Q 2009 and before (in fact, since 3Q 2008) remain the same. In Figure 1, we plot the variations in mobile-originated traffic and mobile spend in Europe compared with the same quarter in the previous year (in order to adjust for seasonality).3 The total spend shown is not adjusted for foreign exchange fluctuations – that is, it uses the actual local currency unit:euro exchange rates in each quarter for non-euro countries. It also shows mobile spend adjusted for foreign exchange fluctuations, using the same exchange rates (1Q 2008) for each non-euro currency in all quarters.
Figure 1: Variations in mobile spend and outgoing voice traffic in Europe compared with the same quarter in the previous year [Source: Analysys Mason’s Telecoms Market Matrix, 2009]
The graph indicates that it was more a question of when growth in mobile spend would become negative, than if this would happen. The mobile voice services market is mature and another noticeable trend in 1Q and 2Q 2009 was the very small number of net additions in Europe (roughly +0.5% in each quarter for the European Union (EU) countries, plus Norway and Switzerland): some countries experienced negative net additions for the two quarters in a row. This suggests total market saturation (as these figures include mobile broadband datacards) and a rationalisation of multi-SIM ownership.
Looking at the adjusted mobile spend, which better reflects what happened in the individual countries, it is interesting to see that the negative growth happened exactly when recession hit the largest European economies and that things got significantly worse in the first half of 2009. This can be related to a number of factors, on both the demand and supply sides.
- There is less ‘low-hanging fruit’ for MNOs to pick. Before 2008, MNOs could get away with charging far more for voice than their fixed counterparts. This is still the case in some of the largest and wealthiest European countries, but across the EU, it is generally no longer acceptable for mobile to be vastly more expensive than fixed: the average mobile voice premium went from an average of 68% in 2007 to 47% in 2Q 2009. Mobile voice premium still has some room to decrease and will do so in the coming quarters.
- Customers have become more adept at getting the full value out of their deals. As consumer and business customers control their discretionary spend more tightly, it is likely they will make more efficient use of their mobile services. For prepaid users, this means switching to contracts with low monthly fees. For contract customers, this means making better use of their call allowances, by using their bundle to the full or switching to a smaller bundle if they consistently find themselves with unused (but paid for) minutes at the end of the month. In all cases, it means less retail revenue per minute for the MNO and an actual per-minute spend that is closer to the headline charge.
- Linked to the previous point, MNOs launched a flurry of SIM-only offers (usually on 30-day contracts) and very cheap contract offers of 12, 24, or 36-months duration when the recession was at its height. In the UK, a number of operators offer contracts for GBP10 per month (EUR11.50 per month), typically including 100 minutes with durations of 18 months (Virgin) or 24 months (Vodafone). The SIM-only versions offer more minutes (Virgin and 3 include 200 per month). Orange UK offers an even smaller contract, Orange 5, for GBP4.89 per month (EUR6 per month) that includes 50 minutes per month. In France, Orange and SFR both offer contracts priced at or just below EUR7 per month; these contracts have no call allowance.
In theory, mobile prices could fall further. Taking the MTRs as a possible floor for mobile retail prices, these are set to decrease in the EU according to country-specific glide paths. The challenge for mobile operators in the quarters and years to come is to maintain voice spend (or to contain its decline), while decreasing headline charges. As fixed operators have done, mobile operators could use pricing tricks that involve changing the billing increments (increasing call set-up charges and moving from per-second to per-minute billing), but their room for manoeuvre is going to be small. The recession will loosen its grip – in some countries it already has – but the outcome might simply be that, even post-recession, European mobile users now expect to pay less and less for mobile voice.
1 Sale, S. and Wood, R., Fixed and mobile voice services in Western Europe: forecasts and analysis, 2009–2014, Analysys Mason (Cambridge, 2009).
2 Wood, R., Why have European mobile voice volumes fallen for the first time ever?, Analysys Mason (Cambridge, 2009).
3 ‘Europe’ in this case, comprises the EU countries, plus Norway and Switzerland.