Mobile operators must expect an uphill struggle to sustain EBITDA margins at the level they had been enjoying.
European mobile network operators (MNOs) face a difficult competitive environment, in which existing revenue and margin levels are under threat. In this article, we outline some of the competitive pressures, and suggest how MNOs can respond to them quickest.
Many European mobile markets are now close to saturation. In June 2006, around 70% of residential customers in Spain and Germany were believed to own a mobile handset. Analysys Research expects penetration levels in most Western European countries to grow by no more than 3–5% by 2011, which suggests limited growth of mobile operators’ customer bases.
In recent years, competitive forces across the European Union have also grown stronger, with the launch of new mobile virtual network operators (MVNOs). In Q1 2006, net additions to Austrian MVNO Yess! totalled 183 000, while total net additions to the Austrian mobile market as a whole numbered just 164 000. Furthermore, new technologies (specifically, WiMAX and WiFi) now enable fixed-line operators to offer convergent services to their customers, such as Neuf Telecom’s ‘Twin’ offer in France. The availability of dual-mode handsets is no longer an issue, and handset prices have fallen markedly (Neuf Telecom offers a Twin handset for EUR1). As a result, European MNOs face significant new sources of competition.
In addition, mobile operators have not yet succeeded in finding a substitute for growth of voice revenues. In 2005, data services (including SMS) represented less than 20% of Western European mobile operators’ revenues, and of that only a small part came from ‘value-added services’ such as MMS and mobile TV. Mobile operators must not give up on maximising the revenues and associated margins from voice services.
Finally, national regulatory authorities and the European Commission are enforcing new regulatory measures to reduce mobile termination and roaming prices. For example, on 14 September 2006, French regulator ARCEP imposed a cap on Orange’s and SFR’s termination prices at EUR0.075 per minute in 2007 (compared with EUR0.15 in 2004). The wholesale services in question – traditionally significant revenue and margin streams for mobile operators – are now at risk.
Given these developments, mobile operators must expect an uphill struggle to sustain EBITDA margins at the level they had been enjoying. It is therefore increasingly important for them to re-evaluate commercial strategies, and pricing strategies in particular.
Figure 1: Illustrative example of revenue/cost output from PriceManager (Source: Analysys Consulting, 2006)
Analysys’s pricing experts have helped operators increase ARPU by around 5%, typically by implementing Analysys’s proprietary PriceManager tool. PriceManager enables operators to quickly and effectively align tariffs with strategic objectives, optimising ARPU and margin levels. Specifically, PriceManager allows operators to:
- focus on the problem rather than on the modelling task
- examine innovative ideas rapidly
- develop tariff plans more efficiently
- react to competition more quickly.
As such, it may help operators price faster, and their revenues and margins survive.