briefing - siemens · 2006-10-26 · global q2 2006 market review strong growth continues, but the...

briefing

The Hop Exchange 24 Southwark St. London SE1 1TY United Kingdom Tel: +44 (0) 20 7168 7680 Email: [email protected]

Web: www.themobileworld.com Issue 40: 23rd October 2006

© 2006 The Mobile World. Unauthorised reproduction and distribution prohibited. Subject to disclaimers. The Mobile World is the trading name of Silventa Ltd., registered in England No. 05065064. Registered Address c/o Baker Tilly, Mount Ephraim Road, Tunbridge Wells, Kent TN1 1ED.

progress continues

w

2006 Preliminary Results

Results

esults in

tomer Numbers

er est quarter since Q4 05 despite slow September

Rising volumes and improved profitability, but not for all…

The Mobile World Briefing

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Contents: p2 major operators p3 europe p5 asia pacific p11 north america p13 middle east & africa p14 russia & central asia p15 caribbean & latin america p16 features

Selected Events and Database Updates

MTC Kuwait Q3 2006 Results Customer numbers up 146% year on year: beware the press release…

Mobitel Slovenia Q3 2006 Customer Numbers Overall growth minimal, but quality continues to improve

Elisa Q3 2006 Results Quarterly growth at seven year high as Elisa capitalises on improved market conditions

Mobistar Q3 2006 Results Consistent shift towards postpaid keeps ARPU heading north

Kyivstar September 2006 Customer Numbers Kyivstar extends lead over MTS in Q3

TCA Japan September 2006 Customer Numbers TCA Japan September 2006 Customer

COAI & AUSPI India September 2006 India outstrips China in Q3; organic net add

M1 Singapore Q3 2006 Results s reach all time high in September

Growth resumes after enforced prepaid cull

DiGi Telecommunications Q3 2006 Results g Growth slows dramatically in Q3; price cuts keep contract base expandin

006 KDDI Q2 2006/07 Results to 30th September 2“au” churn at all-time low and market share

China Q3 2006 Market Update Record net additions, but proportionate growth falls to all-time lo

Dobson Cellular Q3Customer base 86% GSM

Leap Wireless Q3 2006 PreliminaryLeap leaps ahead as growth hits four-year high

Cingular Wireless Q3 2006 RAmerica’s largest raises the bar aga

Etisalat Q3 2006 Results 36% increase in 9M net profit as UAE customers up 22%

MTS September 2006 CusVenture customer base tops 70m

Anatel Brazil September 2006 CustomB

Features in this Briefing Global Q2 2006 Market Review Strong growth continues, but the focus shifts

iew Vivo out but little change to the top-10 Global Q2 2006 Operator Rev

Global Q3 2006 Handset Market Review

Database Updates by Market Argentina, Belarus, Belgium, Belize, Bolivia, Brazil, Canada, Chile, China, Colombia,

Estonia, Finland, Guatemala, India, Japan, Kuwait, Malaysia, Russia, Singapore, SS

lovenia, South Korea, Turkey, Turkmenistan, Ukraine,tates, Uzbekistan

United Arab Emirates, United

1

The Mobile World Briefing 23rd October 2006 Issue 40

major operators jor operators

Vodafone: Third Quarter KPIs Vodafone: Third Quarter KPIs

Customer numbers up 146% year on year: beware the press release…

Customer numbers up 146% year on year: beware the press release…

MTC Kuwait Q3 2006 Results

2© 2006 The Mobile World.

TC Kuwait has reported customer numbers for the September quarter. The press release shows a pretty spectacular 100% year on

r 146%. here do the other 2.332m come from? Our first assumption was that the total included the recently acquired businesses in Sudan,

t reach that figure, while Nigeria was too large. It oks to be an honest mistake, but if it is, it has done the company no favours as the growth has been materially understated.

r

TC Kuwait has reported customer numbers for the September quarter. The press release shows a pretty spectacular 100% year on

r 146%. here do the other 2.332m come from? Our first assumption was that the total included the recently acquired businesses in Sudan,

t reach that figure, while Nigeria was too large. It oks to be an honest mistake, but if it is, it has done the company no favours as the growth has been materially understated.

Be that as it may, the figures are as good as could have been expected and confirm that the company is now a very serious competitor in the region. The chart below shows the growth by market achieved over the year.

MMyear increase – from 12.45m to just under 25m customers – and goes on to report that this has been accompanied by a very strong set of financial results. Revenues were up 115% year on year to KD849m (US$2.92bn) while operating cash flow was up by 78%. Net income increased from KD 136m to KD 223m, equivalent to US$467m. We have to assume that the financials are correct, but the same cannot be said of the customer numbers. Last year’s comparative total figure is not 12.451m as the release states, but (adding up the parts) 10.119m – so the actual increase isn’t 100% but rathe

year increase – from 12.45m to just under 25m customers – and goes on to report that this has been accompanied by a very strong set of financial results. Revenues were up 115% year on year to KD849m (US$2.92bn) while operating cash flow was up by 78%. Net income increased from KD 136m to KD 223m, equivalent to US$467m. We have to assume that the financials are correct, but the same cannot be said of the customer numbers. Last year’s comparative total figure is not 12.451m as the release states, but (adding up the parts) 10.119m – so the actual increase isn’t 100% but ratheWWMadagascar and Nigeria… but this cannot be the answer as the three had something nearer to 6m. Nor is it the result of just adding one of the three, as Sudan and Madagascar were too small and even in combination don’Madagascar and Nigeria… but this cannot be the answer as the three had something nearer to 6m. Nor is it the result of just adding one of the three, as Sudan and Madagascar were too small and even in combination don’lolo Be that as it may, the figures are as good as could have been expected and confirm that the company is now a very serious competitoin the region. The chart below shows the growth by market achieved over the year.

MTC Kuwait: Customers, EOP (000s), Q3 05 vs Q3 06

4,000 5,000 6,000 7,000

Nigeria

Sudan

Iraq

Jordan

Kenya

DRC

Kuwait

Tanzania

Zambia

Congo Brazaville

Lebanon

Gabon

Burkina Faso

Uganda

Niger

Malawi

Chad

Madagascar

Bahrain

Sierra Leone

Q3 06 Q3 05

- 1,000 2,000 3,000


europe


2 – Q3 results to December 2005

ket for good. It was rival Si.Mobil which mopped up most of those disconnected Vega customers which were

ement in the uality of the digital retail base from 55.4% contract to 57.7% contract between January and September. Mobitel does not publish ARPU

figures, but its rival does, and these have shown a marginal (if slightly variable) upward trend over the last couple of years. With this in he market, we cannot imagine that the average customer spend at Mobitel has

opped; the improvement in customer base y achieved by the operator can only have helped this trend to continue.

urkcell – Customer numbers up 4.5% in Q4

e months to 30th September. Whilst the proportionate increase was the best since e second quarter of 1999, in absolute terms the customer growth was the best the company has achieved since the fourth quarter of

December 2005

ket for good. It was rival Si.Mobil which mopped up most of those disconnected Vega customers which were

ement in the uality of the digital retail base from 55.4% contract to 57.7% contract between January and September. Mobitel does not publish ARPU

figures, but its rival does, and these have shown a marginal (if slightly variable) upward trend over the last couple of years. With this in ind, and such a limited level of competi he market, we cannot imagine that the average customer spend at Mobitel has

y achieved by the operator can only have helped this trend to continue.

urkcell – Customer numbers up 4.5% in Q4

e months to 30th September. Whilst the proportionate increase was the best since e second quarter of 1999, in absolute terms the customer growth was the best the company has achieved since the fourth quarter of

998, with net additions of 103.5k. At the end of Q2 2006, market leader Sonera had a mobile customer base 25% larger than that of Elisa. If that company’s fortunes are repeated in Q3 2006, however, then, on the back of Elisa’s astonishing growth, the lead will have been cut to around 16-17% in proportionate terms.

O

Overall growth minimal, but quality continues to improve Slovenian mobile market leader Mobitel has posted another fractional increase in customer numbers for its digital services in the three months to 30th September, from 1.280 to 1.282m. Overall the company added just 6,462 customers in the first nine months of the year, a period which has seen the number of players in the country reduced from three to two, as the former Western Wireless business Vega pulled out of the mar

Overall growth minimal, but quality continues to improve Slovenian mobile market leader Mobitel has posted another fractional increase in customer numbers for its digital services in the three months to 30th September, from 1.280 to 1.282m. Overall the company added just 6,462 customers in the first nine months of the year, a period which has seen the number of players in the country reduced from three to two, as the former Western Wireless business Vega pulled out of the mar

Mobitel Slovenia Q3 2006 Customer Numbers slovenia

ststill active users, and we would expect the Telekom Austria controlled number two player to have made another small dent in the overwhelmingly dominant position of Mobitel in Q3 2006. Including the service provider Debitel and Mobitel’s analogue NMT network, for which it no longer reports statistics, Mobitel had an estimated 1.412m customers at the end of September, which should give it just under 78% of the market. The important trend for the market leader, however, has not been the size of its headline customer base, but rather the composition of that base. During the first nine months of 2006, more than 32,000 customers have been added to the company’s own digital contract customer base, implying net disconnections of almost 26,000 from the digital prepaid base. The result has been an improv

ill active users, and we would expect the Telekom Austria controlled number two player to have made another small dent in the overwhelmingly dominant position of Mobitel in Q3 2006. Including the service provider Debitel and Mobitel’s analogue NMT network, for which it no longer reports statistics, Mobitel had an estimated 1.412m customers at the end of September, which should give it just under 78% of the market. The important trend for the market leader, however, has not been the size of its headline customer base, but rather the composition of that base. During the first nine months of 2006, more than 32,000 customers have been added to the company’s own digital contract customer base, implying net disconnections of almost 26,000 from the digital prepaid base. The result has been an improvqq

mmind, and such a limited level of competition in tdr qualit

tion in tdropped; the improvement in customer base qualit

TTElisa Q3 2006 Results finland, estonia

Quarterly growth at seven year high as Elisa capitalises on improved market conditions Finnish number two player Elisa has posted its highest proportionate increase in customer numbers for more than seven years, with 5.0% growth in the size of its overall base in the thre

Quarterly growth at seven year high as Elisa capitalises on improved market conditions Finnish number two player Elisa has posted its highest proportionate increase in customer numbers for more than seven years, with 5.0% growth in the size of its overall base in the threthth11998, with net additions of 103.5k. At the end of Q2 2006, market leader Sonera had a mobile customer base 25% larger than that of Elisa. If that company’s fortunes are repeated in Q3 2006, however, then, on the back of Elisa’s astonishing growth, the lead will havebeen cut to around 16-17% in proportionate terms.

Elisa Finland: Net Additions vs Proportionate Growth, Q3 01 - Q3 06

-80,000

-60,000

-40,000

-20,000

-

20,000

40,000

60,000

80,000

100,000

120,000

Q301

Q401

Q102

Q202

Q302

Q402

Q103

Q203

Q303

Q403

Q104

Q204

Q304

Q404

Q105

Q205

Q305

Q405

Q106

Q206

Q306

Net

Ad

dit

ion

s

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Pro

po

rtio

nate

Gro

wth

Net Additions Proportionate Growth So what has driven Elisa’s extraordinary performance? Well, firstly, the acquisition of service-provider Saunalahti a year ago has precipitated a marked improvement in fortunes for the company formerly known as Radiolinja. After an initial “settling in” period following the acquisition, customer growth accelerated to 3.9% in Q2 2006 (in itself an impressive statistic in as mature a market as Finland) and has now gone on to hit 5.0%. But the synergies and economies of scale from such a deal do not account for the step change in top-line customer growth. A more important influence has been the “liberalisation” of the 3G market in Finland: restrictions on handset subsidies were lifted on 1st April 2006, and this has clearly stimulated growth in both the 3G market where real handset costs are still relatively high, and the prepaid market, where the cost of a handset is a real barrier to entry.



ut if the regulatory environment had been solely responsible for Elisa’s growth in the last six months, it would have had a similar effect

stomer stood at €30.50 per month in Q3 2006, down 80 euro cents on Q2 2006 and €2 on the 2005 average, but up compared to both Q4 2005 and Q1 006. Average usage also continued to rise in Elisa’s retail base – albeit to a lesser degree than in the first six months of the year – to

lumes were up year on year by 35% to 1.265bn, whilst SMS volumes rose by 38% to 0.303bn in the same period. Again, these are both very impressive statistics considering the overall annual increase in the size of the customer base was just 10.1%.

49.2% of Mobistar’s total base at the end of the eriod, after consistent improvement in the ratio over the last year from 43.0% at the end of Q3 2005, and 34.0% at the end of Q3 004. The continual progress in terms of customer base quality has had a positive effect on the operator’s ARPU trend, as we have often

ut if the regulatory environment had been solely responsible for Elisa’s growth in the last six months, it would have had a similar effect

stomer stood at €30.50 per month in Q3 2006, down 80 euro cents on Q2 2006 and €2 on the 2005 average, but up compared to both Q4 2005 and Q1 006. Average usage also continued to rise in Elisa’s retail base – albeit to a lesser degree than in the first six months of the year – to 07 minutes and 50 texts per customer per month. At a network level (including service providers and MVNOs) Q3 2006 minute

, whilst SMS volumes rose by 38% to 0.303bn in the same period. Again, these are both very impressive statistics considering the overall annual increase in the size of the customer base was just 10.1%.

49.2% of Mobistar’s total base at the end of the eriod, after consistent improvement in the ratio over the last year from 43.0% at the end of Q3 2005, and 34.0% at the end of Q3 004. The continual progress in terms of customer base quality has had a positive effect on the operator’s ARPU trend, as we have often

remarked in the past. This latest quarter was no exception, with blended ARPU increasing again, albeit by less than 10 eurocents in the quarter, to €39.14 per customer per month. With interconnect charges due to drop by 20% on the 1st November, however, it is by no means certain whether Mobistar will be able to repeat this feat in the fourth quarter.

BBon the fortunes of Sonera, which, in the last quarter at least, it did not. So we must applaud the company for taking better advantage of the change of market conditions than its larger competitor, which actually lost customers in the three months to 30th June 2006. Elisa’s achievement in this regard is further highlighted by its churn figure which fell to an annualised rate of just 12.7% in Q3 2006, its lowest level for more than four years, and a dramatic improvement compared to an annual average of 28.4% in 2005. The changes in the market and the unusual and sudden growth in the customer base have caused a certain amount of instability in Elisa’s ARPU figures in 2006, but not to a degree which is outside of a reasonable noise level. The average spend per cu

on the fortunes of Sonera, which, in the last quarter at least, it did not. So we must applaud the company for taking better advantage of the change of market conditions than its larger competitor, which actually lost customers in the three months to 30th June 2006. Elisa’s achievement in this regard is further highlighted by its churn figure which fell to an annualised rate of just 12.7% in Q3 2006, its lowest level for more than four years, and a dramatic improvement compared to an annual average of 28.4% in 2005. The changes in the market and the unusual and sudden growth in the customer base have caused a certain amount of instability in Elisa’s ARPU figures in 2006, but not to a degree which is outside of a reasonable noise level. The average spend per cu

222207 minutes and 50 texts per customer per month. At a network level (including service providers and MVNOs) Q3 2006 minute vovolumes were up year on year by 35% to 1.265bn

Turkcell – Customer numbers up 4.5% in Q4

Consistent shift towards postpaid keeps ARPU heading north Mobistar enjoyed another strong quarter of net additions in the Belgian mobile market in Q3 2006, ending the period 61k customers better off than it ended Q2 2006. The operator had a total of 3.08m customers at the end of September, of which 1.52m were contract customers and 1.56m prepaid. The figures show that postpaid customers comprised

Turkcell – Customer numbers up 4.5% in Q4

Consistent shift towards postpaid keeps ARPU heading north Mobistar enjoyed another strong quarter of net additions in the Belgian mobile market in Q3 2006, ending the period 61k customers better off than it ended Q2 2006. The operator had a total of 3.08m customers at the end of September, of which 1.52m were contract customers and 1.56m prepaid. The figures show that postpaid customers comprised

Mobistar Q3 2006 Results belgium

pp22remarked in the past. This latest quarter was no exception, with blended ARPU increasing again, albeit by less than 10 eurocents in thequarter, to €39.14 per customer per month. With interconnect charges due to drop by 20% on the 1st November, however, it is by nomeans certain whether Mobistar will be able to repeat this feat in the fourth quarter.

Mobistar: Customer base quality vs ARPU, Q3 03 - Q3 06

31.0

32.0

33.0

34.0

35.0

36.0

37.0

38.0

39.0

40.0

Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06

AR

PU

per

Mo

nth

(€

)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

% C

usto

mers

Co

ntr

act

ARPU per Month % Contract



d over MTS in Q3

d over MTS in Q3

kraine’s market leader Kyivstar extended its lead in Q3 2006 over Ukrainian Mobile Communications (UMC), owned by MTS Russia. At the beginning of the period, the operator was less than 0.9m customers in front; by the end of the period the advantage was nearer to 1.35m. Proportionately speaking, Kyivstar was 8.2% larger than its rival at the end of September, compared to 5.9% at the end of June and 4.5% at the end of 2005.

O2 – Q3 results to December 2005

Kyivstar extends lea

O2 – Q3 results to December 2005

Kyivstar extends lea

Kyivstar September 2006 Customer Numbers ukraine

UUkraine’s market leader Kyivstar extended its lead in Q3 2006 over Ukrainian Mobile Communications (UMC), owned by MTS Russia. At the beginning of the period, the operator was less than 0.9m customers in front; by the end of the period the advantage was nearer to1.35m. Proportionately speaking, Kyivstar was 8.2% larger than its rival at the end of September, compared to 5.9% at the end of Juneand 4.5% at the end of 2005.

Kyivstar: Lead over UMC at end of period (m), 01/06 - 09/06

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Cu

sto

mers

(m

)

-01/06 02/06 03/06 04/06 05/06 06/06 07/06 08/06 09/06

Kyivstar, which is owned by Norway based multi-national Telenor, added 1.7m new customers in the three months to 30th September 006, bringing its net additions for the first nine months to 3.8m, and the total customer base to 17.7m. Of the total just 6.6%, or .17m customers, are on postpaid plans, with the remainder on one of the company’s two prepaid offerings. Despite its strong rformance in absolute terms, we estimate that Kyivstar lost another 0.1pp of market share in the third quarter, due to faster portionate progress from third placed players Astelit – owned by TeliaSonera – and fourth placed Ukrainian Radio Systems – now

wned by Vimpelcom, and recently rebadged under the Russian company’s “Beeline” brand.

t. By contrast there was a net loss of 1.07m PDC stomers during the month (although again this was down on the two previous months) leaving the proprietary Japanese technology

with 38% of the total customer base at the end of the third quarter, against 42% at the end of the second. With a similar pattern this month, the number of W-CDMA customers in Japan – currently 33.7m – will exceed the number of PDC customers for the first time by the end of October. The W-CDMA net additions were complemented by 0.48m net new EV-DO customers in the same period, giving total 3G net adds of more than 1.5m in September – and in excess of 5m in Q3 as whole.

21peproo

asia pacific SK Telecom reports 2005 results

Over 1.5m 3G adds in September as portability approaches Japanese mobile customer numbers rose by 310.5k in September 2006 to end the month at 93.8m, according to figures released by the Japanese Telecommunications Carriers Association earlier this month. More than 1.06m new W-CDMA customers were added on a net basis in September, although this was down on 1.45m in July and 1.21m in Augus

TCA Japan September 2006 Customer Numbers japan

cu


Japan: Proportionate monthly customer growth by technology, 01/06 - 09/06

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

01/06 02/06 03/06 04/06 05/06 06/06 07/06 08/06 09/06

Cu

sto

mer

Gro

wth

(%

)

CDMA20001x EV-DO

W-CDMA

CDMA20001x

cdmaOne

PDC

Japan’s second largest mobile carrier KDDI continued to gain market share during the month of September, but not to as great a degree as in previous months. 152k customers left PDC services provided by its Tu-Ka subsidiary in the 30 days to 30th September, but these were off-set by a net gain of 313k for the company’s much larger “au” branded CDMA network. The net result was a swing of 8 basis points (0.08pp) of market share to the operator, at the expense of both market leader NTT DoCoMo (-5bp) and the newly renamed Soft Mobile, formerly known as Vodafone (-3bp). In aggregate there has been a steady, if rather unexciting, 0.7pp swing of market share to KDDI since the beginning of 2006. This rather tempered competitive scenario may be all about to change, however, as mobile number portability is introduced to Japan for the first time this week (on 24th October 2006). Japan has never seen, nor have its operators suffered or enjoyed, the more dramatic market share swings that can be seen in mature or maturing markets where number portability is possible. The value of a mobile number as a unique identifier – rivalled perhaps by an email address, but never by a postal address or a fixed-line number – in many cases exceeds the possible value of switching mobile provider in order to save money, or to gain the benefit of a particular service or services. Japan has always been a pioneer of mobile technology, in a social as well as a technical sense, and this argument is likely to carry even more weight in this market. The upshot is that full competition has only really existed with respect to brand new customers – those who have never signed up to a mobile service before, and not with respect to existing customers who may have considered taking their custom elsewhere. From this week, Japanese subscribers will be able to take their numbers with them if they want to move carriers for a fixed fee of just 2,100 yen – about $17.70 or £9.50 at current exchange rates. It is our view that churn levels will rise almost instantly for all carriers, almost certainly impacting market leader DoCoMo to a greater extent than the other two existing players. KDDI almost certainly has the most to gain, with the company itself setting a target of 30m customers and 30% market share to be reached “swiftly”. However, perhaps the most interesting situation to watch will be the effect of the move on the customer base of third-placed operator Soft Mobile. This week’s regulatory change will doubtless have figured in Vodafone’s consideration of the future of its former Japanese asset, before its sale to Softbank earlier this year, and it is just possible we might gain some insight into that decision as the effects of number portability play out in the market. KT Freetel COAI & AUSPI India September 2006 Customer Numbers india

India outstrips China in Q3; organic net adds reach all time high in September

For the first time ever quarterly net additions in India exceeded those in China in Q3 2006, even though the Chinese figure itself reached a record high in the period. A total of 17.065m new customers adopted mobile services in India in the three months to 30th September compared to 16.807m in China. Total customer numbers in India reached almost 123m by the end of Q3 2006, and penetration climbed 1.5 percentage points in the quarter to 11.2%. Monthly net additions in September alone were 5.99m – the best performance in the market’s history on an organic basis. We make this qualification because April’s net additions were higher, at 6.77m, but came on the back of a reclassification by Reliance Infocomm of its Fixed Wireless CDMA customers as mobile in that month.



India and China: Quarterly Net Additions (m), Q3 01 - Q3 06

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0Q

3 0

1

Q4 0

1

Q1 0

2

Q2 0

2

Q3 0

2

Q4 0

2

Q1 0

3

Q2 0

3

Q3 0

3

Q4 0

3

Q1 0

4

Q2 0

4

Q3 0

4

Q4 0

4

Q1 0

5

Q2 0

5

Q3 0

5

Q4 0

5

Q1 0

6

Q2 0

6

Q3 0

6

Net

Ad

dit

ion

s (

m)

China India

Proportionately, the size of the national mobile customer base in India grew by 16.1% in the three months to 30th September 2006, and by 89.0% in the 12 months to that date. India’s CDMA customer base grew by 125% between September 2005 and September 2006, outperforming the GSM base, which saw a 79% increase in the same period. However, in this latest quarter the difference was less marked, with CDMA enjoying an uplift of 16.5% compared to GSM’s 16.0%. The result was a change of just 0.1pp in the proportion of the total customer base attributable to CDMA from 25.9% to 26.0% - leaving the Q3 total at 31.95m customers in absolute terms.

India: Quarterly Customer Growth (%), by Technology, Q3 05 - Q3 06

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Q3 05 Q4 05 Q1 06 Q2 06 Q3 06

Qu

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usto

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GSM CDMA

During Q3 2006, GSM operators Aircel, Bharti Airtel, IDEA Cellular and Reliance Telecom all made progress in their market share positions on a national basis. CDMA operator Tata Teleservices also continued its progress, gaining almost 7% of the Indian market by the end of September 2006. The losers in the quarter were regional players BPL Communications and Spice Communications, government operators BSNL and MTNL, as well as CDMA giant Reliance Infocomm which lost 0.4pp of market share in the period on a national basis. The tiny CDMA regional operators HFCL and Shyam Telelink continued to be some way off the pace of the national market in Q3 2006, accounting for just 0.075% of the total by the end of the period. The only Q3 non-mover was Hutchison, which has maintained its share of almost exactly one sixth of the Indian market, month on month, since April. The company broke the 20m customer barrier in September, joining BSNL, Reliance Infocomm and Bharti Airtel which have all already achieved this feat.



China Mobile – December Quarter Customer Numbers M1 Singapore Q3 2006 Results singapore

Growth resumes after enforced prepaid cull Growth resumes after enforced prepaid cull

MobileOne (M1) is the first Singaporean company to have reported Q3 2006 results, and the figures show that the company moved back into growth in the quarter, following the enforced disconnection of unregistered prepaid SIMs in Q2 2006 which knocked more than four percentage points of the market’s penetration. All of the growth at M1 in Q3 came from the prepaid sector, with 19k new prepaid customers offsetting a net loss of 1,000 contract customers for overall net additions of 18k – an increase of 1.47% in proportionate terms. At the end of September 2006 the total number of customers at M1 stood at 1.246m, the same number as the operator had at the end of 2005.

MobileOne (M1) is the first Singaporean company to have reported Q3 2006 results, and the figures show that the company moved back into growth in the quarter, following the enforced disconnection of unregistered prepaid SIMs in Q2 2006 which knocked more than four percentage points of the market’s penetration. All of the growth at M1 in Q3 came from the prepaid sector, with 19k new prepaid customers offsetting a net loss of 1,000 contract customers for overall net additions of 18k – an increase of 1.47% in proportionate terms. At the end of September 2006 the total number of customers at M1 stood at 1.246m, the same number as the operator had at the end of 2005. In Q2 2006, when MobileOne disconnected its unregistered prepaid customers, it suffered the strange phenomenon of a decrease in both the ARPU and average minutes of use of its prepaid customer base. This led us to the possible conclusion that the disconnected customers were in fact high-spending high-usage customers, rather than “dormant” customers with an old SIM card in the back of their desk drawer. At the time the company attributed the trend to aggressive offers and pricing in the market in response to the customer cull, although neither of its competitors was so affected – quite the opposite, in fact. Anyway, happily for the company, both the ARPU per Month and the Monthly MoU per Customer metrics for the prepaid customer base went north rather than south in Q3 2006, climbing from S$17.60 to S$18.20 and from 129 minutes to 135 minutes, respectively. However, this still leaves the operator some way short of the levels of both spend and usage which it had been attaining prior to the disconnections.

In Q2 2006, when MobileOne disconnected its unregistered prepaid customers, it suffered the strange phenomenon of a decrease in both the ARPU and average minutes of use of its prepaid customer base. This led us to the possible conclusion that the disconnected customers were in fact high-spending high-usage customers, rather than “dormant” customers with an old SIM card in the back of their desk drawer. At the time the company attributed the trend to aggressive offers and pricing in the market in response to the customer cull, although neither of its competitors was so affected – quite the opposite, in fact. Anyway, happily for the company, both the ARPU per Month and the Monthly MoU per Customer metrics for the prepaid customer base went north rather than south in Q3 2006, climbing from S$17.60 to S$18.20 and from 129 minutes to 135 minutes, respectively. However, this still leaves the operator some way short of the levels of both spend and usage which it had been attaining prior to the disconnections.

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ARPU per Month Monthly MoU per Customer We have no competitor figures yet in order to be able to assess M1’s performance relative to the market, but we can get a limited insight into the likely scenario. On the positive side, the operator remained unscathed in market share terms after the enforced disconnections in the second quarter; however, proportionate increases of the order of that posted by the company in this third quarter saw it lose share to its competitors in 2005. Churn in 2005 was 1.5% per month on average, and so it was again in Q3 2006, as the company got disconnections back under control from a high of 1.8% per month in the second quarter. The return to “normality”, then, is to be welcomed, but we fear that M1 might not have done enough to maintain the 29.1% share it held at the end of June. This conclusion is in fact backed up by M1’s third quarter presentation, which indicates that at the end of August its overall market share was thought to be around 28.3%. O2 – Q3 results to December 2005 DiGi Telecommunications Q3 2006 Results malaysia

Growth slows dramatically in Q3; price cuts keep contract base expanding DiGi Telecommunications, Malaysia’s third placed mobile operator, increased the size of its registered customer base by a factor of one third in the 12 months to 30th September 2006. Growth in Q3 2006 was weak, however, with just 150k new customers joining the operator – a proportionate increase of just 2.8% compared to an average of 9.1% over the previous three quarters. On the plus side, however, the inactive portion of the customer base only increased in size by 1.7% between June and September, which meant that the number of active customers rose by a slightly more healthy 3.1% during the period. Of DiGi’s 5.59m customers at the end of September, 76.5% or 4.28m were active. The company blames the ongoing exercise of Malaysia’s prepaid SIM registration program for the slow-down in growth, which would indicate that similar performances may be expected of its two competitors, Celcom and Maxis, which are both due to report third quarter results in November.



Blended ARPU fell by RM1 quarter on quarter to RM53 per customer per month in Q3 2006, on the back of a drop in the average spend in both the contract and prepaid parts of the customer base. Contract ARPU suffered a quarter on quarter drop of almost 10% to RM95 – 14.4% down from RM111 in Q3 2005. In the 12 months to 30th September 2006, however, DiGi’s contract customers grew in number by over 50%, which puts this ARPU decrease in a more favourable light. In addition, by the end of Q3 they still only constituted 8.3% of the total registered customer base, and so their ARPU had only a limited bearing on the blended metric. More important to the decrease in the headline figure was a RM1 decline in the average monthly spend per prepaid customer from RM54 in Q3 2005, through RM50 in Q2 2006, to RM49 in the third quarter this year. On the positive side, the overall monthly spend per customer on data services in Q3 2006 rose again to 18.7% of the total, following an unexpected decrease from 18.9% to 18.1% between the first and second quarters of the year.

Blended ARPU fell by RM1 quarter on quarter to RM53 per customer per month in Q3 2006, on the back of a drop in the average spend in both the contract and prepaid parts of the customer base. Contract ARPU suffered a quarter on quarter drop of almost 10% to RM95 – 14.4% down from RM111 in Q3 2005. In the 12 months to 30th September 2006, however, DiGi’s contract customers grew in number by over 50%, which puts this ARPU decrease in a more favourable light. In addition, by the end of Q3 they still only constituted 8.3% of the total registered customer base, and so their ARPU had only a limited bearing on the blended metric. More important to the decrease in the headline figure was a RM1 decline in the average monthly spend per prepaid customer from RM54 in Q3 2005, through RM50 in Q2 2006, to RM49 in the third quarter this year. On the positive side, the overall monthly spend per customer on data services in Q3 2006 rose again to 18.7% of the total, following an unexpected decrease from 18.9% to 18.1% between the first and second quarters of the year.

DiGi: Effective Average Revenue per Minute (RM), Q4 04 - Q3 06

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Correlating with the ARPU trend was a marginal decline in minute usage from 163 per customer per month in Q2 2006 to 162 in Q3 2006. The small decline in the blended average masked more pronounced changes in the different parts of the customer base, however, as average monthly minutes of use per prepaid customer fell quarter on quarter from 144 to 140 minutes, whilst the same metric for contract users rose from 392 to 422 minutes. These figures imply fairly significant decreases in the effective price of minutes from about RM0.27 per minute in Q2 2006 to RM0.23 per minute in Q3 2006. These reductions go some way to explaining how the company managed to grow its contract customer base by more 10% in the third quarter, against the overall average of 2.8%, presumably as it tries migrate its higher usage (and higher spending) customers onto postpaid plans.

Turkcell – Customer numbers up 4.5% in Q4 KDDI Q2 2006/07 Results to 30th September 2006 japan

“au” churn at all-time low and market share progress continues Japan’s second largest operator KDDI gained 0.7pp more market share in the second quarter of its financial year (the third quarter of the calendar year) to end the period with 26.1% of the Japanese mobile customer market – equivalent to 24.5m customers. These figures are for the company’s “au” CDMA business and exclude KDDI’s wholly owned PDC-only operator Tu-Ka, which is providing much of the fuel for the growth of the main unit as its customers are migrated to more modern services. Overall, including Tu-Ka, which lost 0.5pp of market share in the quarter to end Q3 with just 1.9m customers, the gain was only 0.2pp - but it was a gain nonetheless.

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KDDI’s continual market share improvements have been down, in no small part, to the company’s churn, which dropped below 1.0% per month in the three months to 30th September 2006 at its “au” unit for the first time in its recorded history. (Tu-Ka’s churn, incidentally, rose to an all-time recorded high of 6.4% in the same period.) Ironically, this may be the calm before the storm as mobile number portability is due to be introduced into Japan this week (see “TCA Japan September 2006 Customer Numbers”).

KDDI’s continual market share improvements have been down, in no small part, to the company’s churn, which dropped below 1.0% per month in the three months to 30th September 2006 at its “au” unit for the first time in its recorded history. (Tu-Ka’s churn, incidentally, rose to an all-time recorded high of 6.4% in the same period.) Ironically, this may be the calm before the storm as mobile number portability is due to be introduced into Japan this week (see “TCA Japan September 2006 Customer Numbers”). Within the “au” base EV-DO customer numbers grew by 13.8% in the quarter to reach 10.77m, against 13.00m ordinary 1x customers, and 0.72m who remain using cdmaOne technology. The growth of EV-DO has been virtually linear over the last year with the base accounting for 44% of the total at the end of September 2006, against 40% at the end of June, and 27% at the end of September last year. The result for ARPU has been predictable. Firstly, there has been a reduction in the average monthly spend of EV-DO customers, as the new technology is adopted by a greater proportion and wider cross-section of the customer base. Secondly, the average spend on data services has risen both absolutely and proportionately for KDDI’s overall business. This latest quarter was no exception, as EV-DO ARPU fell by 2.4% (not at all bad compared to a 13.8% uplift in customer numbers) and overall data ARPU rose 1.5% to 2,000 yen per customer per month – equivalent to 29.9% of the total average monthly spend.

Within the “au” base EV-DO customer numbers grew by 13.8% in the quarter to reach 10.77m, against 13.00m ordinary 1x customers, and 0.72m who remain using cdmaOne technology. The growth of EV-DO has been virtually linear over the last year with the base accounting for 44% of the total at the end of September 2006, against 40% at the end of June, and 27% at the end of September last year. The result for ARPU has been predictable. Firstly, there has been a reduction in the average monthly spend of EV-DO customers, as the new technology is adopted by a greater proportion and wider cross-section of the customer base. Secondly, the average spend on data services has risen both absolutely and proportionately for KDDI’s overall business. This latest quarter was no exception, as EV-DO ARPU fell by 2.4% (not at all bad compared to a 13.8% uplift in customer numbers) and overall data ARPU rose 1.5% to 2,000 yen per customer per month – equivalent to 29.9% of the total average monthly spend.


TuTurkcell – Customer numbers up 4.5% in Q4 rkcell – Customer numbers up 4.5% in Q4 China Q3 2006 Market Update china

Record net additions, but proportionate growth falls to all-time low Record net additions, but proportionate growth falls to all-time low A strange statistical phenomenon has emerged in China’s mobile market for Q3 2006. The country’s mobile customer base increased in size by 4.1% in the three months to 30th September 2006, which represents the smallest proportionate quarterly increase in the market’s history. However, this performance came on the back of net additions for the quarter which were the highest ever achieved in the Chinese market. The Chinese market has always been characterised by growth which is controlled and quasi-linear, and these odd dynamics have lead directly to the simultaneous breaking of records for both new highs and new lows. The graph below shows how net additions have increased on average only marginally over the last five years – even though the size of the customer base has almost quadrupled over this time frame – causing proportionate growth to gradually diminish.

A strange statistical phenomenon has emerged in China’s mobile market for Q3 2006. The country’s mobile customer base increased in size by 4.1% in the three months to 30th September 2006, which represents the smallest proportionate quarterly increase in the market’s history. However, this performance came on the back of net additions for the quarter which were the highest ever achieved in the Chinese market. The Chinese market has always been characterised by growth which is controlled and quasi-linear, and these odd dynamics have lead directly to the simultaneous breaking of records for both new highs and new lows. The graph below shows how net additions have increased on average only marginally over the last five years – even though the size of the customer base has almost quadrupled over this time frame – causing proportionate growth to gradually diminish.

China: Net Additions vs Proportionate Growth, Q3 01 - Q3 06

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Net Additions Proportionate Growth The third quarter, unsurprisingly, saw China Mobile again come out on top, its market share increasing by another 0.5pp compared to the end of Q2 2006 to 67.2%. Unicom’s customer base grew by an average of just 2.5% in the three months to 30th September 2006, compared to China Mobile’s much more impressive 4.9%. The differential between the two companies, which is only being magnified as time goes on, has little to do with the choice of technology, since Unicom’s GSM business only grew by 2.55% to the CDMA business’ 2.50%. Our view is that it has more to do with those “controlled” market conditions mentioned above, although, if this is the case, it is not entirely clear what the motivation of the authorities is in allowing the Chinese mobile market to develop in the way it has.


north america north america


CCingular reports 4ingular reports 4th Quarter Operating Results

Customer base 86% GSM Customer base 86% GSM

The 12 months to 30th September 2006 have seen a seismic shift in the composition of Dobson Cellular’s customer base away from its legacy AMPS/TDMA technology and onto its new GSM network. At the end of Q3 2006 just 14% of the company’s 1.59m customers remained on the old network, versus 42% a year previously. During this period the company has only managed to add just over 21,000 customers to its overall base meaning, effectively, that two-thirds of the AMPS/TDMA base at the end of Q3 2005 had converted to GSM by the end of Q3 2006. Of course, in reality, a proportion of the AMPS/TDMA customer base will have left Dobson’s service altogether, whilst brand new customers would have been signed up to the company’s GSM services.

The 12 months to 30th September 2006 have seen a seismic shift in the composition of Dobson Cellular’s customer base away from its legacy AMPS/TDMA technology and onto its new GSM network. At the end of Q3 2006 just 14% of the company’s 1.59m customers remained on the old network, versus 42% a year previously. During this period the company has only managed to add just over 21,000 customers to its overall base meaning, effectively, that two-thirds of the AMPS/TDMA base at the end of Q3 2005 had converted to GSM by the end of Q3 2006. Of course, in reality, a proportion of the AMPS/TDMA customer base will have left Dobson’s service altogether, whilst brand new customers would have been signed up to the company’s GSM services. The reasons for the move to GSM – and the desire to migrate customers to the system as quickly as possible – are evident when looking at Dobson’s headline ARPU figures. The average monthly spend per customer climbed by $2.33 between Q3 2005 and Q3 2006 to $49.10 a month, with $1.30 of this increase coming in this last quarter alone. Looking back further, to the second quarter of 2004, just after GSM technology had been introduced by the company, monthly ARPU was just $41.20. This gives the company a hugely satisfying 19% increase in ARPU over the 24 months to 30th September 2006 – equivalent to $7.90 more every month for every customer.

The reasons for the move to GSM – and the desire to migrate customers to the system as quickly as possible – are evident when looking at Dobson’s headline ARPU figures. The average monthly spend per customer climbed by $2.33 between Q3 2005 and Q3 2006 to $49.10 a month, with $1.30 of this increase coming in this last quarter alone. Looking back further, to the second quarter of 2004, just after GSM technology had been introduced by the company, monthly ARPU was just $41.20. This gives the company a hugely satisfying 19% increase in ARPU over the 24 months to 30th September 2006 – equivalent to $7.90 more every month for every customer.

th Quarter Operating Results Dobson Cellular Q3 2006 Preliminary Results united states

Dobson Cellular: GSM takeup and ARPU, Q3 04 - Q3 06

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Leap leaps ahead as growth hits four-year high

American operator Leap Wireless posted its best quarterly growth figures in more than four years this quarter, with an 8.7% increase in the size of its customer base in the three months to 30th September 2006. The company’s performance dwarfs the 2.4% increase posted by Cingular, the only one of the US majors yet to have posted results. What is more, the operator stood on the brink of the 2m customer milestone at the end of the quarter – just 3,000 customers away, in fact. With its 160k net additions in the quarter giving it an average of around 1,750 net additions per day, the company would have broken the 2m customer barrier at some point on the afternoon of the 3rd October (the 1st of the month, of course, being a Sunday).


The company cites its expansion into new markets as one of the main reasons for its improved performance, which saw net additions improve an incredible seven-fold on Q3 2005 to 161k in Q3 2006. Indeed, the new launches in 2006 have covered some important population centres, including Austin, El Paso, Colorado Springs, Houston, San Antonio, Cincinnati and most recently Kansas City. Of course new market launches have the effect of boosting gross additions whilst leaving churn rates untouched (provided existing markets do not become neglected, of course!). And this is exactly the phenomenon which the company reports: gross additions improved by 74% year on year, whilst churn fell marginally from 4.4% in the third quarter last year to 4.3% this year. This quarter’s gross additions of 405k were equivalent to 21.1% of the average customer base in the period, compared to only 14.4% in the same period last year – a margin which, given the flat churn, made all the difference in terms of the resulting net additions performance.

The company cites its expansion into new markets as one of the main reasons for its improved performance, which saw net additions improve an incredible seven-fold on Q3 2005 to 161k in Q3 2006. Indeed, the new launches in 2006 have covered some important population centres, including Austin, El Paso, Colorado Springs, Houston, San Antonio, Cincinnati and most recently Kansas City. Of course new market launches have the effect of boosting gross additions whilst leaving churn rates untouched (provided existing markets do not become neglected, of course!). And this is exactly the phenomenon which the company reports: gross additions improved by 74% year on year, whilst churn fell marginally from 4.4% in the third quarter last year to 4.3% this year. This quarter’s gross additions of 405k were equivalent to 21.1% of the average customer base in the period, compared to only 14.4% in the same period last year – a margin which, given the flat churn, made all the difference in terms of the resulting net additions performance. Cingular Wireless Q3 2006 Results united states

America’s largest raises the bar again America’s largest raises the bar again

Cingular Wireless, the joint venture between AT&T Corporation and BellSouth, the regional operator in the South East United States, has produced another strong set of results and has laid down a challenge to both of its nearest rivals, Verizon Wireless and Sprint Nextel. Its latest quarterly figures show a 12% increase in service revenue, 9% growth in overall revenue, 19% growth in EBITDA and an improvement in operating profits of over 30%. The merger with AT&T Wireless certainly seems to be producing the synergies that were promised at the time.

Cingular Wireless, the joint venture between AT&T Corporation and BellSouth, the regional operator in the South East United States, has produced another strong set of results and has laid down a challenge to both of its nearest rivals, Verizon Wireless and Sprint Nextel. Its latest quarterly figures show a 12% increase in service revenue, 9% growth in overall revenue, 19% growth in EBITDA and an improvement in operating profits of over 30%. The merger with AT&T Wireless certainly seems to be producing the synergies that were promised at the time. The company is also doing well when it comes to KPIs. Service ARPU has bounced back after a fourth quarter dip and is now back up above the level of a year ago, at $49.76 ($49.65). Within this, there has been a significant increase in the proportion contributed by data, which has risen from $4.33 of the total to $6.32 year on year. If this implies a reduction in voice ARPU (and it does) we should not be too concerned as the margin on data is substantially greater. Elsewhere amongst the KPIs we see that Cingular is doing a good job keeping churn down: the overall figure may have nudged up quarter on quarter to 1.8%, but the disconnection rate amongst the higher spending contract customers that account for the vast majority of the base is still just 1.5%, as it was in the last quarter.

The company is also doing well when it comes to KPIs. Service ARPU has bounced back after a fourth quarter dip and is now back up above the level of a year ago, at $49.76 ($49.65). Within this, there has been a significant increase in the proportion contributed by data, which has risen from $4.33 of the total to $6.32 year on year. If this implies a reduction in voice ARPU (and it does) we should not be too concerned as the margin on data is substantially greater. Elsewhere amongst the KPIs we see that Cingular is doing a good job keeping churn down: the overall figure may have nudged up quarter on quarter to 1.8%, but the disconnection rate amongst the higher spending contract customers that account for the vast majority of the base is still just 1.5%, as it was in the last quarter. And what of the customer base? This has risen to 58.7m, from 52.3m one year ago but more importantly, it has continued it transformation from TDMA to the predominant world standard, GSM. The two charts below show how the TDMA base has been reducing quarter by quarter while the GSM base has increased substantially to the point where the vast majority of all Cingular’s customers are connected to GSM, or the newly launched W-CDMA 3G network. This, in part, explains the increasing data content in the ARPU. Cingular remains an important source of neologisms: after the “true up” of some months ago, when the customer numbers were restated, we now see that the TDMA network will be “sunset” in the early part of 2008. The vagueness of this statement is, perhaps, the reason for its use here, but are we looking at a Scandinavian style sunset of several hours or a more equatorial almost instant disappearance? Only time will tell, but clearly, to coin a phrase, the writing is on the wall for TDMA.

And what of the customer base? This has risen to 58.7m, from 52.3m one year ago but more importantly, it has continued it transformation from TDMA to the predominant world standard, GSM. The two charts below show how the TDMA base has been reducing quarter by quarter while the GSM base has increased substantially to the point where the vast majority of all Cingular’s customers are connected to GSM, or the newly launched W-CDMA 3G network. This, in part, explains the increasing data content in the ARPU. Cingular remains an important source of neologisms: after the “true up” of some months ago, when the customer numbers were restated, we now see that the TDMA network will be “sunset” in the early part of 2008. The vagueness of this statement is, perhaps, the reason for its use here, but are we looking at a Scandinavian style sunset of several hours or a more equatorial almost instant disappearance? Only time will tell, but clearly, to coin a phrase, the writing is on the wall for TDMA.

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middle east & africa middle east & africa V mbers Vodacom – December Quarter Customer Numbers odacom – December Quarter Customer Nu


Etisalat Q3 2006 Results united arab emirates

36% increase in 9M net profit as UAE customers up 22% 36% increase in 9M net profit as UAE customers up 22%

The United Arab Emirates’ monopoly mobile provider Etisalat grew its domestic customer base by 0.265m in the third quarter of 2006 to end the period with a total of 5.26m customers. In proportionate terms the quarterly increase amounted to 5.3%, which is a fairly remarkable statistic considering (as we reported in last weeks MEA regional roundup in Issue 39) that the market began Q3 2006 already 119.6% penetrated. It ended the period having added well over five percentage points to that figure. As we must always point out, however, the large population of non-nationals in the United Arab Emirates means that mobile penetration statistics for the country are of dubious value. We suspect that the real story is that the expat market is well over 100% penetrated, whilst penetration in the local market is somewhere towards the upper end of the fourth quartile.

The United Arab Emirates’ monopoly mobile provider Etisalat grew its domestic customer base by 0.265m in the third quarter of 2006 to end the period with a total of 5.26m customers. In proportionate terms the quarterly increase amounted to 5.3%, which is a fairly remarkable statistic considering (as we reported in last weeks MEA regional roundup in Issue 39) that the market began Q3 2006 already 119.6% penetrated. It ended the period having added well over five percentage points to that figure. As we must always point out, however, the large population of non-nationals in the United Arab Emirates means that mobile penetration statistics for the country are of dubious value. We suspect that the real story is that the expat market is well over 100% penetrated, whilst penetration in the local market is somewhere towards the upper end of the fourth quartile.

UAE: Customers, EOP vs Population, EOP (m) Q3 1990 - Q3 2006

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Customers, EOP Population, EOP Etisalat continues to maintain its silence with respect to its considerable and diverse international portfolio of mobile assets. Whilst it is too early yet to estimate how that portfolio might have performed in this latest quarter, the growth in the financials of the overall business speak for themselves. To compound a 22% increase in customer numbers at its domestic mobile unit year on year, the company achieved year-on-year growth of 26% in its 9-month revenue figures to AED11.8bn (US$3.22bn). In addition Etisalat posted a 36% year-on-year improvement in both operating profit and net profit, to AED4.15bn (US$1.13bn) and AED4.39bn (US$1.19bn) respectively, for the nine months ending 30th September 2006. The ambitions of this growing Middle Eastern telecoms concern are no secret. The chairman of the company, Mohammed Hassan Omran, said last week that this most recent quarterly performance brings the company “even closer to our ambition of being among the top 10 telecom operators in the world by 2010”. Etisalat is not the first company from the region to harbour such an ambition: MTC Kuwait is already some way through executing its 9-year “3x3x3” strategy with a similar goal in mind. The two plans are ambitious, requiring huge funding, carefully planned strategy, and nothing less than visionary management, but it is not beyond the realms of possibility that one, or both, might just succeed.


russia & central asia russia & central asia


MMTS– December Quarter Customer Numbers TS– December Quarter Customer Numbers MTS September 2006 Customer Numbers russia, belarus, turkmenistan, ukraine,

uzbekistan

Venture customer base tops 70m Venture customer base tops 70m MTS has posted unremarkable net additions for the month of September in its five markets of operation, with its total customer base growing by 1.01m customers during the month, compared to an average of 1.14m per month for the first eight months of 2006. Despite this, however, third quarter proportionate growth exceeded that achieved in both the first and second quarters with total venture customer numbers up by 5.68%, compared to 5.19% in Q2 and 5.08% in Q1. MTS’ total venture customer base topped 70m by the end of Q3 2006 – 70.47m to be precise – although this includes the unconsolidated Belarussian operation of which MTS owns 49%. Accounting for this operation on an equity basis, the total MTS customer base at the end of September drops to exactly 69m.

MTS has posted unremarkable net additions for the month of September in its five markets of operation, with its total customer base growing by 1.01m customers during the month, compared to an average of 1.14m per month for the first eight months of 2006. Despite this, however, third quarter proportionate growth exceeded that achieved in both the first and second quarters with total venture customer numbers up by 5.68%, compared to 5.19% in Q2 and 5.08% in Q1. MTS’ total venture customer base topped 70m by the end of Q3 2006 – 70.47m to be precise – although this includes the unconsolidated Belarussian operation of which MTS owns 49%. Accounting for this operation on an equity basis, the total MTS customer base at the end of September drops to exactly 69m. MTS: Venture Customers, EOP by Market (m), 01/06 – 09/06 MTS: Venture Customers, EOP by Market (m), 01/06 – 09/06 12/05 12/05 01/06 01/06 02/0602/06 03/06 04/06 05/06 06/06 07/06 08/06 09/06 Belarus 2.1 2.2 2.3 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Turkmenistan 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Ukraine 13.3 14.0 14.2 14.5 14.6 14.9 15.1 15.5 15.9 16.4 Uzbekistan 0.6 0.6 0.6 0.7 0.7 0.8 0.8 0.9 1.0 1.1 Moscow Super-Region 10.2 10.2 10.2 10.3 10.3 10.5 10.6 10.8 10.9 11.0 St. Petersburg 2.5 2.5 2.5 2.5 2.5 2.5 2.6 2.6 2.7 2.7 Russia Regions 31.6 32.2 32.7 33.1 33.5 34.2 34.8 35.8 36.0 36.3 Total 60.3 61.7 62.6 63.4 64.2 65.4 66.7 68.4 69.5 70.5

MTS: Monthly Net Additions (m) by Market, 01/06 - 09/06

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At the end of September 2006, MTS’ Russian operation stood just 10,000 away from the 50m customer mark. The third quarter was lumpy for the Russian market, with a bumper July (+1.1m) followed by a very mediocre August and September (+0.8m in aggregate). The Russian market was still the fastest growing in absolute terms in Q3, with 1.9m net additions to Ukraine’s 1.3m thanks to the strong July performance, but it lost out to the Ukraine in both August and September. MTS’ Ukrainian operation UMC added 430k customers in September to Russia’s 390k, although it should be noted that this was still not enough to keep pace with larger rival Kyivstar in that market (see “Kyivstar September 2006 Customer Numbers”). Overall focus is shifting away from the Russian market, albeit very slowly, with MTS’ home market accounting for 70.9% of the total venture customer base at the end of September, against 73.3% at the beginning of the year.


caribbean & latin america caribbean & latin america BBrazil’s December Customer Numbers razil’s December Customer Numbers


Anatel Brazil September 2006 Customer brazil

Best quarter since Q4 05 despite slow September Best quarter since Q4 05 despite slow September

Headline figures from the Brazilian telecoms regulator Anatel show that the number of mobile customers in the Brazilian market rose to 95.87m at the end of September, up from 94.90m at the end of August. Despite monthly net additions falling under one million for only the third time in 2006 in September, there were a net 4.1m new customers in Q3 2006 making it the best quarter since Q4 2005 in absolute terms. Proportionately, customer growth was 1.02% in September and 4.48% in the third quarter – again making Q3 2006 the strongest quarter since Christmas last year after 3.7% and 2.6% in the first and second quarters respectively.

Headline figures from the Brazilian telecoms regulator Anatel show that the number of mobile customers in the Brazilian market rose to 95.87m at the end of September, up from 94.90m at the end of August. Despite monthly net additions falling under one million for only the third time in 2006 in September, there were a net 4.1m new customers in Q3 2006 making it the best quarter since Q4 2005 in absolute terms. Proportionately, customer growth was 1.02% in September and 4.48% in the third quarter – again making Q3 2006 the strongest quarter since Christmas last year after 3.7% and 2.6% in the first and second quarters respectively.

Brazil: Net Additions (m), 09/2005 - 09/2006

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On an annual basis customer numbers increased by just under 20% - or by 15.87m – in the 12 months to 30th September 2006. However, in absolute terms the market added more customers in the twelve month periods ending 30th September 2004 and 30th September 2005, indicating something of a slow-down in this last year (albeit that this year saw Vivo strip out more than 2m inactive customers from its base). Brazilian mobile penetration passed through the 50% barrier in August, and the country ended Q3 2006 with a mobile ownership rate of 50.8%.

Brazil: Customers, EOP (m), 09/2000 - 09/2006

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BBrazil’s December Customer Numbers razil’s December Customer Numbers


Global Q2 2006 Market Review

Strong growth continues, but the focus shifts Strong growth continues, but the focus shifts The global mobile market enjoyed its second best quarter ever in the three months ending 30th June 2006. Just under 124m new customers were connected, which is equivalent to 1.375m per day. If that is a surprise to any of our readers, it is probably because they are focused on the European or North American markets, rather than the other regions of the world where growth has been far more rapid. The Asia Pacific region, for instance, recorded its best quarter ever, with over 57m net additions – nine million more than the previous record quarter. Elsewhere, there were no records set, but four of the other five other regions showed gains which were close to the best to date. The Middle East & Africa region had its third best quarter, adding nearly 19m customers, while the Caribbean & Latin American region reported its fourth best with 15.5m new customers. In North America, 7.4m new subscribers were connected, which makes this the fifth best quarter ever, while in Russia & Central Asia, there were 9.1m, making that the seventh best. Only Europe fell far short of prior glories, though even here there were over 16m new customers. That, however, makes this only the 14th best quarter ,and with regional penetration now over 90%, it seems that the days when Europe led the global growth table are well and truly over.

The global mobile market enjoyed its second best quarter ever in the three months ending 30th June 2006. Just under 124m new customers were connected, which is equivalent to 1.375m per day. If that is a surprise to any of our readers, it is probably because they are focused on the European or North American markets, rather than the other regions of the world where growth has been far more rapid. The Asia Pacific region, for instance, recorded its best quarter ever, with over 57m net additions – nine million more than the previous record quarter. Elsewhere, there were no records set, but four of the other five other regions showed gains which were close to the best to date. The Middle East & Africa region had its third best quarter, adding nearly 19m customers, while the Caribbean & Latin American region reported its fourth best with 15.5m new customers. In North America, 7.4m new subscribers were connected, which makes this the fifth best quarter ever, while in Russia & Central Asia, there were 9.1m, making that the seventh best. Only Europe fell far short of prior glories, though even here there were over 16m new customers. That, however, makes this only the 14th best quarter ,and with regional penetration now over 90%, it seems that the days when Europe led the global growth table are well and truly over. Europe’s 92% average will not be bettered for some time, however. North America is closest at 72%, while Russia & Central Asia is ten points below that at 62%, although how much of that is active is another matter. Latin America is poised to go through 50% and will probably achieve that this quarter, while Asia Pacific has just passed the 25% milestone. That is the next target for the Middle East & Africa, as the 20% mark has just been reached in the last days of the quarter. That gives us a global average of 37%, up from 35.2% at the end of March and 33.6% at the end of last year. At a time when European operators are talking of cost reduction, fixed mobile convergence, triple plays and all the rest, it seems that the rest of the world is having a party to which few western companies were invited. By the end of the year, the number of global mobile connections will exceed two and two thirds billion and penetration will top 40%. Recent announcements from some of the leading handset vendors suggest that this will be the first ever year to reach the magic one billion unit figure, which would represent a 30% gain over 2005. This is still a brilliant growth industry and suggestions that it is slowing down are ill-informed.

Europe’s 92% average will not be bettered for some time, however. North America is closest at 72%, while Russia & Central Asia is ten points below that at 62%, although how much of that is active is another matter. Latin America is poised to go through 50% and will probably achieve that this quarter, while Asia Pacific has just passed the 25% milestone. That is the next target for the Middle East & Africa, as the 20% mark has just been reached in the last days of the quarter. That gives us a global average of 37%, up from 35.2% at the end of March and 33.6% at the end of last year. At a time when European operators are talking of cost reduction, fixed mobile convergence, triple plays and all the rest, it seems that the rest of the world is having a party to which few western companies were invited. By the end of the year, the number of global mobile connections will exceed two and two thirds billion and penetration will top 40%. Recent announcements from some of the leading handset vendors suggest that this will be the first ever year to reach the magic one billion unit figure, which would represent a 30% gain over 2005. This is still a brilliant growth industry and suggestions that it is slowing down are ill-informed. The chart below shows the trend of additions in recent quarters: the momentum in the Asia Pacific and MEA regions will, we believe, be sufficient to ensure that Q4 05’s record of 142m net adds will be broken. The chart below shows the trend of additions in recent quarters: the momentum in the Asia Pacific and MEA regions will, we believe, be sufficient to ensure that Q4 05’s record of 142m net adds will be broken.

Global Net Additions by Region (m), Q4 04 - Q2 06

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Market Rankings Turning now to individual markets, the top three places are unchanged year on year. China remains by far the largest market in the world with over 400m connections and has increased its lead over the United States, from 150m to 188m connections. This lead is only ever going to increase, but China’s position is not unassailable. Third placed Russia isn’t the threat – with some 140m customers at the end of June, it was close to 100% penetrated – rather, the challenge is coming from India. Last year, it was only the ninth largest market in the world, with only 57m subscribers. Today, it is through 100m, growing at 5m a month, and is in fourth place. This spectacular expansion has pushed Japan back to fifth, with a total of 93m. Japan was the second slowest growing of the top ten markets in absolute terms and much the slowest proportionately.


The sixth, seventh, eighth and ninth largest markets have also all been pushed down one place by India. They retain their relative positioning though, with Brazil at 92m looking to challenge Japan for fifth place. The latest monthly figures suggest that this change only took one more month to happen and confirm that Brazil has moved ahead by several hundred thousand. Brazil’s growth has slowed in the past two or three quarters, partly as a consequence of Vivo’s decision to disconnect more than one million inactives, but it is under-penetrated compared to Japan, and the market, with over 16m adds last year, still has considerable momentum. Europe’s three largest markets are next with Germany being challenged once again by Italy for the position as overall leader. As penetration in Italy is now over 120%, while that in Germany has yet to reach 100%, the Germans would appear to have the upper hand, but there is not much to choose – the German market ended the period with a total of 78.3m connections, up 7.1m on the year, while the Italian was close to 74m, after over 9m additions. The UK, by contrast, only added 4.2m customers in the year and some of this was offset by rising inactivity levels, especially at Vodafone. In all probability, the UK will drop to tenth by the end of this year or early in the New Year, with Indonesia, the current tenth largest market, taking its place. Indonesia’s population is some three and a half times as large and the mobile market is growing far faster: it added exactly ten times as many new customers in Q2 06 than the UK, to take its total to 53m. One other market has passed the 50m mark – Mexico. This retains eleventh position. The chart below shows the top ten, as at June 2006.

The Ten Largest Mobile Markets by Customers, EOP (m) Q2 05 vs Q2 06

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There are, in total, some 27 markets that have more than 20m customers. Two others deserve singling out, as they point the way to the future. Ukraine has risen from 23rd place to 17th after adding over 16m new customers in the year, to take its total to just under 36m. Pakistan has done even better, both absolutely and proportionately. It added over 21m new customers and jumped from 31st to 19th. The biggest drop in the top 20 was France, which fell from 10th to 13th, while the biggest in the top 30 was Taiwan, where new legislation largely eliminated dual SIM ownership and caused a 0.25m drop in the base and a seven place drop in the overall ranking, from 22nd to 29th. Net Additions If we now switch the focus from absolute size to absolute growth, several new names emerge. Predictably, China is still number one, having added 63m new customers, but India is running it a close second and the gap between the two is narrowing all the time. The next chart shows this – China’s growth looks as though it is being planned by Central Government, while India’s has the more wild characteristics of a free market where rampant capitalism is on the loose. In the first quarter we show in the chart bleow, China added nearly 9m more customers than India; in the last, the gap was just 0.9m and recently released data for Q3 2006 shows that India has in fact now overtaken China to become the fastest growing market in the world(see “COAI & AUSPI India September 2006 Customer Numbers”).



Quarterly Net Additions, China & India (m) Q2 05 - Q2 06

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In total, some eleven countries added ten million customers or more, accounting for more than 57% of the market’s growth. A further 12 territories added between five and ten million over the past year. The chart below shows the eleven that managed ten million. Other than the United States and, debatably, Russia and Ukraine, all of these markets are in the developing world. We have already mentioned China’s 63m net adds; for the record, the others in this list are as follows: India, 48.5m, Russia 41.7m, USA, 26.8m, Pakistan, 21.4m, Brazil, 16.2m, Ukraine, 16.1m, Indonesia, 13.7m, Colombia, 12.4m and Algeria and Nigeria, 10.3m each.

Fastest Growing Markets by Annual Net Additions (m) Q2 2006

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Q2 06 Total Net Additions for 12 months to 30th June 2006 Proportionate Growth Switching next to proportionate growth rates, we have decided, for the sake of overall relevance, to concentrate on those businesses with more than 100,000 customers, to eliminate the really small start-ups. This still gives us some 21 markets where growth of more than 100% was achieved over the last year, with the leading market managing to do better than triple that. It should come as no surprise that this is in an emerging market and moreover, one in the Middle East & Africa region. The first mobile communication system in Libya was launched as early as 1996, but the market did not really begin to grow until the arrival of the second entrant in June 2004. At that stage, penetration was around 2.5%; today, after a 309% increase in customer numbers year on year, it stands at 33%. The second placed market is surprisingly similar. Mobile services were launched in Armenia in late 1996, but by the time K-



Telecom entered the market in August 2005, there were only 257k customers on Armentel’s mobile network. K-Telecom has not only helped the market penetration grow to 25% less than one year later, it has also been the driving force behind a 193% increase in customer numbers to more than 750k. Nepal is third, with an increase of 184%. The arrival of competition also played a part here, but Nepal Telecom has defended its market well and still has over 80% of the 707k customers connected at the end of June. The Iraqi market continues to be one of the most vibrant in the world and during the last twelve months it grew by 177%, to reach a total of 6.7m. Three hugely ambitious companies are competing here – Orascom, Wataniya and MTC Kuwait. Orascom was marginally ahead at the end of the quarter, with 34.8% of the market, compared to Wataniya’s 34.1%, but the recent quarterly results from MTC show that in the three months to September, it has grown by a massive 17%, adding over 350k customers. This should see it gain market share. The first mobile system in Burundi was launched in the beginning of 1993. It took a full 12 years to achieve 1% mobile penetration, even though there were three competing operators. News that there was to be a fourth sparked an acceleration and over the past year, penetration has increased from a lowly 14.% to 3.6%. Still not exactly massive, but undoubtedly a move in the right direction. Burundi takes fifth place with a 168% gain. It wins this by the narrowest of margins, as Pakistan produced a 167.5% gain. It is, of course, a far larger market in absolute terms and has already featured as the fifth fastest growing in the chart above.

Growth markets: the 100%+ Group, 12 months to 30th June 2006

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The remaining four countries on this list are all comparatively small. Two are in Africa and two in Central Asia. Chad managed a 166% increase year on year, but even today not many more than 4% of the 10m population own mobiles. In Liberia, the 144% year on year increase took the proportion to 13.8%, or just over 400k. In eighth placed Turkmenistan, the growth was 151%, but penetration is still just 3%. Uzbekistan, its neighbour, was better positioned one year ago and has grown substantially faster in absolute terms, but ends the list having “only” managed a 138% gain. All but three of the eleven other countries where 100%+ was achieved are in Africa. In descending order, they are Bangladesh, Algeria, Somalia, Tajikistan, Trinidad & Tobago, Ethiopia, Angola, Sudan, the Central African Republic, Niger and Zambia.



Vimpelcom moves into Uzbekistan

Global Q2 2006 Operator Review

Vivo out but little change to the top-10 Vivo out but little change to the top-10 The list of the largest single nation operators is almost the same as it was this time last year. Because the Indian mobile market is still fragmented, no one operator has managed to enter the top ten as the market as a whole did in the league table of markets. Thus it comes as no surprise to see that the two Chinese giants top the list. Cingular Wireless is in third place, just ahead of Verizon Wireless, which has moved into fourth, at NTT DoCoMo’s expense. The Japanese leader has dropped just one place though. Sprint Nextel retains sixth, while MTS and Vimpelcom of Russia are still in seventh and eighth places, respectively. Mexico’s Telcel (Radiomovil) is ninth, as it was last year, but there is a new tenth. Last year, this spot was occupied by Brasicel – Vivo Participacoes – but its problems with inactives have lead to it dropping five places, to 15th, to be replaced in the top ten by T-Mobile Deutschland which just keeps Vodafone Germany out of the list. The chart below shows the current world order, with the market being absolutely dominated by the two Chinese companies. This time last year, the two were larger than the remaining eight companies put together and so they are again… by almost exactly the same margin, 7.23%, rather than 7.27%. For the non-Chinese operators, that probably counts as some kind of progress…

The list of the largest single nation operators is almost the same as it was this time last year. Because the Indian mobile market is still fragmented, no one operator has managed to enter the top ten as the market as a whole did in the league table of markets. Thus it comes as no surprise to see that the two Chinese giants top the list. Cingular Wireless is in third place, just ahead of Verizon Wireless, which has moved into fourth, at NTT DoCoMo’s expense. The Japanese leader has dropped just one place though. Sprint Nextel retains sixth, while MTS and Vimpelcom of Russia are still in seventh and eighth places, respectively. Mexico’s Telcel (Radiomovil) is ninth, as it was last year, but there is a new tenth. Last year, this spot was occupied by Brasicel – Vivo Participacoes – but its problems with inactives have lead to it dropping five places, to 15th, to be replaced in the top ten by T-Mobile Deutschland which just keeps Vodafone Germany out of the list. The chart below shows the current world order, with the market being absolutely dominated by the two Chinese companies. This time last year, the two were larger than the remaining eight companies put together and so they are again… by almost exactly the same margin, 7.23%, rather than 7.27%. For the non-Chinese operators, that probably counts as some kind of progress…

Global Leaders by Customers, EOP (m) Q2 2006

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This statistic of course implies that China Mobile and China Unicom will also top the list of fastest growing businesses and indeed, they do. China Mobile added 48.6m customers over the past twelve months or almost 10% of the world total. This is more than the next three companies put together. China Unicom added 14.6m, which amounts to a marginal loss of market share. The rest of the table is rather different though. MTS of Russia comes third, with just under 14m adds, while its rival Vimpelcom is fourth, with 13m. It too lost share to the market leader during this year. The Indian subcontinent dominates the bottom half of the table. Bharti, the company in which both Singapore Telecom and Vodafone have significant minority stakes, came fifth with 10.8m net adds, 900k more than the second fastest growing Indian business, Reliance Infocomm, the CDMA operator. Pakistan Mobile’s total of 9.7m is enough to separate Reliance from the next Indian business, Hutchison India, which added 9.1m. Ninth place is taken by America Movil’s Colombian business, Comcel, while tenth is taken by another Indian company, the state-owned BSNL. These two added 8.8m and 8.0m customers respectively. The first Western operator on the list is Verizon Wireless in 13th, just ahead of Sprint Nextel, these two having added 7.4m and 7.3m respectively. The first European operator is in 16th – Kyivstar of the Ukraine – which had marginally the better of its battle for market share with Ukrainian Mobile (6.7m and 5.6m respectively). The first Western European operator is in 28th place and is TIM of Italy, the business which may (or may not) be for sale. This added 4.3m customers, which, given the highly penetrated market in which it operates is some achievement. In total, five companies grew by 10m or more, a further 16 by between 5m and 10m and another 40 or so, by between 2.5m and 5.0m.




Global Multinationals So far, we have looked exclusively at single market operators for the purposes of this review. However, if we include multinationals a very different picture emerges. There are several ways that one can measure size with businesses such as these and we have chosen on this occasion to shows three separate league tables. The first shows each company’s “total reach” – the entire combined base of all the businesses in which it has an investment. For ease of comparison, we have shown all the tables on a proforma basis; that is to say, the figures shown assume that the entities were always constituted in the same way they are today. The first company on the list provides the most marked example of this in practice – Vodafone Group. If all of its investments are included, it has very nearly 550m customers. That half of these are attributable to China Mobile, a company in which it only has a 3.27% stake, is irrelevant – what this measure shows us is the potential influence that a business can have. Arguably, of course, Vodafone’s influence could be even greater than this 20%+ global market share implies, as this figure does not include any of the customers of the partner networks where Vodafone has co-branding arrangements. The largest of these, America Movil, also features on this same list, at number five with a further hundred million customers. Vodafone’s Chinese partner is second on the list in its own right, while its national competitor, China Unicom, is third. Telefonica’s acquisition of the O2 Group has pushed it into fourth place ahead of America Movil, its great Latin American rival, and also ahead of its European counterparts, Deutsche Telekom and France Telecom. All of these seven have reached the 100m+ customer mark, at least on this basis of calculation. The last three companies in the table may surprise some readers. Telenor has been quietly expanding into markets which were until recently quite unfashionable and this strategy has paid off spectacularly. It is one of only two companies to have achieved a double digit quarterly compound growth rate and has, since the end of the quarter joined the 100m club. Neither of the next two in the table is that far behind. Singapore Telecom is ninth, largely as a result of its policy of regional expansion. It has significant investments in India and Indonesia and these are the principal driving forces behind its growth. Finally, we have Orascom. This, admittedly, is a rather loose definition and perhaps a better name would be the Sawiris family, the controlling shareholders of Orascom. Suffice to say that this total includes all of Orascom Telecom’s customers, all of WIND’s in Italy and all of the customers of the various Hutchison businesses, in which Orascom now has an equity interest. Although these companies are, at the moment, only rather loosely bound together, that could change and if it does, a new superpower would emerge. Global Multinationals: Total Customer Base Reach (m)

Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 CQGR Vodafone 431.9 451.3 474.3 499.8 524.1 547.8 4.9% China Mobile 215.0 225.0 236.2 248.0 260.6 273.8 4.9% China Unicom 116.4 120.5 124.1 127.8 131.5 135.1 3.0% Telefonica 103.9 115.1 118.9 125.6 129.9 132.0 4.9% America Movil 67.4 75.5 82.3 92.1 99.3 107.4 9.8% Deutsche Telekom 88.6 90.8 93.4 97.6 98.9 102.0 2.9% France Telecom 83.2 86.3 89.6 95.1 98.0 101.0 4.0% Telenor 58.0 66.0 74.0 85.1 91.4 99.0 11.3% Singapore Telecom 65.1 71.1 74.1 77.8 85.0 92.4 7.3% Orascom 48.0 53.3 59.7 67.7 77.7 86.6 12.5%

The second of these tables compares the leading consolidated customer bases. Nine of the names are the same, though the order differs. What we show here are the customers of the businesses that would normally be included in a formal financial consolidation. Thus, for instance, Vodafone loses both its Chinese and Indian numbers and as a consequence, drops to number two on the list. Equally, Telefonica loses the subscribers it had through its association with Portugal Telecom – not just in Portugal, but also in PT’s international markets in Africa and the Asia Pacific region. Deutsche Telekom, France Telecom, America Movil, Telenor and Singapore Telecom are unaffected, but the Orascom federation falls away, to be replaced by TeliaSonera, which has manly relied on its Turkcell and MegaFon associates to get into tenth place. Six other companies have a 50m+ presence on this basis and deserve a mention. They are, in descending order, MTS of Russia, Telecom Italia, Cingular Wireless, Verizon Wireless and Sprint Nextel from the USA and finally, Vimpelcom. Global Multinationals: Consolidated Customers (m)

Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 CQGR China Mobile 215.0 225.0 236.2 248.0 260.6 273.8 4.9% Vodafone 205.9 214.0 224.1 235.5 243.9 250.9 4.0% China Unicom 116.4 120.5 124.1 127.8 131.5 135.1 3.0% Telefonica 97.5 108.5 112.0 118.3 122.3 124.2 5.0% Deutsche Telekom 88.6 90.8 93.4 97.6 98.9 102.0 2.9% France Telecom 83.2 86.3 89.6 95.1 98.0 101.0 4.0% America Movil 64.2 71.9 78.2 86.9 93.7 100.8 9.4% Telenor 58.0 66.0 74.0 85.1 91.4 99.0 11.3% Singapore Telecom 65.1 71.1 74.1 77.8 85.0 92.4 7.3% TeliaSonera 52.7 57.3 61.9 66.2 68.9 72.3 6.5%

The final table again contains many of the same organisations, as one might expect, but this time, the measure is controlled customers. This is really the gold standard of the industry, as undoubtedly alliances can be dissolved and investments sold. From our perspective, this is the most interesting of the three tables as it shows us something that perhaps we might not have expected. That is, although Vodafone has been heavily criticised this year by the financial community for not being invested in growth markets or not managing to take market share in its mature markets, it has, in fact, considerably outperformed its European peers, including, by some measures, Telefonica.


One year ago, Vodafone had 54m more controlled customers than Telefonica and Deutsche Telekom. It had 68m more than France Telecom. Today, its lead over Telefonica is 61m, while the gap between it and Deutsche Telekom has widened by a further 12m customers to 66m. It now outpaces France Telecom by 83m, or comfortably more than 100%.

One year ago, Vodafone had 54m more controlled customers than Telefonica and Deutsche Telekom. It had 68m more than France Telecom. Today, its lead over Telefonica is 61m, while the gap between it and Deutsche Telekom has widened by a further 12m customers to 66m. It now outpaces France Telecom by 83m, or comfortably more than 100%. The Mobile World takes the view that the mobile market is still far from mature and that there is significant growth to be enjoyed, even in Western Europe. But there will come a time when the market is mature. At this stage, the managers of these companies will have to ask themselves, whether it is better to have a portfolio of businesses in rich, low growth markets, or a similar portfolio in poor, low growth countries. The answer would seem obvious… but in the meantime, the trick is to have one foot in each camp to get the benefits of high profitability and high growth. Not many of the businesses on this list have managed this as well as they might.

The Mobile World takes the view that the mobile market is still far from mature and that there is significant growth to be enjoyed, even in Western Europe. But there will come a time when the market is mature. At this stage, the managers of these companies will have to ask themselves, whether it is better to have a portfolio of businesses in rich, low growth markets, or a similar portfolio in poor, low growth countries. The answer would seem obvious… but in the meantime, the trick is to have one foot in each camp to get the benefits of high profitability and high growth. Not many of the businesses on this list have managed this as well as they might. Global Multinationals: Controlled Customers (m) Global Multinationals: Controlled Customers (m)

Q1 05 Q1 05 Q2 05 Q2 05 Q3 05Q3 05 Q4 05 Q1 06 Q2 06 CQGR China Mobile 215.0 225.0 236.2 248.0 260.6 273.8 4.9% Vodafone 128.5 133.5 140.3 147.1 152.1 155.8 3.9% China Unicom 116.4 120.5 124.1 127.8 131.5 135.1 3.0% America Movil 64.2 71.9 78.2 86.9 93.7 100.8 9.4% Telefonica 70.0 79.4 82.4 87.5 91.0 94.4 6.2% Deutsche Telekom 77.9 79.6 81.9 85.4 86.5 89.8 2.9% France Telecom 63.8 65.2 66.9 70.3 71.5 72.5 2.6% MTS 38.7 44.1 50.4 58.2 61.1 64.1 10.6% Cingular Wireless 50.4 51.4 52.3 54.1 55.8 57.3 2.6% Verizon Wireless 45.5 47.4 49.3 51.0 53.3 54.8 3.8%

Those amongst our readers who are curious to know how these tables develop, below the top ten, are recommended to subscribe to The Mobile World Database, where this information and much else besides can be found. However, being of a generous nature, we will share with our non-subscribing readers the knowledge that at 30th June 2006, there were another three companies on this list with more than 50m controlled customers – Telecom Italia, Sprint Nextel and Vimpelcom. 3 Italia to list on the Milan Stock Exchange

Global Q3 2006 Handset Market Review

Rising volumes and improved profitability, but not for all… The five largest handset manufacturers have all reported third quarter results and sales volumes. All five have seen a material increase in volumes and unless the smaller independent vendors have had a truly dreadful quarter, it is clear that this will be the industry’s biggest to date. We expect to see an outcome for the September quarter of around 255m units in total, 15m up on the previous record and equally, we expect to see that record broken in three months time. The chart below shows the trend of handset sales over the past few quarters. The pattern is very similar in each of the full years seen here and if it is repeated, we are due to see not only the industry’s first billion unit year but also its first 300m quarter.

Quarterly Mobile Handset Sales (m units)

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LGSony EricssonSamsungAll OthersMotorolaNokia



We are confident that 2006 will be the 1bn year: so far this century, over 30% of handset sales have been made in the final quarter and in only two of the six years has the proportion dropped below 30%. The next chart shows the strong seasonal bias that we mentioned but also reflects considerable differences between the vendors themselves – Nokia is more biased towards the fourth quarter than the industry average, while Samsung is biased against it. This may have something to do with disclosure – of which more in a minute – or it may be a reflection of how well each manufacturer utilises its available capacity. Over the last four full years, Samsung’s best quarter has never been more than 6.5pp better than its worst, whereas at both Motorola and Nokia, the difference is over 11pp. That either means a lot of overtime for the manufacturing machines, or some difference in what is actually counted as a sale. The decline between the fourth quarter and the subsequent first quarter might indicate the unravelling of a long stock position by the retail and distribution chain. Or, alternatively, it could all come down to this issue of disclosure. We have noticed a tendency amongst certain manufacturers to quote an estimated quarterly global sales total which is, in fact, materially under-stated. The effect of that is to give the impression of greater market share in the first periods of the year. If the truth comes out at the fourth, well, it tends to get hidden in the noise. Equally, we might expect companies to understate their first, second and third quarters, to create a bit of reporting leeway for the fourth, or even the following year. As one very senior company executive pointed out to the author many years ago “you chaps in the City don’t seem to realise that we have to start [creating profits] from scratch every year”. With all five of these companies very much subject to the increasingly uncharitable scrutiny of the financial markets, there is every reason to keep something back for the proverbial rainy day.

Weighted Average Distribution of Quarterly Mobile Handset Sales (%)

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SonyEricssonMotorolaNokiaSamsungIndustry Average

So, how well have the five done this time around? The answer is that that depends upon your focus. Some have increased unit volumes more than others, some have improved profitability and some have done both. Starting with the largest of the five, we see that Nokia has raised unit sales 13% from 78.4m in the second quarter to 88.5m in the third. This compares with 66.6m this time last year, implying a rise on nearly one third. However, average selling prices are well down, from €102 to €93, while profits also down, by just over €100m at €779m, despite a 14% increase in revenues to €5.9bn. Motorola, the second largest in the group, has had a fantastic year by most standards, even if it did fall just short of its third quarter target of 55m units. It managed 53.7m which represents a 39% increase on the same period of the prior year and this resulted in much improved financials. Revenues rose to $7.03bn, while operating profits increased from $593m to $819m. At third placed Samsung, handset units rose by 14.5% to 30.7m, but pricing clearly came under pressure, as revenues were only up from KRW4.37tn to KRW4.45bn, while operating profits were actually down. At least, this is the conclusion we have to draw, as Samsung only reports profit figures for its entire Telecom division, which includes a small infrastructure business. This showed a decline from KRW550m to KRW520m, which also implies a loss of margin. LG Electronics began the year in fourth place ahead of Sony Ericsson, but is now some way behind. It reported the smallest rise in volumes of any of the five majors – up 6.5% to 16.5m – but as selling prices here also came under pressure, the net result was a 9.7% decrease in revenues, year on year, to KRW2.297m. Operating profits, as a consequence, were some 23% down at KRW128bn (approximately US$124m). By far the best result came from Sony Ericsson, which has now reclaimed fourth place. It shipped some 19.8m units, 43% more than in the third quarter last year and its revenues and profits reflect this. Revenues increased by 42% to €2,913m, while profits (which are stated on a pre-tax basis) leapt from €151 to €433m. On the basis of these figures, Sony Ericsson is now comfortably the most profitable of the five, with a pre-tax margin of 14.9%, against Nokia’s 13.2% operating margin.


briefing - siemens · 2006-10-26 · global q2 2006 market review strong growth continues, but the...

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