laura allen phillips, research analyst, parks associates europe - european mo… · laura allen...

European Mobile Market: Beyond Price-based Strategies

Laura Allen Phillips, Research Analyst, Parks Associates

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www.parksassociates.com | All rights reserved.

European Mobile Market: Beyond Price-based Strategies | © 2010 Parks Associates

The European Mobile IndustryThe saturated markets of Western Europe present a number of challenges to mobile carriers. Competition is fierce,

and new tariff regulations are having a decided impact on voice service revenues. For the multinational carriers that

dominate the region, addressing these challenges means looking beyond simple price-based strategies. They must

contend with mobile penetration rates over 100% in many regions1 and a diverse user base with, for example, varying

levels of adoption for smartphones and data services. Carriers must pursue multiple strategies in order to expand their

postpaid user bases and find more effective ways of monetizing their data network capabilities.

A Paradigm Shift

Italy

Spain

U.K.

Germany

France

0%

Italy

Spain

U.K.

Germany

France

0% 50% 100% 150%

5% 10% 15% 20% 25% 30% 35%

Western European Smartphone PenetrationRate by Country (End of Year 2009)

Western European Mobile Penetration Rate by Country (By Subscribers, End of Year 2009)

Source: Mobile Services: Global Outlook (Second Edition)©2010 Parks Associates


Western Europe includes Austria, Belgium, Denmark, France, Germany, Ireland, Italy, Netherlands, Spain, Sweden, Switzerland, and the United Kingdom

1 The mobile penetration rate reflects the number of connections within a population, not the number of subscribers. In mature markets, such as those of Western Europe, many mobile phone users have multiple active handsets or SIM cards in use. Also accounted for within the mobile penetration rate are the prepaid accounts that may not currently be active.

European carriers must pursue multiple strategies to expand their postpaid user bases and sustain ARPU.European carriers must pursue multiple strategies to expand their postpaid user bases and sustain ARPU.European carriers must pursue multiple strategies to expand their postpaid user bases and sustain ARPU.

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Italy

Spain

U.K.

Germany

France

0%

Italy

Spain

U.K.

Germany

France

0% 50% 100% 150%

5% 10% 15% 20% 25% 30% 35%

Western European Smartphone PenetrationRate by Country (End of Year 2009)

Western European Mobile Penetration Rate by Country (By Subscribers, End of Year 2009)



Western Europe includes Austria, Belgium, Denmark, France, Germany, Ireland, Italy, Netherlands, Spain, Sweden, Switzerland, and the United Kingdom

Regulations, Competition, and ChurnIn 2009, the EU introduced new regulations limiting the amount carriers could charge to other carriers for calls

terminating on their networks. Referred to as mobile termination rates, or MTRs, these charges constitute a measurable

portion of carrier voice revenues. As the lower MTRs went into effect, mobile voice revenues in most European markets

fell markedly. The top four multinational carriers, Vodafone, Telefonica, T-Mobile, and Orange, each attributed a large

portion of their 2009 voice revenue declines to the mandated reduction of termination fees. Further MTR reductions

are scheduled for 2010-2013. While carriers are adjusting to these reductions by increasing the efficiency with which

they handle calls originating outside their networks, the reduced revenues will continue to have an appreciable impact

on their bottom line.

Overcoming the impact of reduced termination rates is not, however, the only challenge faced by European mobile

carriers. Mobile markets in Europe are highly competitive. Carriers operating within those markets face intense pricing

pressures and a churn rate fueled by the region’s high proportion of prepaid connections2. Flat-rate plans, low-priced

service bundles, and perks like free evening and weekend voice usage with high MMS/SMS allowances drive down

ARPU, but they have become necessary for European carriers competing for mobile subscribers.

Large multinational carriers that operate across the most competitive markets in the region have experienced a

consistent decline in voice ARPU. From the end of 2008 to mid 2010, the average voice ARPU for Vodafone, which

operates in the U.K., Germany, Spain, and Italy, fell by almost 19%. T-Mobile reported declines in Germany and the

U.K., where voice ARPU fell by close to 12% and 25%, respectively, over the same period. Telefonica and Orange also

experienced voice ARPU reductions from 2008 to 2010.

2This is especially true for Italy and the U.K., where prepaid subscribers make up 79% and 62% of the overall subscriber base, respectively.

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Facing the Challenges—Evolving Beyond Price-based Strategies European mobile carriers are beginning to look beyond price-based strategies, diversifying their efforts as they seek

to buoy sagging service revenues. Most of these efforts fall into two basic categories:

• Postpaid subscriber additions and conversions:

Traditionally, such efforts have centered on

reduced, simplified, or bundled pricing for voice

and data services. While these pricing schemes still

constitute a large portion of high-end subscriber

attainment and retention strategies, carriers

are increasingly launching other differentiating

initiatives such as network and handset portfolio

upgrades and customer service programs.

Network and handset portfolio upgrades offer an

additional advantage in that they facilitate and

promote the adoption of more data services.

• More effective monetization of network data

capacities: As is the case with voice services, some

data service strategies are based on pricing and

service bundling. These are not all centered on

reduced rates but include service plans whose

pricing correlates more closely to actual data usage.

Other common data service strategies include

online application stores; the addition of more

mobile devices, such as tablets and laptops, onto

the network; and targeted data and value-added

service (VAS) options, such as music services and

social networking options.

Examples of New Strategies

Carrier Strategic Efforts• Increased its handset portfolio to include several high-end handsets including

iPhone and Blackberry models as well as a line of self-branded low-end basic

phone models

• Upgraded network to HSPDA in Germany, Portugal, Italy, Spain, and the U.K.; plans

to roll out LTE networks in Europe in 2011-2012

• Launched mobile dongles across Europe to add mobile PC connectivity customers

to its subscriber base

• Launched the Vodafone 360 suite of Internet services for mobile devices—suite

includes messaging, social networking, multimedia, and other data services

• Launched the “mstore” in 2009, offering over 1,000 apps and services to all Movistar

subscriber phones and other devices

• Began LTE testing in Spain and the U.K. in 2009 in preparation for network rollouts

• Continued to add high-end handsets including the iPhone 3Gs and the Palm Pre

to its European lineup

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Carrier Strategic Efforts

• Launched the T-Mobile G1 in 2009 as part of its initiative to add more premium

smartphone handsets to its lineup; other inclusions include the iPhone 3GS

(Europe), Blackberry Bold, and HTC Touch2

• Conducted LTE trials in Germany in late 2008

• Rolled out a large number of applications for mobile Internet usage, including

the MyCommunity service that grants users easy access and contact options on a

simplified UI

• Launched the Music Zone music service in Greece with plans to launch similar

services in other markets

• Upgraded to HSDPA network in the U.K., France, and Switzerland

• Partnered with Google to bring Google Mobile App to mobile customers in Europe

• Launched Internet/Business Anywhere Service designed to attract business

travelers to adopt mobile broadband services

Speaking to the success of these efforts, Telefonica added 3.5 million contract subscribers in Europe in 2009, increasing

its postpaid subscriber base from 51% to 54% of its overall connections base. Orange was less successful, adding only

2.4 million postpaid subscribers, followed by Vodafone and T-Mobile with 1.9 million and 400,000, respectively. While

Telefonica credits reduced rates and more attractive service bundles as factors leading to its postpaid subscriber

additions, the carrier also attributes some contract account gains to its handset strategies and improved data service

offerings. Orange increased its postpaid subscriber base in France by 5.7% owing, in part, to its promotion of mobile

broadband and data services designed to appeal to frequent business travelers.

With regard to increased monetization of data-based services, carriers have reported some successes as well. Data

revenues for Orange in Europe rose approximately 18% from 2008 to 2009, and Vodafone’s data revenues increased by

15% over that same period. Both carriers credit their recent efforts to enhance and increase their data service offerings

as the cause for these increases.

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The Road Ahead Competition and the effects of EU regulations will continue to impact carriers in the European mobile market. The

ongoing push to attract more postpaid subscribers and the active pursuit of data revenues are helping carriers to

offset declining voice revenues; however, gains from these efforts are not keeping pace with the declines. In fact, price-

based efforts to expand the postpaid user base are driving down ARPU in the high-end segment, bringing overall

ARPU down even as the postpaid subscriber base grows. The impact of this trend on overall ARPU will dissipate over

time as more prepaid connections are converted to postpaid accounts. Furthermore, postpaid subscriber additions

gained through non-price-based initiatives will help to slow the decline of postpaid ARPU, which will also reduce

the rate of overall ARPU decline.

As a result of these challenges, carrier strategies must continue to evolve beyond simple price-based competition

models. Data services offer an enormous opportunity to increase ARPU revenues. Carriers pursuing these solutions

through innovation and diverse service offerings will fare far better than those that base their data strategies on

pricing policies and service bundling. Most carriers have already hit upon this idea and are actively pursuing data

strategies, including the launch of new services such as social networking tools, application stores, music, and other

entertainment services, as well as the introduction of more mobile devices onto their networks. As these efforts

help drive the uptake of mobile data services, data will continue to grow as a proportion of service revenues. Data

revenues within the region will rise from the current average of 31% to over 46% of overall service revenues by 2014.

While this rise may not be enough to arrest the downward trend, it will help stabilize carrier service revenues.

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About the AuthorLaura Allen Phillips joined Parks Associates in 2008. Since joining the research team, she has worked in numerous areas,

including consumer research, home systems and controls, security, digital health, online entertainment, and the mobile

industry. She has contributed to or co-authored several multiclient studies, research reports, and custom projects and has

most recently authored Mobile Services: Global Outlook (Second Edition) in August 2010.

Prior to joining Parks Associates, Laura worked in the CAD and CRM software industry. Laura earned a BA in history from the

University of Texas at Austin. Industry Expertise: Online entertainment, digital health, online gaming and the mobile industry

About Parks AssociatesParks Associates is an internationally recognized market research and consulting company specializing in emerging consumer

technology products and services. Founded in 1986, Parks Associates creates research capital for companies ranging from

Fortune 500 to small start-ups through market reports, primary studies, consumer research, custom research, workshops,

executive conferences, and annual service subscriptions.

The company’s expertise includes new media, digital entertainment and gaming, home networks, Internet and television

services, digital health, mobile applications and services, consumer electronics, energy management, and home control

systems and security. Each year, Parks Associates hosts executive thought leadership conferences CONNECTIONS™, with

support from the Consumer Electronics Association (CEA)®, and CONNECTIONS™ Europe.

parksassociates.com | connectionsconference.com | connectionseurope.com | connectionsindustryinsights.com

Interest in Monitoring and Control

CONNECTIONS™ Europe Summits, produced by Parks Associates, are

executive events offering high-level analysis and consumer research,

networking opportunities, and information on emerging residential and

mobile technologies and services. CONNECTIONS™ Europe features

consumer and industry research presented by Parks Associates analysts and insights from top executives developing new

products and services for the digital home and digital living markets.

The next CONNECTIONS™ Europe Summit will take place in Amsterdam, Netherlands, 15-16 November 2010, and focus on digital

media, consumer electronics, and market opportunities for TV operators, content developers, advertisers, and manufacturers.

Topics: • Broadband Value-Added Services: Customer

Satisfaction and Technical Support

• Mobile Broadband: Devices, Strategies, and Consumer Demand

• Next-Gen Video Services: Personalization and Flexibility

• Consumers and Connected Consumer Electronics

• Content Delivery and Control for Connected TVs

• Extending the Video Experience to Multiple Screens

• Managing Video Content

• Value-added Services & the Video Ecosystem

• Mobile Video: The Cloud, the App Store, and the Connected Home

www.ConnectionsEurope.com

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