Overall
The number of mobile subscribers has started to saturate at between 70% and 90% of the population in most Member States. The big drive for operators now is to increase ARPU, through data services. However, many forecasters are projecting CAGR for revenues per user at only a few % per year. This changes the market conditions substantially, increasing pressure for lower unit costs.
Voice
Ovum expects voice ARPU to remain flat over the next five years. Declining call termination revenues will be roughly offset by increased retail minutes and revenues (and even an increase in retail prices).
There are 30% more mobile connections than PSTN lines in Europe, but mobile originated voice still represents a small share of total voice traffic. Traffic seems to be stabilising at about 15% of the total – at least in the UK. See Figure 2.2.
Some mobile operators are experiencing congestion in densely populated areas. Spectrum trading between GSM operators could ease this. Many operators want to
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use W-CDMA for voice capacity relief but cannot plan for this as the handset vendors are not planning to launch cheap voice-centric W-CDMA phones in the next two years.
Mobile operators are interested in generating revenue growth by attracting voice traffic from the fixed network. On most GSM networks the business case for this is uncertain because of the extra capital expenditure needed. Many operators will wait until their W-CDMA network is launched before exploring this opportunity.
There is concern that the launch of W-CDMA networks will increase voice capacity too much, leading to a collapse in voice traffic prices.
Narrowband data
Narrowband data has seen huge growth over the last few years with the rise of SMS. Figure 3.4A illustrates. It shows how the growth of SMS has outstripped voice traffic in the UK over the last four years with the ratio of SMS messages to voice minutes increasing from 1 to 10 to 1 to 3.
Figure 3.4A The relative growth of SMS and voice traffic in the UK
0 10000 20000 30000 40000 50000 60000 1999/00 2000/01 2001/02 2002/03 0% 5% 10% 15% 20% 25% 30% 35% SMS meesages (m) Mobile voice mins (m) SMS to voice mins (%)
Source: Oftel market statistics
The number of services is now broadening and such services are the catalyst for significant change in the industry:
• SMS dominates narrowband data revenues and continues to show rapid growth. It is developing into a sophisticated market with a variety of billing arrangements (premium and reverse billing), the use of special short codes for special SMS services and a supply chain that includes wholesale SMS providers.
• MMS was launched in Europe during 2002. The market is embryonic, but is showing promising signs. We expect a sophisticated market to emerge with time.
• WAP services had a very bad start in 2001 but we understand that they are quietly picking up in popularity and usage, as operators get better at providing portals and users become more familiar with the services.
• GPRS access to corporate data is currently a small market, serving people with laptops and PDAs, but it is growing gradually, as GPRS networks are stabilising, coverage is improving and roaming is becoming more reliable.
• Most operators are developing, usually in collaboration with specialist content providers, new narrowband services, including Instant messaging, chat, location- based enhancements to WAP services, games downloads and on-line games. Narrowband data operators are starting to take greater control of the appearance and packaging of their services, by specifying their own phone software. Vodafone Live and Orange SPV are the best examples, but we expect other operators to follow.
Broadband data
Broadband data services on mobile networks will become a feature of the European landscape during 2003, with the launch of 3G W-CDMA networks. However,
following the collapse of the tech sector “bubble”, the vision of broadband multi-media services carried on W-CDMA has lost credibility.
In this environment, operators have sought to delay their 3G launch. Some have even surrendered their licences. Efforts are being made to improve the business case, including network sharing arrangements, to minimise capex, and testing EDGE (the GSM upgrade) for complementary coverage in some areas.
There is a shortage of reliable and independent information on the progress of 3G W- CDMA, but we understand that it is limited. Operators are continuing to acquire sites as fast as possible. However, Nokia and Ericsson (who account for around 70% of the W-CDMA infrastructure market) have shipped only 10,000 to 15,000 base stations each world-wide. We understand that most operators are buying Asian equipment, since it is already developed and that European suppliers are missing a major opportunity here.
Most operators will launch W-CDMA with a fairly small coverage area, and then build out the network over a period first to meet their regulated coverage requirement and to meet coverage and capacity demand. All operators will rely on dual-mode working where phones roam onto a GSM network when outside W-CDMA coverage.
There is growing speculation that GSM was the last technology that will be rolled out on a national scale. Operators will depend on EDGE for broad coverage for high bandwidth services.
While W-CDMA is in its difficult launch phase there is plenty of noise from substitute technologies also offering broadband wireless data services, including public WLAN and so-called “4G” technologies, such as those offered by Flarion and Arraycom.
Although there is no standardisation yet, the level of interest in 4G is rising because it appears to promise much higher bandwidths at lower levels of capex than 3G. A number of European players are considering running trials during 2003/4. To do this, they may need to “borrow” some of their 3G spectrum. There are already trials running, notably in Australia, Korea and the US.