Mobile operators use different business approaches based on the economic situation in a country for providing services in developing and developed countries. J’son & Partners Consulting presents main results of the research about the economic dependence of operators’ strategies.
Developing and developed markets: key differences
Local telecom markets could be divided on developed and developing based on economic situation. Main features of the developed markets are high ARPU (36$ avg.), smartphones’ penetration rate (above 40%) and the changes on the revenue structure with an accent on data transfer (40 – 60%). Due to the large share of contracts’ tariffs in most developed markets (Japan, South Korea – 95%) the level of subscribers’ churn is minimum – less than 5% annually there vs average 5-15% in the developed countries. The subsidizing of highly priced devices (mainly smartphones), the customer loyalty programs, the achievement of parity in networks’ development and quality of services among the competitors are influencing the above mentioned figures.
The developing markets have the opposite proportion – the prepaid contracts (64-95%) are dominating and becoming a reason for the high subscribers churn. On the other hand the minimum ARPU (such as in India, Indonesia) is no more than 4$ due to the tough market competition and low revenues of the population. Thus operators are not able to invest in network modernization timely and this result in the higher subscribers churn (60-100% annually). Large volumes of provided services and subscribers base are not saving the situation. In the developing countries voice services are still the main services. The average level of traffic consumption per subscriber is around 50-100 Mb, the level of traffic transfer in the operators’ revenues is still low (14 – 43%), same as smartphones penetration rate (13 – 24%).
The most congested developing countries (especially China, South-East Asia, India and Africa) are sources for increase in subscribers’ base. There is an unsatisfied demand on the basic services in 2G/GSM networks, transfer of messages (SMS/MMS) and data transfer (GPRS/EDGE). The trend of subscribers’ reallocation from 2G to 3G networks is being registered when the penetration rate of mobile phones is high (over 120%), especially in Latin America and East Europe (including Russia).
Mobile markets in developed countries are mostly stagnating and slight increase in subscribers’ base is happening because of subscribers’ migration from 3G to LTE networks (connection of additional devices). As a result ARPU (Average Revenue Per Subscriber) is being replaced by а ARPA (Average Revenue Per Account).
There are a lot of economic indices influencing the development of local telecom markets, among the most important are:
Average level of GDP and funds that people are spending on the connection;
Level of business activity and economic openness;
Fixed infrastructure, level of development;
The demand on mobile broadband access services;
Level of technological development and science potential;
Correlation between prepaid and contracts’ subscribers;
Readiness of local companies for foreign expansion;
Level of operators’ revenues and capital costs;
Smartphones penetration level.
Operators’ strategies on the developed and developing markets
The main feature of developing markets is the high rate of subscribers’ churn (60-100% annually). Due to the fast market growth and relatively low level of services’ penetration, it is more profitable for operator to sell new SIM card rather than to maintain the level of customer loyalty. There is an opposite situation on the developed markets; operators have to fight for current subscribers, develop the loyalty programs and to stimulate the transition of prepaid subscribers on the contracts’ tariffs mainly by subsidizing the devices (smartphones). As a result, the annual level of subscribers’ churn is less than 5% in Japan, 10 – 15% in USA and 20-30% in European countries.
Corporate (business) clients are becoming more and more important for operators. High subscribers’ churn and low ARPU, decrease in revenues from traditional voice services and SMS on developed markets are increasing this necessity.
For example, competition on such developed market as in USA, forces local operators take actions for rapid technological and marketing development. One way is to deploy LTE networks intensively, second is to transfer subscribers on the shared tariff plans which include traffic packages, unlimited voice and SMS services. In terms of developed market these measures stimulate new connections and increase traffic consumption and as a result operators’ revenues. Low level of subscribers’ churn in USA (less than 5%) doesn’t depend upon share of contracts’ subscribers: for example Verizon Wireless has subscribers on postpaid tariffs – 5% and AT&T – 30%, while both operators have almost the same level of subscribers’ churn.
Strategies of European operators have 2 key directions: 1) operators are trying to keep current clients by implementation of customer loyalty programs, by offering more appealing packages (including fixed access, connection and IPTV), by increasing the postpaid subscribers. 2) Use the opportunities of foreign markets, especially on the developing, where the growth dynamic is still high. For example, DeutscheTelekom, Telefonica and VodaFone receive more than half of profit from overseas, mainly from USA and Latin America, India and also developing countries – Africa and Asia.
In the countries of Asia-Pasific regions operators receive revenues mainly from data transfer (Japan, South Korea). Operators’ strategies also have two main directions:
Forthcoming development of infrastructure, implementation of new radio technologies and its commercialization;
Facilitation of development of new digital services segment.
External borrowings and terms for expansion
External borrowings are a very common practice for mobile operators worldwide and their volume do not depend on market development stage. Companies, operating only on developed markets (USA, Japan) have the ratio of “Debt/EBITDA” on a very low level – 1-1,5. Mobile operators of the developing countries have same low level of external borrowings due to their strict financial policy on one hand and the availability to use the government shareholders’ financial resources. Meanwhile, largest European operators groups (which subscribers base is mostly on developing countries) have the level of external borrowings as 2,5 (“Debt/EBITDA”). Russian operators’ groups look good in this view, their operators’ activity is based mostly in Russia and CIS (MTS has 1,3 and Megafon has 1,03). Wide international activity of Vimpelcom results in a higher rate of debt (“Debt/EBITDA” = 2,24). The ratio is based in the normal scale and is comparable with same ratios of foreign mobile operators with a same volume of operators’ activity. Mobile market in India remains still the most competitive and complicated from the point of business operation (“Debt/EBITDA” = 5). Reasons for such low ratio are lowest ARPU in the region, low revenues of population, high price on frequencies and the necessity of large investments in the infrastructure.
The most expensive way of expansion is total operational control over the subsidiaries. Nevertheless operators use other ways of international development: agreements with local partners; creation of joint companies; investments in the most promising assets in order to increase the market capitalization, etc.
Russian mobile market in the view of foreign market
Russian mobile market (mature market) formed relatively fast and is comparable to many developed markets nowadays (penetration level of connection services is 160%, penetration level of mobile broadband access is about 55%). Features of the mature market are also include the transmission from aggressive methods of subscribers’ attraction to the policy of “keeping” the current clients, development of loyalty programs, increasing the quality of subscribers’ base.
Due to the Russian economy and low level of incomes in the country (GDP per person in Russia on 2012 was about 14 000 $, according to IMF, that is twice less than in developed countries), mobile market has the features of developing market (low ARPU – around 10$, high subscribers’ churn, relatively low smartphones penetration rate – 20%). Nevertheless, three largest operator’s groups have developed the market and expanded in CIS and some overseas countries.
Russian operators usually following multi technological approach: expanding the coverage of 2G/GSM in the rural places and at the same time the construction of 3G and LTE in small and medium towns.
Russia has average indices in the region of Central and Eastern Europe, in particular, ARPU and smartphones penetration rates. According to Analysys Mason forecasts, Russia is the only country where the increase of ARPU is expecting in 2018.
Russian mobile market is on the borderline of developed and developing markets. Relatively low ARPU and low penetration rate of smartphones are constraining factors on the way to become a developed market.
Detailed results of the research are presented in the full version of the Report: «The reliance of Operators’ strategies on the economic development of the country» (95 p.)
1. Operators’ strategies
1.1.1. Aggressive migration on LTE
1.1.2. 3G evolution
1.1.3. Maximum use of 2G
1.2.4. Focus on corporate segment
1.2.5. Competition in mature markets
1.2.6. Competition in emerging markets
2. Indices that are depending on economic development of the country
2.1. Subscribers’ level
2.1.1. Level of subscribers’ expenditures on cellular connection from the average income level
2.1.2. Average operational indices: ARPU, MoU, MboU, APPM etc.
2.2. Operators’ level
2.2.1. Level of capital expenses
2.2.3. Level of external borrowings
2.2.4. Readiness for foreign expansion
2.3.1. Penetration level of cellular connection
2.3.2. Subscribers’ base churn
2.3.3. Demand on data transfer services
2.3.4. Smartphones penetration level
2.3.5. Demand on new non-telecommunication services
2.3.6. Penetration level of fixed broadband services
2.3.7. Competitive environment
3. International experience
3.1. On developing markets
3.1.1. Central and Eastern Europe
3.1.2. South America and Middle East
3.1.3. African countries and Southeast Asia
3.2. On developed markets
3.2.1. North America
3.2.2. West Europe
3.2.3. Asia-Pacific region
4. Russian cellular operators in the view of global experience
Conclusions and recommendations
List of companies, mentioned in the report
List of Figures
Fig. 1. Comparative growth dynamic of LTE services penetration in the developed countries in the period of 2010-2017
Fig. 2. Subscribers’ structure for different macro regions, by technologies
Fig. 3. 2G subscribers’ share in the share of all wireless connection, by macro regions in 2012 and 2017
Fig. 4. Networks’ vs traffic of Wi-Fi networks for smartphones users of British operators
Fig. 5. Subscribers’ structure and revenues, by segments, VodaFone Group
Fig. 6. Expenses share on cellular connection, % from GDP of different macro regions,
Fig. 7. GDP per capita, by countries in the world in 2012
Fig. 8. The difference in dynamics of subscribers ARPU for developed and developing countries in the period 2007-2012
Fig. 9. Level of operators’ capital expenses in developed and developing countries
Fig. 10. Comparable dynamics of CAPEX level in EU and USA in the period 2007-2013
Fig. 11. Yield of operators’ revenues on developed and developing countries
Fig. 12. Key strategies of foreign expansion for some largest operators in the world
Fig. 13. Vodafone, map and structure of operating activity globally
Fig. 14. VodaFone has a global partners’ network in over 40 countries, that use the brand, marketing and technological inventions of Vodafone, also help to low procurement costs
Fig. 15. Penetration rate of mobile services in different macro regions
Fig. 16. Level of subscribers’ churn in four key European countries vs USA in 2010 and 2011
Fig. 17. Dependence of subscribers’ churn on prepaid contracts
Fig. 18. Dynamics of mobile broadband access market development, by macro regions
Fig. 19. Growth dynamic of worldwide average smartphones penetration level in comparison with penetration rate of PCs and TabletPCs, in the period 2006 – 2013
Fig. 20. Telefonica revenue structure from digital services on 2015
Fig. 21. Growth dynamics of revenue share from digital services in revenue structure of data transfer services of largest worlds operators until 2017
Fig. 22. Penetration rate of fixed broadband access services in different macro regions
Fig. 23. Structure of subscribers’ connections for operators of Central and Eastern Europe, in the period 2010-2018
Fig. 24. Comparison of subscribers’ ARPU and smartphone penetration in 2012 and 2018 in Central and Eastern Europe
Fig. 25. General level of cellular connection and mobile broadband access penetration rates in the Middle East
Fig. 26. Growth dynamics of mobile broadband access penetration rate in South America in the period 2008-2013
Fig. 27. Key differences between mobile markets in India and African countries
Fig. 28. Revenue structure of the worlds mobile operators, by macro regions in 2012, dynamics of change
Fig. 29. Average access speed in the operators’ networks in different macro regions
Fig. 30. Technological structure of connections and their dynamic for EU in the period 2008 – 2017
Fig. 31. Dynamics of share of prepaid contracts for different macro regions in the period 2000 – 2016
Fig. 32. Dynamics of subscribers’ ARPU structure of Japanese operator KDDI by segments
Fig. 33. Structure dynamics and revenue growth from digital services of Japanese operator NTT DoCoMo in the period 2011-2015
List of Tables
Table 1. Key operational indices of operators on developed and developing countries
Table 2. TOP 10 operators in the world with revenues over 26 bln. USD on 2Q2012
Table 3. Second TOP 10 operators in the world with revenues around 21 bln.USD on 2Q2012
Table 4. The correlation «Debt/EBITDA» per largest worlds operators
Table 5. The level of annual subscribers’ churn for some of Vodafone subsidiaries on developed and developing countries
Table 6. The correlation of number of mobile operators in different countries of the world, ARPU and GDP per capita
Table 7. The most important countries where Qatar operator Ooredoo (ex Qtel) is operating
Table 8. Revenue share of non EU countries in the revenues of largest European operators
Table 9. The comparison of financial and operational indices of Russian Big 3 operators vs operators of developing and developed countries, 4Q 2012
This Information Note is Prepared by J’son & Partners Consulting, We strive to provide factual and prognostic data that fully reflect the situation and are available to us before issuing the material. J’son & Partners Consulting reserves the right to revise the data after publication of new official information by the market players.
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