9/1/2010 11:54:00 AM
Analysis: a changing industry
The mobile industry may have clawed its way out of the economic downturn, but it still faces a tough time ahead. Mobile revenues are declining, data use is surging and contracts are getting longer.
According to Ofcom’s Communications Market report 2010, operator revenues have declined by 3.5% to £14.9bn over the past year, while data use continues to increase. This is the first time revenue has declined since Oftel started collecting data in the 1990s.
It was driven in part by the economic downturn, but also by the impact of falling prices and a slowdown in the growth of mobile and broadband connections. Revenues from mobile voice and messaging declined for the first time, and returns from fixed-line internet connections also fell.
But at the same time, consumers’ data use has increased significantly over the last year – by an estimated 68% - with data volume over mobile networks increasing by 240%. However, revenue has not grown at the same rate.
The growth in data use is reflected in the number of people using smartphones, Ofcom says. In March 2010, 28% of UK adults with a mobile phone reported they had visited at least one website on their phone that month.
Meanwhile, 26.5% of UK mobile users claimed to have a smartphone in May 2010 – more than double the number two years ago.
The trend is set to continue, the regulator says. It reported that in June 2010, 73.5% of handsets sold on contract were smartphones.
Ofcom’s report also found that iPhone and Android owners are the heaviest users of mobile internet, while over four million iPhones have been sold since 2007.
Voice and SMS revenue declines
Revenues from voice and messaging services have declined due to falling prices, as an increasing amount of bundled voice minutes and text messages are included within monthly line rental charges.
Meanwhile, consumers have taken advantage of Sim-only tariffs. However, some costs have fallen as the growth in Sim-only contracts and the emergence of 24 month contracts have reduced acquisition costs, while network sharing has reduced costs.
Mobile broadband levels off
After rapid growth in the take-up of mobile broadband following the launch of 3G dongles in April 2007, take-up is beginning to decline.
By March 2009, mobile broadband entered the mainstream, with Ofcom research indicating that 12% of all households were using mobile broadband – equivalent to approximately three million households.
But in the 12 months to the end of March 2010 growth has slowed, with penetration reaching a peak of 15% in Q3 2009. This was consistent with data collected by Ofcom from the UK operators, which found that there were 4.1 million active mobile broadband subscribers at the end of 2009.
Mobile operating systems surge
The rise of smartphones has triggered intense competition between competing mobile operating systems.
Open source platforms such as Symbian or Google backed Android allow any handset manufacturer to install the OS on their devices and any third-party software developer can write applications for them.
In November 2007, Google formed a Linux based open source alliance to make inroads into the mobile platform market. Google’s approach was to make open source mobile OS Android simple to use for both end users and application developers. Google’s Android was made available to all handset manufacturers for free, placing few restrictions on its use.
As a result, smartphone manufacturers can now avoid spending time and effort creating their own OS by using Android and just modifying it slightly for each handset. Google’s strategy is similar to the tactic Microsoft used in the past in making the Windows operating system available for any computer hardware. The difference is that Google offers Android free of charge and encourages the development of third-party applications.
Android has ‘made considerable progress over the past 12 months’ – the worldwide market share of Android based smartphones rose from 2.8% in Q2 2009 to 17.1% in Q2 2010.
Due to successful launches of several Android based smartphone models in the first half of 2010, Android’s share of the UK mobile contract market has grown from 3% in Q1 2010 to reach 13.2% in Q2 2010.
Two year contracts become standard
Before 2005, most pay monthly mobile connections were sold as 12 month contracts, while in 2006 there was a shift towards 18 month contracts. In 2009-10 there has been a shift towards offering 24 month contracts as standard.
In Q2 2010, around 80% of all new pay monthly contracts sold with handsets were for two years, compared with less than one in three the year before, and less than one in 30 in Q2 2007.
However, there is a suggestion that 12 month contracts are again becoming popular among consumers, accounting for 7% of new contracts in Q2 2010 compared with just 4% the previous quarter.
In July, Tesco Mobile announced that all contract tariffs would be available on a 12 month basis, while Carphone Warehouse soon followed suit.
Vodafone reports highest increase in mobile connections in 2009
At the end of 2009, O2 had the largest number of mobile connections on its network, at 22.4 million, although Vodafone managed to achieve a higher growth rate over the year (+6.6%) increasing to 18.8 million connections.
Meanwhile, 3 UK recorded the largest percentage increase (9.9%) in connections during 2009. This was lower than in 2008 (13.9%), possibly as a result of the slow down in growth of mobile broadband, Ofcom said.
All five operators increased their number of subscribers in 2009, with Orange and T-Mobile achieving the lowest growth in connections during the year and over the five year period since 2004.
However, in May 2010 the two operators merged to form a new company called Everything Everywhere Ltd, which (based on end of 2009 data) had a combined subscription base of 34.1 million on both networks (including MVNOs such as Virgin Mobile).