In four of the largest European markets – Germany, France, UK and Spain – we see three out of four mobile operators reporting their 4G LTE rollout status. Most of them also report (or indicate) their 4G LTE customer base.
After much hesitation, the 4G LTE rollout eventually started also in Europe. And you know what? Customers are coming. If they are covered, that is.
The country pictures show the overall market leader at the top. Telekom has the largest 4G LTE network in Germany and had 11% of its customer base on 4G LTE by the end of June.
In France, Bouygues Telecom shows how a small No 3 operator through aggressive focus on 4G LTE rollout can challenge the 2.5x larger Orange on the total 4G LTE customer base. 16% adoption is among the highest in Europe.
SFR – in the process of being acquired by Numericable – didn’t report their 4G LTE figures in Q2. Arcep, the French telecom regulator, however critisised SFR in June for their 4G LTE coverage claims, saying their population coverage was just 30%. [Bouygues and Orange claims were OK whereas also Free was critisised. Their population coverage was said to be 24%].
UK is behind on 4G LTE rollout, partly because of late licensing. Market leader EE was given a head start when it was allowed to refarm 1800 MHz spectrum and use it for 4G LTE.
In Spain, market leader Movistar is behind Vodafone and Orange on 4G LTE rollout. Telefónica doesn’t report the number of 4G LTE customers in Movistar which might be an indication of that it’s low.
Neither E-plus, Free, ‘3’ nor Yoigo report figures on 4G LTE. We see this an indication of them being behind on rollout and adoption. E-plus is now in the process of merging with O2.
The economic crisis put significant pressure on the Spanish telcos. Telefónica (Movistar) and Vodafone each lost around 4 millions SIMs in the past two and a half years. Orange and Yoigo have fared much better. Yoigo, with its no-frills low cost profile, grew subscriber base from 3 to 4 million at the same time. But suddenly – in Q1 2014 – Yoigo’s total revenue fell 26% quarter-on-quarter.
In TeliaSonera’s new reporting format – implemented Q2 2014 – we could see why total revenue fell: Equipment revenue declined 53% quarter-to-quarter. We could also see that in Q4 2013, 40% of Yoigo’s total revenue stemmed from equipment sales. By any standard, that is high.
Why was it so high? In March 2012, Telefónica decided to abandon handset subsidisation altogether. It had an immediate negative impact on Telefónica’s equipment revenue: From Q2 to Q3 2012, equipment revenue fell from 300 to 150 MEUR (see graph). When Telefónica didn’t any longer discount customer equipment, customers bought it elsewhere. Vodafone followed the market leader and stopped subsidisation as well. Orange did not – and had a few easy quarters during which it churned over customers from Telefónica and Vodafone. Yoigo’s differentiation was instead its low service prices. Many cost-aware mobile users went to Yoigo for this reason, even if it meant that they had to pay the full price of a handset. Yoigo’s service revenue was low, but it was compensated by an increasing revenue from equipment sales…
…until Telefónica decided that they saved enough. The inserted frame in the graph shows that Telefónica grew handset sales 40% in Q1 2014 and 61% in Q2. At the same time, Telefónica’s margin fell. Equipment revenue expanded, but not in line with the number of handsets sold. All this together signal handset subsidisation. Telefónica: back in the game. Yoigo: equipment sales halfed.
TeliaSonera was for a long time open about their interest in selling Yoigo. With the improved results 2012 and 2013, that message changed. But after the Q1 2014 surprise, TeliaSonera put Yoigo back on the transfer list. All of Yoigo’s revenue expansion 2012-2013 was based on hardware sales. A weak foundation when the market leader changes direction.
It’s been more than two years since the June 2012 launch of Verizon’s shared data plan which took out all other Verizon postpaid plans at one go. From this point on, new Verizon customers (or prolonging customers) had to take the Share Everything plan (later renamed More Everything). The initiative was Verizon’s final attempt to get rid of unlimited data and make usage-based data monetisation a reality.
Since the standard US postpaid contract is running for 24 months, we should after two years consequently see a 100% adoption of Share/More Everything within Verizon’s postpaid accounts? No, it is 55%.
Verizon’s primary competitor, AT&T, launched their shared data plan, Mobile Share, in August 2012. Unlike Verizon, they kept other postpaid plans available to begin with. More than one year later, in October 2013, Mobile Share was eventually made the only plan. AT&T reports that 56% of their postpaid SIMs are on Mobile Share. Still not 100%.
In its Q2 reporting of yesterday, AT&T says that 80% of postpaid smartphone subscribers are on usage-based data plans. Leaving 20% of smartphone subscribers (plus a bunch of data-only subscribers – no reporting for that segment) that still are unlimited.
Verizon and AT&T’s principal method to convince customers to let go of their unlimited plans has been equipment subsidy: You wouldn’t get any unless you go for the new plans.
But T-Mobile’s disruption of the subsidy model – later embraced by AT&T and (somewhat reluctantly) implemented by Verizon – has led to US customers shifting away from subsidy, instead going for installment plans or BYOD. And with these models, customers can easier hold onto their grandfathered unlimited data plans.
45 million SIMs: The combined EplusO2 will be the largest mobile operator in Germany and in the European Union. A mobile giant was in practice born today with EU’s approval of Telefónica’s acquisition of E-plus.
But during the more than 11 months of approval, the competitive playground changed:
- Vodafone acquired Kabel Deutschland and is about to integrate it in order to offer quad-play
- Telekom developed a new strategy, bringing quad-play to Germany during 2014
Realising that the future battlefield won’t be mobile-only, we should understand how EplusO2 would rank when it comes to integrated revenue. See the graph above.
When we sum up O2 and E-plus (dotted line), we are no longer looking at market leader. EplusO2 will be number 3.
E-plus is (and has always been) mobile-only. O2 has a fixed arm in Germany, but its share of integrated revenue is just about 25% (and much of it relates to wholesale). What’s worse from a quad-play perspective is that O2 discontinued its TV product by the end of 2013. It never gained more than 90 000 customers – nothing in a country with a population of 82 million.
Telefónica might have something up their sleeve, but the question still has to be asked: Has the mobile-only scale logic behind the merger of O2 and E-plus passed best before date?
TeliaSonera started to separate out equipment revenue in their new reporting format. Lovely!
We can now compare the equipment revenue vs. mobile revenue ratio for all Swedish operators (see graph). According to reporting notes, Telenor and ‘3’ realise the full equipment price as equipment revenue and let the equipment subsidy dilute service revenue instead. Telia and Tele2 realise the actual equipment sales price after subsidy as equipment revenue.
Active in the same market, there is likely no material difference between the equipment sales of the operators; the differences between Telenor/’3′ on one side and Telia/Tele2 on the other are rather a consequence of the revenue recognition used.
If so, we can by comparing these two approaches estimate that Swedish operators averagely subsidise around one third of the nominal equipment price. That is how much Telia and Tele2’s lines would have to be raised to match the lines of Telenor and ‘3’.
The Danish mobile market – with 4 operators in a country with less than 6 million inhabitants – has always been very competitive and price-centric. So far, only the market leading incumbent TDC has fared relatively well – but the question is if that is about to change.
Unlike its competitors, TDC has been very restrictive with data allowances. TDC is still even restricting voice use on most of its plans.
At tefficient, we like regulators who publish not only the total usage volumes of their country, but break it down on the individual operators – like Erhvervsstyrelsen does for Denmark. The graph above compares the SIM market share with the data traffic market share: TDC has 41% of the Danish SIMs but just 14% of the data traffic. ‘3’ is TDC’s antipode: 12% of the SIMs but 38% of Denmark’s mobile data traffic.
A comparison of what a mobile smartphone customer gets for 199 DKK [27 EUR] demonstrates the allowance difference well. What the table doesn’t show is that TDC gives significant multi-user discounts on more expensive plans – and that TDC allows every smartphone user to attach up to 3 data-SIMs under the same allowance without any additional fee. [Telenor has lately partly matched some of this].
Still, the mobile users with an interest for mobile data – undoubtedly the future – seem to prefer TDC’s competitors: The average TDC phone SIM used 250 Mbytes of data per month during 2H 2013. Telenor had 530, Telia 680 and ‘3’ 1170 Mbytes. The average TDC data-only SIM used 650 Mbytes. Telenor had 2600, Telia 4200 and ‘3’ 5100 Mbytes per month.
The competitive context has sharpened further as Telenor and Telia have launched their new, shared, network. A network test – ordered by Telenor – showed that the new Telenor/Telia network is best in Denmark. Marketing has had its point towards TDC.
In what appears to be a reaction, TDC has recently increased some of their data allowances – especially in the multi-user plans.
The case should serve as learning for operators in general: Whereas we’ve spoken much about the risk of being too generous with data allowance it’s perhaps time to address the risk of being too ungenerous?
Since last year, BT is on a route so far not tried by other telcos. In August 2013, BT Sport was launched: A new TV channel which acquired the exclusive rights to show many of the Premier League football games in the UK. Previously, these rights were with satellite and TV provider Sky.
If you want to see Premier League football, you need to become a customer of BT Sport. But that isn’t BT’s primary proposition: Instead, they want you to become a BT broadband customer – since then you get BT Sport included for free. BT uses the sports rights as a tool to strengthen their retail market share in fixed broadband and TV. And that’s an innovation.
The graph shows how BT’s broadband net adds have developed: In a mature market, BT adds more broadband customers after the BT Sport launch than before. 6,8 million customers in June 2013 grew to 7,3 million in March 2014.
But is comes with a high price: In its year to March 2014 report, BT says it spent 450 MGBP (or 3,6% of the total OPEX of BT Group) on BT Sport during the year. Programming rights were 203 MGBP of this. All this is OPEX; the BT Sport related CAPEX was spent last year.
In March, BT had 3 million direct BT Sport customers. In total, BT Sport is in 5 million UK homes. The additional 2 million come via the wholesale agreements BT later have done with e.g. Virgin Media and Sky. Even though these agreements bring revenue to BT (BT Sport e.g. costs 12 GBP per month if you are a Sky customer), they work against the idea of using BT Sport as an acquisition and retention tool for BT broadband.
Future will show if BT Sport became a game changer for BT. So far, it’s been a lot of money: Roughly 3000 GBP of OPEX per additional broadband net add since the BT Sport introduction.
At tefficient, we’ve built a comprehensive before/after analysis framework of the results operators have achieved when transforming their offers from single-service to quad-play.
There are many indications that quad-play is about to become the new European standard: Telekom will go quad-play in Germany during 2014; Vodafone has acquired Kabel Deutschland and Ono to go beyond mobile-only; TeliaSonera reorganised 1 April to converge fixed and mobile on a national basis.
Quad is propagating over Europe with south-westerly winds. The map above shows the wind direction: From Portugal, Spain and France towards Central and North Europe.
The first step towards true quad is often what we call light quad – a discount that a customer gets if he or she adds mobile to triple-play. In this case, it’s typically not very prominent in operator’s marketing, there’s typically no product brand name, and far from the straight-forward pitch of true quad operators.
The current position of European operators – who have quad capability – is seen in our quad pyramid above. The arrows indicate operators that are seen to take action to move upwards.
Through our before/after analysis, we’ve spotted several very interesting outcomes – best as well as worst practices. These can be used to either prepare your own journey into quad – or understand how to best defend against quad-capable competitors.
A1, the Austrian incumbent, today reports a year-on-year EBITDA decrease of 19.4% for 2013. In this situation, you have to highlight the positives. Telekom Austria group is e.g. saying: “A1 Premium Monthly Churn Rate at Historic Low“.
By now, our industry should have learned that churn figures never can be referred to without also referring to the subscriber retention cost (SRC). It’s simple to decrease postpaid churn – if you have deep pockets: Pay higher SRC to get more customers to stay.
So since Telekom Austria hasn’t done it – let us plot postpaid churn against SRC. It’s the graph below.
In 2013, A1 has been able to reduce postpaid churn to below 10% on annual basis which – internationally compared – is very low. But starting Q4 2012, A1’s SRC elevated from around 140 EUR to about 170 EUR. This happened at the same time as smartphone price points started to come down which, in other markets, was positive for SRC. The reason to A1’s increase must therefore be found in the local market: In January 2013, ‘3’ incorporated Orange to become a strong number 3 in Austria.
But how good is A1’s churn rate? If we plot the figures of T-Mobile and ‘3’ into the graph just above, we can see that competitors report as low churn as A1. (Prior to adding Orange, ‘3’ was even at annual churn levels below 3%). T-Mobile has followed A1’s SRC upwards, but from a lower level. In a local perspective, A1’s achievements seem in line or even substandard.
Note. T-Mobile and ‘3’ have not yet reported Q4/2H 2013. ‘3’ doesn’t report SRC.
2013 ended with over 1 billion smartphones sold – a new record. But mature market operators should look at Korea as a projection of what will come: It is the world’s most advanced LTE market based on penetration and usage levels.
The operators in Korea – SK Telecom, KT and LG Uplus – are continuing to sell a lot of LTE equipment to its customers, even though sales slowed somewhat during 2013. But whereas the sales of LTE equipment earlier led to a lift in overall smartphone penetration, it looks as if it’s not going to drive smartphone penetration very much longer: See how the three top curves in the graph slow down even though the LTE curves go up.
Note: LG Uplus hasn’t yet stated overall smartphone penetration for Q4 2013. Non-LTE smartphones are soon phased out of LG Uplus.
In the world’s most advanced LTE market, LTE seems to run out of fuel. Existing smartphone customers do upgrade to LTE smartphones, but the overall smartphone penetration in Korea doesn’t climb above 70% [SK Telecom holds 50% of market, KT 30% and Uplus 20%]. If we extrapolate, the LTE penetration will equal the smartphone penetration during 2014 – more or less.
For mature market operators believing in LTE’s ability to take smartphone penetration levels beyond the 70% level observed today in countries like e.g. Sweden, Norway, the Netherlands, Australia, the UK and France this is bad news. The Korean development indicates that LTE as such is not enough.
The situation resembles 2007 – before the arrival of the iPhone. Incremental improvements had made products from e.g. Nokia the best ever, but disruption was needed to create new growth. iPhone was the catalyst in 2007. The mobile world – including Apple – are back into incremental improvements and the current products are the best ever. From where will the innovation come that creates new growth in mature markets?