Blog, equipment sales

Yoigo lost 53% of equipment sales as Telefónica reinstated handset subsidy

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.

Spain mobile equipment revenue dev 2012 2014

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.

Blog, equipment sales, Shared plans

Why “grandfathering” is a four letter word inside Verizon and AT&T

Verizon 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%.

at&t logoVerizon’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.

Benchmarks, Network sharing JVs, References

Network sharing JV benchmark 2014

Network sharing benchmarkBenchmarks, 2014

For the second consecutive year: Comprehensive business benchmark including a total of 159 KPIs covering revenue, OPEX, CAPEX, productivity, traffic load and network quality – with a peer group solely consisting of network sharing joint ventures.

Due to pre-agreed confidentiality requirements, the identities of participating JVs are fully anonymous.

Once again, the results demonstrate the value of the JV-specfic benchmark approach: Network sharing JVs have throughfocus on core activities, higher freedom in selecting operation methods and attention to detail established cost and productivity levels that are elevated beyond the obvious sharing effect. Also network quality is very high even though traffic load increases when sharing. To improve further, JVs need to compare with their likes – other JVs – and not to regular mobile operators. The benchmark will run again in March 2015.

Blog, Germany

EU’s largest mobile operator born. But has EplusO2 passed best before date?

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

Germany revenue dev 2012 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?

Blog, equipment sales, SAC and SRC, Sweden

Telenor and ‘3’ sell more equipment than Telia and Tele2 – or?

TeliaSonera started to separate out equipment revenue in their new reporting format. Lovely!

Sweden equipment revenue of mobile revenue ratio 2012 2014

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’.

Benchmarks, Finland, Nordic, Norway, References, Sweden

Sweden-Finland-Norway-specific mobile operator benchmark 2014

Sweden Finland NorwayFor the second consecutive year: Comprehensive business benchmark including a total of 577 KPIs covering revenue, OPEX, CAPEX, headcount productivity, subscriptions & channels, performance, load, quality and innovation & growth – for 33 functions within a mobile operator.

Peer group consisting exclusively of primary data from Swedish, Finnish and Norwegian operators. Due to pre-agreed confidentiality requirements, the identities of the participating operators are fully anonymous.

The results again demonstrate the value of a region-specific benchmark approach: Swedish, Finnish and Norwegian operators have global leadership in a wide array of business aspects and a global benchmark would therefore leave them without guidance on how to improve further. In contrast, participating operators now have a great tool to improve their local competitiveness even further. The benchmark will run again in January 2015 and then cover also Danish operators. Operators can participate either as a mobile entity or as an integrated (fixed and mobile) entity.

Blog, Denmark, mobile data usage

The risk of being too ungenerous with data allowance

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.

Denmark data usage vs SIM 2H 2013

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.

Denmark 199 DKK plan contents

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?

Analysis, Consulting, Fixed-mobile convergence

Is quad-play just a response to weakened customer loyalty in triple-play? With mobile as giveaway?

quad signPress release

The reporting of Telefónica, PT and Orange show that quad-play is a hit in Spain, Portugal and France. Vodafone used 14,9 billion EUR to acquire cablecos in Germany and Spain – to enable quad.

Operators need to be realistic about the positives quad-play can bring and use facts to spot best practice. tefficient’s framework provides a great start if entering quad – or facing competition that do.

Measure, compare and improve competitiveness in telecoms