Study by Arthur D. Little and Exane BNP Paribas Expects Revenue Declines
Vienna (pts028/16.04.2013/14:20) – * Trend in Austria towards unlimited voice telephony and SMS bundling * Price level in Austria remains very low * 100 percent of smartphones and tablets sold will be LTE-capable in 2015 * 2016 will have a market penetration of 54 percent of LTE-used devices * Frequency auction offers opportunities for newcomers in Austria
* Price level in Austria remains very low
* 100 percent of smartphones and tablets sold will be LTE-capable in 2015
* In 2016 there will be a market penetration of 54 percent of LTE-used devices
* Frequency auction offers opportunities for new entrants in Austria
Even in the next three years, the mobile operators are facing a dry spell despite the introduction of the new LTE mobile communications standard. Data traffic with LTE is growing throughout Europe and thus also sales in this segment. Nevertheless, it remains unlikely that the telcos will be able to enforce higher prices for LTE services in the long term in order to compensate for the erosion of tariffs. This is one of the key findings of this year’s twelfth edition of the Europe-wide study entitled „4G – going faster, but where?“ on the current challenges of the telecommunications industry. The study is conducted every year by the strategy and innovation consultancy Arthur D. Little in cooperation with the investment bank Exane BNP Paribas in 15 European countries.
This year’s study will focus on the question of whether European mobile operators will be able to develop these services into a high-margin business after the disappointing 2012 fiscal year with LTE services. The example of the industry here are the US and Asian mobile operators, where LTE has developed into a profitable business.
The starting position is actually very good, because the switch to 4G LTE makes economic sense for European operators. The 3G networks will soon reach their capacity limit due to the „data-hungry“ consumers, which can be significantly expanded with 4G LTE. Customers will quickly get used to the higher speed and the range of compatible smartphones and tablets is constantly improving. In Austria, 60-70 percent of the population will have LTE available by 2016. LTE brings a better service than 3G with download speeds that are three to five times faster (15-20 Mbit/s vs 4-6 Mbit/s) and a five times lower waiting time. For the average mobile phone user in Austria, who currently uses about 460 MB per month, a noticeable improvement.
Price increases hardly possible
Nevertheless, for various reasons, it is extremely unlikely that European mobile operators will succeed in copying the success of their US counterparts, the hurdles are too high. ‚European suppliers are faced with various problems that can destroy this pipe dream: the limited possibilities for providers to use LTE to develop unique selling points and the still raging, tough price war make it hardly possible to enforce price increases,‘ says Dr Karim Taga, Managing Director Arthur D. Little Austria and Global Practice Leader of TIME (Telecom, Information, Media and Electronics).
Although the trend in Austria is clearly towards unlimited voice telephony and SMS bundling, this does not necessarily lead to an increase in the average turnover per customer. Rather, in this context, a so-called ‚rebalancing‘ effect is combined into a basic fee instead of the turnover of individual services (voice, SMS, data), explains Dr Taga.
Further decline in sales
The prognosis of the authors is correspondingly grim. According to this, the sales of European telecommunications providers will fall by 1.8 percentage points per year until 2016 despite growth with LTE. Without LTE, the decline in sales in the basic mobile business (speech and text) already included in this figure would be even clearer for providers at minus 2.6 percent. In order to return to the growth path, the monthly revenue per customer with LTE data services would have to rise from the current ten to 2016 to 17 euros. Even the business with mobile Internet services and apps can hardly change anything about these sales declines.
Austria: Competition for spectrum
The multi-band auction (800/900/1800 MHz) in autumn of this year will result in an exciting special situation in Austria. The acquisition of spectrum is the prerequisite for network operators, as it were the „raw material“, in order to be successful on the market in the next 20 years. Due to the lowered entry barriers, there is also clear potential for a newcomer.
Basically, the offer comes to the aid of the fact that the market launch of LTE is very capital intensive, but the subsequent operation of the network much cheaper than older mobile generations. For this reason, lean mobile telephony companies in particular will have clear advantages in the competition in the future. For cost-efficient competitors, LTE could therefore be a sustainable competitive advantage.
However, it will not come to a situation like in the Czech Republic, expert Taga is convinced. There, the frequency allocation was cancelled because the participants in the auction – based on an outdated auction design and problematic auction rules – have licensed themselves more and more risk-free. Since the Czech Republic already has the highest mobile prices in Europe, the auction was cancelled by the regulator – the sums offered would never have been earned back.
It should also be noted that the entire process of reallocation of spectrum in Austria is not finished with the auction in September/October 2013. After the auction, the existing spectrum in the 900 and 1800 MHz band is first to be defragmented. This process step requires the willingness of all network operators to cooperate and should be handled under the moderation of RTR. After this, the next step is refarming, i.e. LTE, based on the corresponding requests of the operators. In parallel, but with a longer time requirement, the frequency changeover of the networks takes place by the network operators. All in all, these process steps represent a highly complex process that must be handled effectively and efficiently by the regulator in close cooperation with the network operators and will in any case extend well into 2014.
Options for action for providers
In total, network operators have five starting points to improve their situation:
1. Revision of tariff structures
2. Partnerships with other companies for offering new services
3. Cost transformation
4. Small Cells and Wifi-Offloads
5. joint operation of LTE networks, where consolidation is not an option and the joint operation is considered to be compatible with competition by antitrust authorities.
About Arthur D. Little
As the first management consultancy in the world, Arthur D. Little has been successful on the market for more than 125 years. We combine strategy, innovation and technology with profound industry expertise. We support our clients with sustainable solutions to the challenges of complex businesses and processes and are thus involved in the renewal of entire business fields. Arthur D. Little has a collaborative working style, exceptional employees and a company-wide commitment to quality and integrity.
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Director: Arthur D. Little Austria GmbH
Contact person: Dr. Karim Taga
Tel: +43-1-515 41 – 43
Email: taga.karim@adlittle.com
Website: www.adlittle.at
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