GPRS/UMTS in Europe is back on the road
February 27, 2003
UMTS will be a tool with which mobile operators optimise their
networks, rebuild their balance sheets and retain the loyalty of
customers. These are the main conclusions of an major industry report
published jointly by Arthur D. Little and Exane, “Back in the Road:
But Who’s Got the Map?"
The report argues that mobile multimedia will spark competition
in certain European countries, while the UK will remain the most
competitive country for mobile operators in Europe. Competition
between operators for customers using data services will cause changes
in market share, which may lead to mobile operators with a subscriber
base less than 10% of the population struggling for survival.
In a key forecast, the report predicts that ARPU in Europe will
creep up to just €32 by 2005 from the present level of €30, with
weak growth continuing until 2010. It also predicts an increase
in the amount operators have to pay to retain their customers.
Although mobile operators see new mobile multimedia services including
access to multimedia content as a source for ARPU growth, Arthur
D.Little and Exane believe that this may be hoping for too much
too soon. They point to persisting unresolved technical problems
and argue that the attractiveness of the new services remains to
be proved.
According to Philip Shepherd, Director at Arthur D. Little: “The
European market launch of colour screen handsets and mobile messaging
services (MMS) using GPRS will disappoint mobile operators seeking
to increase their average revenue per user (ARPU) through the sale
of multi-media services. MMS - the multimedia equivalent of SMS
- will not take off until the start of 2004. In the meantime, European
operators can increase the penetration of SMS in countries such
as France where it is lower than average. They can also take the
opportunity to increase the use each subscriber makes of SMS per
month”.
European ARPU will hover around €30 through to 2010, not boosted
by mobile multimedia as many had hoped.
"In the short term, we see mobile multimedia less as a growth factor
for ARPU and more as a possible catalyst to spark an upturn in competition
in certain countries", says Antoine Pradayrol, head of Exane's telecoms
research.
The gross margins mobile operators win from their ARPU from MMS
will not rise in line with general ARPU increases because premium
SMS services, external GPRS traffic and access to content will increase
as part of the total makeup of ARPU. These three services involve
payments by the mobile operator to third parties: other mobile operators,
service providers and content owners.
But any ARPU increases may be under threat from a growing use of
Wireless LAN (WiFi) offered by, among others, fixed-line operators
in hot spots which could siphon off part of the wireless data market.
Mobile operators will launch their own WiFi hot spots to complement
GPRS/UMTS services and pre-empt this competition.
The gradual employment of UMTS to supplement GPRS will allow European
mobile operators to lower their capital expenditures (capex) right
through to 2010 after a 3% rebound in 2003 from an 11% fall in 2002.
The success of mobile multimedia will depend on the creation of
a favourable ecosystem for all participants. This is largely in
the hands of the operators who will have to ensure that services
are interoperable, not only between mobiles but also with fixed-line
internet. The operators will also have to do three things: set attractive
revenue-sharing terms for service and content suppliers; subsidise
handset sales to encourage customer take-up; and help handset distributors
educate users, in return for a payment.
UMTS will optimise GSM networks and help cut investment needs :
The combination of efficient compression technology and GPRS should
be capable of handling 90% of the new mobile multimedia services.
A big attraction of UMTS, apart from the possibility of downloading
large files, will be video. However, demand for video services is
still uncertain and it remains to be seen what price customers will
be prepared to pay for them.
Nevertheless, Philip Shepherd at Arthur D. Little, says: "UMTS
is a logical move for the big operators. It offers a less expensive
way of alleviating congestion in 2G networks because the capacity
of a node B (UMTS antenna) is around 8 times greater than that of
a GSM BTS for a unit cost of 1-1.5 times that of a GSM BTS".
UMTS is expected to roll out very gradually, starting with highly
populated urban areas. These areas already suffer the heaviest network
congestion and probably concentrate most potential demand for mobile
broadband services. This will keep network investment costs down
and help the operators smooth their costs over several years.
In the medium term, stiff competition between the handset manufacturers
will tip the balance of power in favour of the mobile operators,
who will gain more influence over the handset/user interface. As
a result, customer loyalty is more likely to go to the operators
than the handset manufacturers.
The strategic shift from winning to retaining customers will be
a prime opportunity for value creation for mobile operators. Mobile
multimedia offers a new source of differentiation other than price.
Nevertheless, in the short term, some operators may take advantage
of the arrival of colour handsets and MMS to gain a head start on
competitors and win market share.
Arthur D. Little and Exane believe that the contrasts between the
different national markets will become even sharper in accordance
with the presence or not in each of new UMTS entrants and medium-sized
GSM operators. The presence of new UMTS entrants, such as Hutchison
3G, will stoke competition because they will be unable to make niche
strategies work and will have to attack the mass market. Medium-sized
GSM operators, with a subscriber base between 10% and 17% of the
population, will seek to make full use of the economies of scale
while the opportunity lasts. Moreover, several mid-sized operators
have the cash flow to finance these short-term objectives.
The UK and Italy will see the fiercest competition. Competition
in France and Spain will remain lukewarm.
"The Japanese example shows that the arrival of new a generation
of mobile multimedia services, with clearly differentiated offerings
from the three operators, has resulted in renewed market share volatility
as far as net adds are concerned, without any significant improvement
in margins", says Arthur D. Little’s Philip Shepherd.
|
3G Motorola A920
