2011, the year in research - A review of our publications from 2011 – highlights from the reports you may have missed

Global financial trends

The mobile operator community generated total revenue of US$1.06 trillion last year, of which half came from large operator groups. Operators invested around US$200 billion in capital expenditure — with an almost equal split between developed and developing economies — and spent US$660 billion on operating expenditure. Cost-saving initiatives encompassed outsourcing measures, network sharing, consolidation and economies of scale. Consequently, operators generated US$400 billion in operating profits and saved a further US$200 billion in operating cash flow.

Despite encouraging trends around data services, voice revenue still accounts for 75% of recurring revenue on average in developing countries and 70% in developed countries. Meanwhile, data-only revenue (which excludes revenue from messaging services) represented 16% of total revenue on average in the developed region in 2010, compared to 11% in the developing region. In 2012, we expect that globally, over one third of total revenue will come from non-voice services while data-only services will represent close to 20% of total revenue.

Mature markets such as Western Europe, USA, Japan and South Korea continue to generate the most revenue for mobile operator groups, according to our operator ranking study. European-based operator groups Vodafone, Telefónica, Deutsche Telekom and France Telecom all made the top ten in terms of revenue, as did the four nationwide US operators. China Mobile was ranked number one in the list with revenue of US$19.9 billion in Q4 2010, a rise of 6% from Q4 2009. By connections, China Mobile and Vodafone remain leaders on our ranking, but América Móvil, Telefónica and Bharti Airtel all climb into the top five.

During the worst of the recession, mobile operators in developed markets were forced to squeeze capital expenditure to preserve cash flows, yet, as the global economic turmoil subsides, we have noted a revival in network investments to 16% of regional total revenue in 2010. However, high operating expenditures have been exacerbated by stalling revenue and daunting levels of market saturation, which have led to an increase in customer costs.

In 2012, we expect that total revenues generated by mobile operators worldwide will cross the US$1.1 trillion mark, driven by growth in developing economies. These countries will contribute over 40% of global revenue - compared to 33% four years ago — passing 5 billion cellular connections and 100% market penetration.

Mobile operators in the BRIC countries (Brazil, Russia, India, China) have recorded the fastest revenue growth, generating US$170 billion in total revenue last year — US$30 billion more than in 2008 — and contributing 41% of total revenue in the developing world. In 2012, we expect that BRIC countries will overtake the US in terms of total revenue size, generating almost US$200 billion.

Network deployments

WCDMA HSPA connections crossed the 500 million mark worldwide in June 2011 - out of a global 3G market totaling 1.3 billion connections (including CDMA2000) at the time.

Read more: WCDMA HSPA connections pass 500 million

In 2011, LTE connections reached 7 million globally with 45 live networks across 24 countries. In 2015, we anticipate global LTE connections to come close to the 300 million mark with over 200 networks in more than 70 countries.

This year, over two thirds of LTE connections globally are based on the 700 MHz band (due to the US rollouts). But by 2015, we expect the IMT-extension and spectrum re-farming bands to each account for over a third of LTE deployments.

The phenomenon of LTE spectrum fragmentation caused by 38 deployed frequency band combinations (predicted by 2015) is dampening the development of LTE-capable devices and hindering global roaming.

Smartphones will account for 20% of the global LTE market in 2013 and 33% in 2014. By 2015, we expect smartphones to represent 50% of all commercially available LTE devices globally and 40% of global LTE connections.

Read more: Global LTE network forecasts and assumptions - one year on

Competition and market dynamics

Based on the Herfindahl-Hirschmann index (HHI), cellular markets in Western Europe and the Middle East have higher levels of competition in comparison to other global regions. Since 2005, these markets have shown a reasonable disparity in market power among mobile operators and therefore intensifying competition.

Read more: Competition and concentration

Our HHI calculations clearly showed the regulatory unease surrounding the eventual dismissal of the AT&T/T-Mobile merger in the United States. As we showed at the time, the competition considerations, which effectively led to the two companies’ abandonment of the deal, far outweighed the perceived spectrum requirements.

Read more: AT&T/T-Mobile merger ups the stakes in battle for US dominance

The long-running trend of increasing subscriber churn rates for mobile operators in Western Europe appears to be coming to an end. Churn for the region fell to 2.3% in Q4 2010, a decrease of 5.3% compared to Q4 2009, marking a significant shift in subscriber behavior.

Read more: Operators starting to win battle against churn in Western Europe

Pricing and network usage

Total global mobile voice minutes reached an estimated 1.6 trillion in 2010, a figure some ten times greater than the corresponding amount in 2001.

Average prices in the developing world declined at more than twice the rate of those in the developed world over this period, and as a result the reported average minutes per user per month (MoU) is now broadly the same across the two regions.

Globally, every one US cent decrease in EPPM results in an average increase of 5.6 minutes calling time per month for every mobile user in the world. The equivalent MoU increases for the developed and developing world are 6.9 and 13.5 minutes respectively, meaning that on average mobile users in the developing world are almost twice as price sensitive as those in the developed world.

Read more: How pricing dynamics affect mobile usage

Smartphone adoption

From Australia to the United States, the fast adoption of smartphones has triggered higher handset subsidies which have in turn increased costs of customer acquisition and retention. This has put further pressure on profit margins in the developed world, which declined by 1.4% in 2009, and 0.3% in 2010 to stand at 35% of total revenues.

At the end of 2011, smartphone penetration is calculated at 35% of the customer base in mature markets, compared to 15% for developing economies.

Read more: Global cellular market trends and insight, Q3 2011

In addition, smartphone users are spending 37% less time surfing the web using a mobile browser than using native apps for comparable services. While apps potentially threaten the mobile operators' current position at the heart of the mobile value chain, the number of apps actually being used is still relatively low. The average smartphone user (in our study) added just 2.5 new apps per month (net), while 37% of users added no new apps at all. In addition, most smartphone 'face time' relates to apps and features already present on the device platform (voice, messaging, browsing etc.) rather than additionally downloaded apps.

Read more: Smartphone users spending more 'face time' on apps

As always, we welcome your feedback on these topics, or any other thoughts on the mobile sector. We wish you and your families a very Merry Christmas and a Happy New Year, and look forward to working with you in 2012.