2012, the year in research - A review of our 2012 reports — the highlights you may have missed

Global financial trends

Mobile broadband curbing ARPU declines

In developed economies, mobile operators have been able to effectively monetise 3G networks to compensate for declining voice revenue. By assessing the difference in blended ARPU between mobile broadband operators and those operators that do not provide mobile broadband services we observed that the latter group have seen their average blended ARPU decrease at twice the rate of that of the former over the past five years. This phenomenon is linked to a gradual stabilisation in data pricing, with unlimited data tariffs invariably being phased out in mature markets, as well as a significant rise in smartphone ownership.

Operators rethinking device subsidies

The cost of attracting new mobile internet subscribers and retaining existing ones continues to eat into operator profits. As a result, operators in mature markets are looking to reduce the high level of subsidies they currently offer to new and upgrading smartphone customers. European operators – notably in Spain - have led the way by replacing their handset subsidies with pay-by-installment device purchase models as deployed in France with the recently-launched Free Mobile. This strategy can mean a considerable reduction in operating expenses but may also leave operators vulnerable to subscribers churning to rivals that are still subsidising devices.

European giants looking overseas for growth

Europe’s large operator groups are increasingly being required to look outside of their home markets in order to sustain sales. An analysis of Q3 2012 data from Europe’s four largest incumbent operators shows a decline in domestic sales across the board, though this trend was offset by revenues generated by their international operations. The negative headwinds from low-cost competition and regulatory moves on termination and roaming rates can be felt in most markets, but the macroeconomic impact is, as expected, most visible in Southern Europe.

Network deployments

North America trailblazing LTE

Two years after the launch of the region’s first LTE network, North America accounts for almost half (48%) of global LTE connections. The migration towards LTE networks in the region has been more rapid than in European or Asian markets (with the exception of Japan and South Korea), which are still lacking momentum due to spectrum fragmentation issues. Overall, the US and Canada combined currently account for 60% of global LTE coverage. Most data devices offered online (tablets, dongles, hotspots, routers) by Tier 1 LTE operators in both countries are LTE-compatible, while two thirds of their smartphones on offer are LTE-enabled.

Spectrum the key to 4G adoption

LTE adoption is dependent on how much new spectrum mobile operators can acquire in the digital dividend and IMT-extension bands as well as how much existing 2G/3G spectrum they can refarm to use for 4G services. Refarmed spectrum, mainly in the 1800 MHz band, currently accounts for almost 40 percent of the global LTE market and will continue to do so over the next four years. LTE spectrum fragmentation is a major hurdle for hardware vendors that are eager to rationalise frequency capabilities to take advantage of economies of scale. By 2016, GSMA Intelligence forecasts that the three spectrum scenarios described above will account for roughly similar shares of the global LTE market (one third each).

Half of the world migrated to 3G/4G within five years

3G and 4G technologies will account for half of all global mobile connections in five years, according to GSMA Intelligence forecasts. We calculate that 3G/4G connections combined will account for about 4.25 billion of the 8.5 billion connections forecast by 2017, or 50 percent (40 percent 3G + 10 percent 4G). This is up from a combined 1.7 billion of the 6.5 billion total this year (26 percent). The rapid adoption of 3G networks is a driver of economic growth and is also playing a critical role in developing countries where fixed internet penetration is low.

Competition and market dynamics

Global subscriber penetration reset at 45%

The assumption that the number of connections reflects the number of individuals subscribed to a network is increasingly a misleading one. The picture is being distorted by a significant number of inactive SIMs being included by operators in their reported connection totals, and by multiple SIM ownership, as many mobile consumers actively use more than one SIM card each.

Our primary research shows that:

total connections, excluding M2M, stand at 6.6 billion in 2012 globally
10% of total connections are considered inactive, bringing the active total down to 5.9 billion
Consumers use on average 1.85 SIM cards each, implying that the total number of unique mobile subscribers worldwide stands at 3.2 billion in 2012, forecast to grow to 4 billion in five years
Global penetration calculated on a connections basis is set to pass 100% next year, while unique subscriber penetration is just 45% in 2012, reflecting a substantial growth opportunity

Another BRIC in the wall

In the BRIC countries, urban cellular demand is twice as high as in rural areas and urbanisation trends are exacerbating this phenomenon. Even though urban areas show signs of saturation in most BRIC countries, they are still driving mobile growth whereas demand in rural areas is growing at a steady, yet slower, pace. Mobile operators in the BRIC markets – and in the developing world in general – are therefore facing a dual challenge: to introduce more affordable products and services to meet price-sensitive demands in rural areas; and to fight high churn in mature urban areas.

Operators using MVNOs, sub-brands to target niche segments

Operators host over a thousand cellular service providers worldwide as of May 2012, comprising 812 Mobile Virtual Network Operators (MVNO) and 224 MNO sub-brands. Our research shows that MVNOs are most prevalent in mature markets where market penetration has surpassed 100%. Both MVNOs and multi-brand strategies are supporting operator connections growth, often offsetting organic quarterly declines, despite several limitations in the MVNO business model.

Pricing and network usage

Operators phase out unlimited tariffs in move to 4G

Based on our survey of 65 live LTE operators, almost half of them have used the deployment of LTE as an opportunity to introduce a new form of pricing for mobile broadband. This new strategy, which supersedes the earlier unlimited data model, uses download/upload speeds as well as data allowances to differentiate on price, allowing operators to make more efficient use of their high-speed network capacity in terms of generating revenues and preserving margins. The speed-based tariffs are most common in Europe, where 90% of operators surveyed offer them and least prevalent in North and Latin America where they are yet to emerge.

SMS and the challenge of over-the-top messaging

Our research indicates that while overall SMS volumes are still increasing across the developed region, the level of growth will soon be virtually flat. This trend is a result of the growing popularity of OTT messaging services such as WhatsApp, through which 4 billion messages are sent per day, and Apple’s iMessage, which processes around 750 million messages per day. Increasing smartphone penetration across the region is also exacerbating this phenomenon. To counter this threat, operators in the region are tending to offer increasingly generous and often ‘unlimited’ SMS bundles within their tariffs, consequently leading to falling messaging ARPU and lower SMS revenue.

Smartphone adoption

HSPA dominating device portfolios

The drive to increase mobile data revenues is leading global operators to add a significant number of data devices to their product portfolios alongside traditional handsets. Our research details the ongoing migration from 2G to 3G network technologies. In particular we identified a significant decline in the number of WCDMA-only devices in operator portfolios over the last two years as these were replaced by HSPA-enabled devices, reflecting the fact that HSPA now accounts for over three-quarters of 3G connections worldwide (along with similar trends for data devices such as dongles and tablets).

iPhone reigning supreme in mature markets

Two in every three smartphones sold by the top three US mobile operators in Q1 related to iPhone activations, reflecting the increasing dominance of the iconic Apple device in mature markets. There were 9 million iPhones sold in the US in the quarter via Verizon Wireless, AT&T and Sprint, accounting for around two-thirds of the estimated 13.5 million total smartphones sold by the three operators in the period. In Europe and the US, smartphone sales are still booming, with devices such as the iPhone encouraging European prepaid users to switch to contract tariffs.

Read more: iPhone driving US smartphone sales

Future smartphone growth facing challenges

The high volume of smartphones currently being sold in developed regions has pushed smartphone penetration past 50 percent for some operators, while others expect smartphones to completely supersede non-smartphones within the next couple of years. However, the high cost of such devices is still a barrier to mass adoption in developing regions, and the removal of subsidies by some European operators combined with the introduction of upgrade fees by some US carriers also threaten to slow the take-up of smartphones in the developed world.