European mobile ARPU falls 20% - Mobile data revenue not yet compensating for declining voice prices in EU mobile markets

European mobile data use has so far failed to compensate for the sharp decline in mobile voice revenue, according to new GSMA Intelligence research. A new study reveals that mobile ARPU across the 27 European Union (EU27) countries has fallen by 20 percent over the last three years, dropping from EUR25 in 2007 to EUR20 in 2010 on average (see chart). This fall has been caused primarily by ongoing declines in the average per-minute price for voice calls, which dropped from EUR0.16 to EUR0.14 in the EU27 mobile markets over the period.

While major European operators have pointed to growth in mobile data as a key tool to offset these declines, our research shows that revenue growth from non-voice services has helped to stabilise ARPUs but is not yet fully compensating for falling voice revenue. Non-voice revenue (including messaging) rose by just EUR1 on average over the last three years to around EUR6. Within this, mobile data ARPU has doubled to just under EUR3 but still accounts for less than 15 percent of total ARPU.

Mobile data is now at the heart of most major European operators' growth strategies. For example, in its latest quarterly earnings (ending 31 December 2010), Vodafone talked up its 'Supermobile' initiative in Europe aimed at ramping up data revenue on the back of rising smartphone penetration. It noted that its smartphone penetration in Europe is now at 17 percent with almost half (46 percent) of these users also taking out an additional mobile data contract. Vodafone’s European data revenue grew 23 percent year-on-year to hit £4 billion.

However, Vodafone Europe's total service revenue was flat on the quarter due to falling voice prices and regulatory impacts (notably MTR reductions). Average voice revenue at Vodafone's four largest European markets (Germany, Italy, Spain, UK) dropped 4 percent (CAGR) between 2008 and 2010, most dramatically in the UK where it fell 8 percent. This was partly offset over the same period by an 8 percent rise in non-voice revenue - including a 15 percent rise in data. But while this has meant that Vodafone's non-voice revenue now accounts on average for 33 percent of total service revenue at its four main European markets (compared to 26 percent two years previously) growth to date has not been sufficient enough to compensate for declining voice revenue. At Vodafone Germany, for example, voice revenue fell by £404 million between 2009-10 but non-voice revenue only increased by £225 million. The trend is more encouraging in the UK; Vodafone increased total messaging and data revenue by £314 million between 2009-10, allowing it to fully compensate for a £262 million drop in voice revenues. However, the UK appears to be an exception to the rule for Vodafone in Europe.

Other large mobile operators in Europe are reporting similar trends. Non-voice revenue at Orange France accounted for 31 percent of ARPU in 2010, up by 10 percentage points from 2008; ARPU from messaging and data services reached EUR120 in Q4 2010 compared to EUR83 a year earlier. But the operator's revenue from data-only services only increased by around 6 percentage points over the same period to represent 17 percent of service revenue in the quarter. At Orange Spain, the share of revenue from non-voice services is significantly lower at just 17 percent, a rise of just one percentage point year-on-year. There were also major differences in the levels of non-voice revenue across T-Mobile's European footprint. In its home market of Germany, non-voice accounted for 29 percent of ARPU, but the figure was just 5 percent in Romania. T-Mobile Germany recorded data revenues of EUR1.3 billion in 2010, up 41 percent (CAGR) from EUR600 million in 2008. This growth was driven by rising smartphone adoption, which represented half of handsets sold in Q4 2010 compared to 28 percent a year ago.

European operators still have some way to go to reach the levels of non-voice revenue being achieved by operators in highly-developed markets such as Japan. SoftBank, Japan's third-largest operator, claims to have become the first operator in the world to generate more revenue from non-voice services than voice. Last year, the percentage of non-voice revenue at SoftBank was 54 percent. Its Japanese rivals are not far behind; non-voice accounted for 49 percent of service revenue at NTT Docomo in 2010, and 45 percent at KDDI.

Joss Gillet, Senior Analyst, GSMA Intelligence:

In most mature European markets, large operator groups are, on average, recording non-voice revenue at around one-third of service revenue. At current pace, they will reach similar levels to that of the Japanese operators - half of revenues - in five years time. In the meantime, voice revenues will continue to gradually decline, markets will become more saturated (limiting the prospects for growth even further), and large investments will still be required to improve network quality and meet rising demand. Against such a challenging backdrop, most European mobile operators have switched their focus to “revenue share” rather than “market share.” This includes efforts to migrate subscribers from prepaid to contract tariffs, and speed up 2G to 3G migration. 3G adoption is at last gathering pace, helped by customer loyalty programmes and an aggressive push behind smartphones. However, mobile data revenues are not yet matching the growth in smartphone penetration and currently account for just 15 percent of total service revenue in the region. The situation is exacerbated further by MTR and data roaming cuts, and the slow allocations of much-needed additional spectrum.

EU27: Average Revenue Per User (ARPU) 2007-2010
Source: GSMA Intelligence