Quarterly World Review: Q1 2009

In Q1 2009, the worldwide cellular market grew by 3.6% to reach 4.15 billion connections. The World’s market penetration now stands at 62%. The prepaid market increased by 4% sequentially in Q1 2009 to represent 72% of total connections, and the contract market grew by 9.9% on a yearly basis. In terms of the technology split, 80.5% of world cellular connections are GSM, 10.4% are CDMA and 8.4% are from the WCDMA Family (WCDMA + WCDMA HSPA), and the remaining are iDEN, PDC and TDMA. The GSM installed base has increased by 3.6% during the quarter, CDMA showing growth of 3.2% and WCDMA 11.4%.

Africa has seen cellular connections grow by 32.5% between Q1 2008 and Q1 2009 which makes it the fastest growing region in the World. It is followed by the Middle East with 24% yearly growth and Asia Pacific with 23.3%. Europe and USA/Canada are the most mature cellular regions with Western Europe and USA/Canada averaging 1% growth on a quarterly basis and Eastern Europe just 0.3%.

During the quarter, 77 operators reported a quarterly decline in cellular connections totalling 17.3 million connections. In comparison, in Q1 2008, 49 operators reported a decline totalling just below 6 million cellular connections. It is important to note that we do not believe that this negative trend can be intrinsically linked to the global economic downturn as the underlying factors are mainly:

• a high level of maturity with penetration rates above 80% in over half of the countries worldwide
• strong competitive pressure in mature markets
• the effect of new regulations such as mobile number portability
• data clean-up: operators are restating their registered SIMs base to reflect active users

GSMA Intelligence continuously benchmarks the accuracy of its short-term subscriber connections estimates and longer term forecasts as actual data is released by the operator community. Despite these irregular market conditions, the delta between the GSMA Intelligence estimate for Q1 2009 total subscriber connections at the beginning of the operator financial reporting season and the reality at its completion was just -0.49%.

Africa

In Q1 2009, Africa reached 398 million cellular connections. The region added 98 million net additions during the year which represents 32% yearly growth. On a quarterly basis, cellular connections grew by 5.4% and market penetration reached 42%. The region represents 10% of the World cellular market. Just 3% of its connections base is contract, which grew by 6.4% sequentially in Q1 2009 but the dominant prepaid market grew by 5.3%. In terms of the technology split, 4.4% of cellular connections in Africa are CDMA, 93.8% are GSM and 1.8% are WCDMA (including WCDMA HSPA). The CDMA installed based has increased by 19.7% between Q4 2008 and Q1 2009, GSM increased by 4.6% and WCDMA grew by 20.7%.

Continuing with recent country trends, Nigeria added the most subscriber connections, some 3.9 million during the quarter. New entrants Etisalat and ZOOMmobile took 7% of the country’s total new connections, while market leaders MTN, Visafone and Zain accrued 72%. Egypt and Tanzania posted 3 and 1.2 million net additions respectively, earning second and third place and remaining in line with previous quarters. South Africa and Kenya however slipped from their Q4 2008 positions due to economic instability and were surpassed by Uganda, Sudan and Ghana, which each added around 1 million connections. Five operators reported negative net additions in Q1 2009 – Millicom in Ghana and Mauritius, Zain in Kenya and Nigeria and Orange in Botswana.

Millicom was worst hit in Ghana as revenues plummeted by 39% from the year before, primarily a result of the depreciation of the Ghanaian Cedi, linked closely to the strength of the US Dollar. The operation lost a net 12,187 connections in the period primarily as a result of increased competition in the form of Zain’s entrance to the country, representing a 1-2% decline in market share. They were, however, the only operator to report negative net additions for the quarter and defensively decreased their on-net tariffs fees in retaliation. Similarly, in Mauritius, the subscriber base decreased by 6,500 as a result of their competitors’ intensive marketing. However, stronger results in Millicom’s remaining markets across Africa and the Americas helped propel the group to a 29% increase in subscriber connections to 33.6 million and grew revenue from value added services (VAS) by 45% year-on-year.

Zain cited economic pressures in Kenya as inflation reached 25% and the value of the Kenyan Shilling dropped by 3% compared to the quarter before. Increased competitive pressure and a price war from new entrants Orange (Telkom) and yu (Essar Telecom) tightened margins as revenues fell 10% from the year prior, however Zain still managed to gain market share as the overall market fell. A similar story affected Zain in Nigeria, as dwindling oil revenues devalued the Naira and MTN launched its pan-African roaming network. The launch of a prepaid tariff for BlackBerry devices aided customer sign-ups but came too late in the quarter to boost earlier losses as the company ended Q1 2009 with a negative 2.1 million net additions.

Three new operators launched in the quarter: Expresso (Sudatel) Senegal, Lacell Burundi and Orange in partnership with Hits Telecom in Uganda. Additionally, ETC Ethiopia upgraded its network to WCDMA at the beginning of the year.

Americas

At the end of Q1 2009, Latin America and the Caribbean reached 464 million cellular connections. The region added 69 million net additions during the year which represents 17% yearly growth. On a quarterly basis, cellular connections grew by 2.2% and market penetration reached 80%. The region represents 11% of the World cellular market. 17% of its base is contract, which grew by 2.2% sequentially in Q1 2009 whilst the prepaid market grew by 2.1%. In terms of the technology split, 8.2% of cellular connections in the Americas are CDMA, 89% are GSM and 1.4% are WCDMA (including WCDMA HSPA). The CDMA installed based has decreased by 8.4% between Q4 2008 and Q1 2009, GSM increased by 3.2% and WCDMA grew by 35.8%.

As outlined in our recent Snapshot, Operator-group ranking shows continued consolidation, Spanish-based Telefónica and Mexican-based América Móvil sit in close contention for total subscribers. Each group’s footprint outlines the intense competition between the two — Telefónica and América Móvil operate in 13 of the same markets in Latin America with the latter running a close second place for connections worldwide, despite Telefónica’s heavy European presence. Recent operational launches for América Móvil include Puerto Rico and Jamaica at the end of 2007 and more recently Panama during Q1 2009. Notably, América Móvil is now offering either UMTS (WCDMA) or HSDPA services in all 17 of its markets. Telefónica’s 2007 purchase of a net 9.97 per cent stake in Telecom Italia Group (TIM) raised eyebrows at the Argentinean regulator in April as they stated that their indirect ownership of a minority stake in Personal (through TIM and Telecom Argentina) was in breach of competition laws with regard to their direct full ownership of Movistar Argentina.

Group-wide, Telefónica reported a slight slowdown in the first quarter of 2009, citing post-Christmas seasonality and, to a lesser extent, the economic situation in Mexico and Central America. The group reduced churn by 0.2% despite gross additions being down by more than 6% for the region. Successful marketing drove an increase in customer usage, with outgoing traffic up 16.6% year-on-year but at the cost of ARPU, down 4.3% since the year prior. This was partly due to the inclusive comparison of the now consolidated Telemig Brazil, which merged with Vivo in Q2 2008, of which Telefónica owns 50% of the parent venture.

Across Brazil, TIM reported a loss of 306,000 net additions during the period, heavily affected by the now-completed rollout of number portability. ARPU fell by BRL 4 (US$ 2), falling to fourth place in the market, following a highly consistent ARPU rate through 2008. Commercial developments for the operator included the first prepaid Internet access tariff in Brazil as well as a new premium brand tariff, “Da Vinci”, for high-usage customers who want the latest exclusive handsets. The Italian-owned subsidiary continued to push convergent services, launching a triple play plan, offering mobile, fixed broadband and cable TV.

In Colombia, regulatory intervention forced the clean-up of ‘low usage subscribers’ and consequently both América Móvil and Telefónica reported negative net additions for Q1 2009 despite good gross performance. The companies ‘lost’ 441,000 and 157,000 subscriber connections respectively on a net basis. With third-place Millicom obtaining only 18,000 net additions, the country saw a 600,000 decrease in adjusted connections, returning the market to its year-beginning non-adjusted total of 40 million connections. Based on gross performance, first quarter revenues for América Móvil in Colombia were strong, growing 13.6% year-on-year with growth highlights coming from service revenue (15.6% year-on-year) and data revenue (63.6% year-on-year). Average revenue and usage per user performance was mixed as a surge in voice usage was not sufficient to offset a reduction in average price per minute, but a decline in SMS per subscriber was masked by mobile broadband and next-generation service usage, driving data-only ARPU up by 35.6%. Total blended ARPU was down by 4.6%.

Asia Pacific

In Q1 2009, Asia Pacific reached 1.8 billion cellular connections. The region added 340 million net additions during the year which represents 23% yearly growth. On a quarterly basis, cellular connections grew by 5.7% and market penetration reached 48%. The region represents 43% of the World cellular market. 26% of its base is contract, which grew by 4.1% sequentially in Q1 2009 while the prepaid market grew by 6.2%. In terms of the technology split, 11.6% of cellular connections in Asia Pacific are CDMA, 80.3% are GSM and 7.8% are WCDMA (including WCDMA HSPA). The CDMA installed based has increased by 6.1% between Q4 2008 and Q1 2009, GSM increased by 5.5% and WCDMA grew by 8.8%.

Several operators reported their first quarter of operations in Q1 2009, notably China Telecom’s first quarter of organic growth as it garnered 4.9 million net additions, over half a million more than rival China Unicom and gaining half a per cent of market share to reach 5.1%. Competitor China Mobile also announced that it had signed up 366,000 TD-SCDMA subscribers, the first launch of next-generation services in the market, yet still representing less than 1% of all China Mobile’s subscriber base.

After an era of government-ruled regulation, North Korea lifted its ban on civilian-owned mobile devices, allowing Orascom to move into the market under the brand Koryolink at the very end of 2008. In its first real quarter of operations, the unit collected 17,500 net additions on top of the early 2,000 sign-ups in 2008. The newly launched WCDMA-only network has so far only been deployed in the nation’s capital, Pyongyang, with a population of 2 million, but rapid expansion is planned as the government lifts restrictions on deployment and handset availability.

Newly launched Digicel Fiji challenged UK-based Vodafone, ending their long-held monopoly on the island and denting their subscriber base enough to cause a loss of 51,000 subscribers for the quarter. Eight operators including Vodafone Fiji reported negative net additions in the first quarter of 2009, among them Hutchison in Sri Lanka and Thailand and two operators in Indonesia – Indosat and XL.

Hutchison was hit by economic and market instability during the quarter – a poor economy and an intense price war in Sri Lanka knocked the company down by 18.6% in terms of overall connections to 722,000. Minutes of Use (MoU) increased on a quarterly and annual basis, but heavy tariff reductions, necessitated by stiff competition, pushed ARPU down by almost 10% for the quarter. Recession and political upheaval in Thailand saw the operator’s customer base fall by 2.7% quarter-on-quarter to 1,041,000, but ARPU did increase by 1.6% alongside stable churn.

In Indonesia, Indosat reported a negative 3.2 million net additions and XL a negative 1.1 million to the gain of Hutchison and Telkomsel who added 7.6 million net additions between them amid fierce pricing and tough competition. Conditions outlined in our Snapshot late last year, Margin squeeze affects Indonesia’s mobile momentum continue to plague the market despite only 62% penetration overall and plenty of potential for growth. Revenues and EBITDA continued to fall at Indosat for the third quarter in a row and, largely as a result of the worsening strength of the Rupiah against the US dollar, net profit saw a 75% dive year-on-year.

AIS reported an improvement in Thailand following weak Q4 2008 operations, growing revenues by a marginal 1.6% quarter-on-quarter. The company was rescued primarily by non-voice revenues which grew 18% on Q4 and 8.1% year-on-year, masking a fall in voice revenues by 5.6% compared to the quarter before. Mobile Internet proved the fastest growing contributor, now posting 24% of all non-voice revenues, growing 41% year-on-year. By way of comparison, SMS revenues still contribute 27%, but grew at just 2.9% since Q1 2008. As a result, AIS have said they will focus heavily on ‘quality subscriptions’ and customer retention over the sheer quantity of overall connections, citing a significant slowdown in net additions primarily due to an end of the ‘hype’ surrounding multi-SIM ownership. Interestingly the company saw a greater slowdown in contract usage (MoU, SMS, data) whilst their prepaid usage base was more stable.

Eastern Europe

In Q1 2009, Eastern Europe reached 450 million cellular connections. The region added 47.8 million net additions during the past 12 months displaying yearly growth of 11.8%. On a quarterly basis, cellular connections grew by 1% and market penetration reached 112%. The region represents 11.1% of the World cellular market and 80% of its installed base is prepaid. The contract market has increased by 2.4% sequentially in Q1 2009, prepaid by 0.6%. In terms of the technology split, 94.4% of cellular connections in Eastern Europe are GSM, 4.9% are WCDMA (including WCDMA HSPA) and the remaining 0.7% is CDMA. The GSM installed base has increased by 0.2% between Q4 2008 and Q1 2009, WCDMA grew by 17.7% and CDMA by 7.2%.

In the region, ten markets are showing clear signs of high level of maturity, leading to a plateau of development: Poland, Ukraine, Czech Republic, Romania, Estonia, Lithuania, Bulgaria, Slovakia, Slovenia and Hungary. These markets represent 68% of total connections in the region excluding Russia. As outlined in our recent snapshot, Slovenian telecom market changes as competition increases, Eastern Europe is home to mature markets with intense competitive pressures. In Q1 2009, regional connections’ growth stood at 11.9% year-on-year compared to 17% a year ago. 80% of the connections base in Eastern Europe is prepaid.

In Ukraine, Telenor, MTS and Beeline reported a decline in quarterly net additions. Beeline (Vimpelcom’s brand) has reported growth in OIBDA margins to 13.4% in Q1 2009 from 7.3% in Q1 2008 (despite a 7.7% quarterly decline in net additions). In its last statement, Telenor’s Kyivstar also blames its 479,000 decline in net additions on intense competitive pressure. The operator’s ARPU declined by 5% in local currency terms which is due to lower pricing in an attempt to fight high churn, leading to a 9% decline in EBITDA. As for MTS, its 8.5% annual decline in net additions was blamed on weaker seasonal demand and a deteriorating macro-economic environment.

In Poland, Orange saw its connections base decline by over half a million connections on a quarterly basis in Q1 2009. The operator, which controls 31% of the market, explained that it is improving its customer mix by migrating its prepaid users to contract. As a result, its prepaid base was reduced by 645,000 connections in Q1 2009, whilst its contract base increased by 143,000 connections. However, in Romania the operator mentioned the impact of fierce competition on its results with a 2.1% quarterly decline in net additions to 10.1 million connections. Vodafone is also facing challenges in Romania as it saw its EBITDA margin decline by 7% due to falling revenues and increased subscriber acquisition cost.

In Serbia, Telenor reported a 0.7% increase in quarterly net additions, a recovery from its 9% decline in Q4 2008. Its EBITDA margin increased by 2 percentage points which was mainly driven by reduced marketing and sales expenses and consultancy costs. In Montenegro, however, Telenor’s connections base continued to fall with the operator registering a 10% annual decline to 413,000 connections.

Western Europe

In Q1 2009, Western Europe reached 505 million cellular connections. The region added 24.2 million net additions during the past 12 months displaying yearly growth of 5%. On a quarterly basis, cellular connections grew by 0.3% and market penetration reached 126.5%. The region represents 12.5% of the World cellular market and 56.6% of its installed base is prepaid. The contract connections increased by 1.6% sequentially in Q1 2009 and prepaid declined by 0.4%. In terms of the technology split, 72.9% of cellular connections in Western Europe are GSM and 29.5% are WCDMA (including WCDMA HSPA). The GSM installed base has declined by 2.8% between Q4 2008 and Q1 2009 with WCDMA growing by 9.7%.

In Q1 2009, most big operator groups are showing signs of a slowdown in organic connections growth. The markets most affected are Germany, United Kingdom, Italy, Ireland, Denmark, Norway and the Netherlands. Those markets represent 61% of the region’s total connections base and have all reported a decline in quarterly net additions (apart from Denmark), averaging a decline of 0.2% in Q1 2009.

In Germany and the UK, both Vodafone and T-Mobile have registered a decline in net additions and service revenues in Q1 2009. Both operators are suffering from fierce competition and increasing cost of customer retention. The migration of prepaid users to contract has proven to be an expensive exercise which led to a 15.3% organic decline in Vodafone UK’s EBITDA and 50.9% decline in T-Mobile UK’s EBITDA in Q1 2009.

In the meantime, Teléfonica O2 increased its lead over its competitors with 142,000 net additions in the UK and 307,500 net additions in Germany. The operator explained that the growth in the UK is partly due to the success of its “Simplicity” price plan, which offers a contract service that can be cancelled with 30 days notice and does not require the customer to enter into a lengthy agreement. In Germany, Teléfonica O2’s 37.6% quarterly increase in contract connections is mainly due to the success of its “Handy Flat” rate proposition and its mobile broadband service. Additional information on the UK market is available in our recent Snapshot: O2 UK scores a hit with “simplicity” tariff, extends lead in the UK.

In Italy, both TIM and Vodafone continued their quarterly fall in subscriber net additions. TIM explained that the 4.9% annual decline in net additions is due to greater selectivity in the sales policy focusing on higher-value customers. TIM’s mobile revenues were down by EUR 158 million from Q1 2008 to EUR 2,059 million. This decline is explained by the contraction of SMS volumes, the change in regulated interconnection rates and the reduction in handset sales. The decline is also associated with the fact that 2008 was a leap year and had fewer working days in Q1 2008 than in Q1 2009: working days produce a higher average traffic volume when compared with public holidays.

In Ireland, Vodafone, O2 and Meteor all reported a decline in net additions that they associated with fierce competition in Q1 2009. Meteor, which is owned by the eircom Group, controls just below 20% of the market and has been reporting growing pressure on customer numbers and ARPU, which fell to EUR 37.5 compared to EUR 39.8 a year ago. In March 2009, Meteor launched its prepaid and contract Mobile Broadband offers reaching 7,400 subscribers to May 2009. As a result, non-SMS data revenue grew to 8% of total revenues.

In Greece, however, the situation seems more positive for Cosmote. The operator, owned by OTE Group, has reported 518,465 quarterly net additions, its highest over the past three years. The operator announced that it was the main beneficiary from increased price competition in Q1 2009 which apparently was the most intense in years according to the latest company report. Cosmote’s success is mainly attributed to strong distribution and heavy investment in its advertising campaigns. Prepaid net additions stood at 457,411 in Q1 2009 which is diluting its ‘real’ customer growth. In fact, the phenomenon of multiple-SIMs per user is distorting the overall market landscape since Greece has now reached 183% penetration.

Middle East

In Q1 2009, the Middle East reached 236 million cellular connections. The region added 46 million net additions during the past 12 months displaying yearly growth of 24%. On a quarterly basis, cellular connections grew by 3.8% and market penetration reached 74%. The region represents 5.6% of the World cellular market and 73.8% of its installed base is prepaid. The contract market has increased by 5.5% sequentially in Q1 2009 and prepaid market by 3.3%. In terms of the technology split, 94.6% of cellular connections in Middle East are GSM, 3.2% are WCDMA (including WCDMA HSPA) and the remaining 2.2% is CDMA. GSM installed base has increased by 3.4% between Q4 2008 and Q1 2009, WCDMA grew by 19.2% and CDMA by 3%.

In Turkey, Vodafone Group announced that its 2010 financial year will be challenging. Vodafone’s service revenue in the market fell by 18.4% in the quarter and cellular connections fell by 7.4%, the third quarterly decline in a row. Factors driving the trends include: the effect of mobile number portability introduced in November 2008, aggressive price competition and a fall in consumer confidence due to the deterioration of the macroeconomic environment. EBITDA declined by 37.3% as a result of higher marketing expenses, network expansion and restructuring costs which are parts of Vodafone’s effort to improve its position.

Turkcell also acknowledged competitive pressures in the market and switched its focus to high-ARPU customer retention. The market leader reported a 1.6% decline in quarterly net additions which it attributed to losses from its prepaid customer base and price pressures from innovative tariffs such as flat rate packages and unlimited schemes. Turkcell also announced that it will commercially launch its WCDMA HSPA network and services around July 2009 simultaneously in 81 cities.

In Jordan, Zain, the market leader, saw its active subscriber base decline by 0.6% on a quarterly basis. The operator recently reacted to competitive pressures by launching “Zain Skyz,” a media content service created for the youth community. The operator has also recently announced that it has entered an agreement to merge its Jordanian operation with the Palestinian operator Paltel. Paltel would own 100% of Zain Jordan and Zain Group would own 56.5% of Paltel. The merger is expected to generate over US$ 1 billion in annual revenues this year through significant capex and opex synergies.

In Iran, MTN reported strong connections growth with its installed base doubling from Q1 2008 to 18.2 million. The operator now controls an estimated 34.1% of the Iranian market compared to 25.5% a year ago. MTN explained that the growth is coming from its marketing efforts to attract customers through innovative tariff plans but also its strategy to reduce churn through reward based promotions.

USA/Canada

In Q1 2009, USA/Canada reached 296 million cellular connections. The region added 16.7 million net additions during the past 12 months displaying yearly growth of 6%. On a quarterly basis, cellular connections grew by 1.2% and market penetration reached 90%. The region represents 7.2% of the World cellular market and 82% of its installed base is contract. Contract connections have increased by 0.2% sequentially in Q1 2009 and prepaid connections by 5%. In terms of the technology split, 54.4% of cellular connections in USA/Canada are CDMA, 31.6% are GSM and 9.2% are WCDMA HSPA, and the remaining 4.9% are iDEN and TDMA. The CDMA installed base increased by 1% between Q4 2008 and Q1 2009, GSM declined by 2.4% and WCDMA grew by 21.1%.

For the first time, Verizon Wireless included in its figures its US$ 28.1 billion acquisition of regional US operator, Alltel. The acquisition was responsible for Verizon’s 28.8% annual rise in cellular connections to 86.6 million, which was enough to see it overtake AT&T to become the country’s market leader.

In order to meet regulatory requirements relating to the Alltel acquisition, Verizon is to transfer assets worth US$ 2.35 billion to AT&T later this year, a deal which includes some 1.5 million subscribers in primarily rural areas across 18 states. Similarly, AT&T is to sell assets worth US$240 million (including 120,000 subscribers) as part of its separate acquisition of Centennial, which is still pending regulatory approval. The asset swapping between the two big players—scheduled to complete in fourth quarter 2009—is designed to counter the network footprint overlap issues created by both acquisitions.

Sprint Nextel continues to lose ground, reporting a net loss of US$ 594 million in Q1 2009 and a 12% annual decline in net revenues. In order to boost its competitiveness in the contract space, Sprint has recently launched the much hyped Palm Pre on an exclusive basis, followed by the Blackberry Curve 8330. In Q1 2009, Sprint changed its reporting style and now groups its affiliates and wholesale subscribers. To reflect the changes, our data now includes the operator’s affiliates and we have backdated it to 2000. As a result, the adjusted Sprint connections base as reflected in GSMA Intelligence increased by approximately 1 million in 2008.

In line with the official categorization of the FCC, the US regulator, our category of ‘Other’ mobile operators in the US includes over 120 mobile operators that serve local areas and communities across the country either on a single-state or multi-state basis. In Q1 2009, we have reviewed the ‘Other’ category and broken out for the first time the larger operators: Metro PCS, Cincinnati Bell Wireless and nTelos Wireless. Additional information is available in our Snapshot: Verizon Wireless takes top spot, smaller US operators make gains.