Quarterly World Review: Q3 2009

The worldwide cellular market grew by 173 million subscriber connections in the third quarter 2009, to reach 4.5 billion connections. In total, 384 operators reported total connections in the quarter, amassing 89% of the total world market share.

Quarterly declines in net additions were reported by 63 operators this quarter, totalling 8.6 million connections. This was an improvement over the 74 reported in Q2 (some 15 million connections), although the 49 countries that these operators span remains the same for this period. As we have stated before, these customer declines continue to represent the significantly increased competition in mature markets rather than the economic impact of fluctuating currency rates on particular market revenues.

Significant milestones in the quarter included the Asia-Pacific region surpassing 2 billion connections after recording year-on-year growth of 22%. Growth in the region was driven by the world’s two largest mobile markets - China and India - which grew total connections by 15% (to 698 million) and 49% (to 472 million), respectively, accounting for over half of the Asia-Pacific total. Asia-Pacific now accounts for 45% of total global mobile connections, followed by Western Europe (11%), the Americas (11%), Eastern Europe (11%), Africa (10%), USA/Canada (7%) and the Middle East (6%).

New mobile network launches in the quarter included Beeline (Vietnam), Vodafone Qatar (Qatar), 2degrees (New Zealand), Digicel (Nauru), Hello Nepal (Nepal) and I-Tel (Uganda).

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 ever-uncertain market conditions, the delta between the GSMA Intelligence estimate for Q3 total subscriber connections at the beginning of the operator financial reporting season and the reality at its completion was just 0.02%.

Africa

Nigeria remains the region’s largest cellular market by connections. However, as discussed in our Snapshot, Nigerian operators face revenue pressure in crowded marketplace, the market remains the scene of fierce competition amongst the nine existing cellular operators. Overall net additions for the quarter were 2.6 million, up from the 2.5 million recorded in Q2 but still well down on the 5.8 million recorded a year earlier.

Market-leader MTN maintained its lead in new connections with a gain of 1.4 million; the fifth consecutive quarter of one million plus connections growth. Etisalat also had another successful quarter by adding a further 791,000 connections and bringing their total to 1.8 million in just under a year since launch; albeit giving them a market share of only 3%. Zain also managed to report their first positive quarter of net additions in 2009 with a gain of 290,000, following a decline of 2.6 million in the first half of the year that it attributed to the removal of inactive customers. Zain reported that the revamping of their distribution model, customer care, network optimization, outsourcing of IT and networks as well as cost optimization initiatives have seen a positive impact in opex reduction, improved customer service and improved network quality. Zain and MTN both reported that ARPU in Nigeria remained relatively stable sequentially (at US$7 and US$12, respectively) following greater currency stability. However, both remain well below levels reported a year earlier of US$9 for Zain and US$17 for MTN. Uncertainty remains over the long-running saga of the proposed sale by the government of the struggling Mtel (NITEL) that has been hit by several delays but has reportedly attracted a number of potential bidders.

Egypt maintained its position as the fastest-growing African market in terms of connections in Q3, with net additions of 4.5 million for the quarter. The dispute over control of market-leader Mobinil (ECMS) between major shareholders France Telecom and Orascom continues to drag on through the courts and the market regulator. Nonetheless, all three operators gained over one million new connections each, with Mobinil (1.8 million) just ahead of Vodafone (1.7 million). However, both operators continued to report declining ARPUs (19% and 23% year-on-year, respectively) against a backdrop of fierce price competition with the third (and smallest) operator, Etisalat.

Another market reporting strong connections growth during the quarter was Morocco, as the country reached 25 million connections by adding 1.5 million connections. Net additions were led by market-leader Maroc Telecom (950,000), reversing a decline of 341,000 in the previous quarter. Second ranked operator Meditel capped a strong 12 months by gaining 575,000 connections and bringing the total annual gain to 1.8 million. During the quarter Telefónica and Portugal Telecom agreed the sale of their respective 32.18% stakes to a group of Moroccan investors for €800 million (US$1.1 billion). As predicted in the last quarterly review, South Africa has been overtaken by Egypt as the second largest cellular market in the region. All operators were impacted by the prepaid customer registration requirements which took effect during the quarter. MTN reported a decline of 897,000 prepaid connections while Vodacom lost 652,000, more than offsetting contract connections growth of 85,000 and 120,000 connections, respectively.

The key African cellular battleground market of Ghana (with MTN, Tigo, Vodafone and Zain all represented) reported a weak quarter of connections growth (399,000) compared to Q2 (1.6 million) when it was Africa’s second fastest-growing market. In particular, Vodafone’s net additions fell to only 46,000 from 772,000 in Q2. Only Tigo (Millicom) managed to improve its quarterly net additions to 64,000 (albeit from a low Q2 base of 21,000) while MTN and Zain both reported lower growth with net additions falling to 189,000 and 136,000, respectively from 442,000 and 375,000 in Q2. The financial results of all operators remain impacted by the depreciation of the Cedi against the US dollar by 21% in the last year, however signs of increasing economic stability are emerging.

Orange (Telkom Kenya) completed its first year of operation with 772,000 connections. However, Q3 net additions of 75,000 were its weakest quarter to-date. Zain continued to struggle in Kenya by reporting a further quarterly decline of 227,000 connections and taking its losses in 2009 to 888,000 (a 29% decline), attributed to ‘recurring clean-up exercises’ and strong competition. Zain’s sequential ARPU held steady at US$4 but remains well below the US$7 of only a year ago. In contrast, market-leader Safaricom managed to limit ARPU decline, with Q3 ARPU of KES 466.50 (US$6.43) compared to KES 475 (US$6.55) in Q3 2008. They also maintained their market share by adding 2.6 million connections in the last year (an increase of 21%) and improved overall financial performance. Safaricom reported it had 7.99 million users of its mobile payment service ‘M-PESA’ by the end of Q3, an increase of 93% year-on-year. M-PESA revenue increased by 248% year-on-year to KES 3.2 billion (US$42.2 million) for the last two quarters, representing 8% of total revenue. Non-voice revenue also increased by 94% annually, and now represents 18% of total revenue, up from 11%, driven by the combined growth of mobile broadband services and M-PESA. Safaricom is currently the only Kenyan operator to have commercially launched 3G services, however Zain, Orange (Telkom Kenya) and yu (Essar Telecom) have all recently announced their intentions to enter the 3G market.

The situation for Zain remained much more encouraging in Sudan, Zain’s second largest African market after Nigeria (although it is reported as part of its Middle East division), where it reported 601,000 net additions for Q3 and took their net additions for the last 12 months to 2.8 million, an increase of 62%. Zain’s Q3 ARPU was US$13, more than double that of competitor MTN’s (US$5). MTN reported Q3 net additions of 370,000, taking its annual net additions to 1.1 million, a 50% increase.

Tanzania continued to report strong connections growth during the quarter in another key market for a number of African operator groups. Market-leader Vodacom gained 343,000 connections for the quarter, improving on its relatively weak performance in Q2 (250,000). Zain nearly matched its Q2 effort with another 329,000 net additions (330,000 in Q2), while third placed Tigo (Millicom) also reported another strong performance by adding another 410,000 net additions (413,000 in Q2) and increasing its market share to around 20%. Tanzania accounted for the majority of Millicom’s 502,000 African net additions as the performance was offset by Senegal that reported a net decline of 217,000 connections. Millicom attributed this to weak economic conditions and the entrance of Kirène Mobile (an MVNO). However, market-leader Orange managed to increase its connections base by 267,000, boosted by being the new MVNO’s host network. Kirène Mobile – named after a local brand of mineral water – is only the second MVNO in the African continent outside of South Africa (the other being Yemba in Cameroon).

Americas

A disruptive three months in Latin America saw Brazil continuing to lead the way with more than 5 million net additions in the quarter although contention among markets was high, leaving a shake-up in the net additions ranking for Q3. Argentina edged past Mexico to reclaim the second spot, thanks to the best performance in the past 12 months from Telefónica Argentina as well as a slight slowdown in results from América Móvil’s home operations in Mexico. Venezuela remained in fourth place despite Telefónica’s net loss of 139,000 connections. Operators in Peru and Chile also both enjoyed particularly successful results, catapulting them up through the net additions ranking to fifth and sixth respectively. One of last quarter’s more successful markets, Honduras, fell back down to eighth following the huge number of promotional net additions added by Millicom Honduras in Q2 (growth at the operator instead fell by 4% between Q2 and Q3).

Despite a strong start, even Brazil witnessed slowing growth over the course of the July-September period, adding 2.3 million and 2.6 million net additions during July and August respectively, but slipping to just 1.6 million in September, primarily reflecting a slow-down in summer marketing and promotions, in particular from Vivo, Claro, TIM and Oi. Vivo, the largest operator in Brazil, itself added just over 2 million connections in Q3, reflecting very similar performance to the same period in the previous year. The company also managed to pay off another US$482 million of its 3G licence fee owed to the regulator, Anatel, as part of its 12-region concession. Rival TIM, the third-largest operator, additionally committed to €3 billion worth of investment by 2011, citing huge potential for mobile broadband due to the country’s (and region’s) relative lack of fixed-network infrastructure. Number portability requests in the country rose to 3 million since its introduction, of which 1.96 million were for mobile connections. August saw the highest rate of requests, with some 408,558 appeals to switch being made during the month.

Results were mixed across the three largest Latin American mobile groups - Telefónica, América Móvil and Millicom. For Spanish-based Telefónica, the Latin America division remained the growth-driver for the group, increasing revenues for the first nine months by 5.8% and OBIDA 13.5% annually. The division now represents 129.3 million connections across 13 markets, adding 3.3 million in Q3 alone as a result of a 5.2% quarterly improvement on gross additions, as well as a 0.4% quarterly reduction in churn. Brazil remains the company’s most important market, generating 36.5% of revenue in Latin America, followed by Venezuela (15.7%) and Argentina (11.7%). In Venezuela, Telefónica has come under fire from investors in early 2010 after a devaluation of the Venezuelan Bolivar erased more than US$1 billion in profits held within the regional operation. The company remained firm on its guidance for the new year although it will now come under increasing pressure in Europe where results have been offset by the success in Latin America.

For Millicom, however, the primary accelerants of growth came from its fixed broadband and African units. Millicom added 599,000 subscriber connections in Central and South America during the quarter, a 34.3% decrease quarterly and 30.0% decrease annually. Guatemala was the best performing market, growing by 19% year-on-year, followed by Honduras (11%, despite Digicel’s entrance to the market in Q4 2008) and El Salvador (10%). Overall Q3 revenue for the company (excluding non-cellular divisions) grew by just 0.4% to US$803 million, primarily due to increased taxation, but the awaited divestment of its operations in Cambodia, Laos, Sri Lanka and Sierra Leone are expected to raise US$565 million in the near future. Since closing Q3, the Sri Lankan business was successfully sold to the Emirates-based Etisalat for US$155 million. Division-wise, Central America was the worst performing based on revenues, falling by 4% sequentially while South America grew by 1% and Africa 7%.

Service revenues at América Móvil rose strongly by 19.5% on the back of continued data-revenue growth at the Mexico-based company. Of the group’s total 194.3 million mobile connections in 18 markets, 4 million were added in the third quarter with the best performances seen in Brazil (1.8 million net additions), Mexico (280,000) and Argentina (236,000). Mexican operations now account for 30% of all subscribers. The continued investment in 3G data services has seen coverage ramp up to 70% of the population covered by América Móvil and a 14-fold rise in data traffic in Mexico, their first 3G market. Total Q3 revenues rose 16.9% to MXN 99.8 billion (US$7.9 billion).

Nextel Group, owned by US-based NII Holdings, had a particularly successful quarter, increasing its connections base by 21% to total 7 million across Argentina, Brazil, Chile, Mexico and Peru. At the end of 2009, Nextel launched long-awaited 3G WCDMA/HSDPA services in Peru using equipment from Huawei. Nextel previously won the 1900 MHz spectrum for 3G services in 2007. The company plans to aggressively scale the three districts covered at launch to over 100 by the end of 2010. Similarly, in September NII Holdings also successfully bid for a spectrum block of 60 MHz in the 1.7 and 2.1 GHz bands with an aim to deploy similar WCDMA networks. Despite strong customer growth, the company posted operating revenues of US$1.14 billion and OIBDA of US$300 million, a decrease of 3% and 9% respectively, year-on-year.

Costa Rica, being one of the last markets in Latin America to liberalise its telephony market, celebrated news of the long-awaited mobile spectrum auction shortly following the close of the quarter. Interest from Digicel, Cable & Wireless, América Móvil, Millicom and Telefónica in the 100 MHz of spectrum available across the 850, 1800 and 2100 MHz bands will ensure competition for the incumbent monopoly, ICE, potentially as early as the second half of 2010.

Asia Pacific

In India, new circle launches continued unabated. Aircel (Maxis), Idea Cellular and Tata Teleservices all launched in a new circle of operations during the July-September period, while MTS (Systema Shyam TeleServices) launched in Bihar & Jharkand, additionally passing the 2 million connections milestone before going on to launch in the Delhi metro at the start of Q4. Of all the recent launches in India, TATA DOCOMO continues to expand the most aggressively, having launched in a further eight circles - Andhra Pradesh, Karnataka, Kolkata, Haryana, Madhya Pradesh, Maharashtra, Mumbai and Punjab. Its parent company, Tata Teleservices, has committed a further US$1 billion over two years on top of an existing CAPEX budget of US$2 billion solely for the rollout of GSM services as a result of ‘unprecedented’ growth. The additional budget is aimed squarely at ‘capacity expansion’ given the ‘overwhelming response’ from its customers across the current addressable market in 14 circles.

With the on-going delays to the 3G auction process in India, the rollout of the first private 3G networks continues to be pushed back - and all eyes are on the only two current licensees, the state-owned operators BSNL and MTNL. Demand is slowly picking up thanks to plummeting tariff prices given a very disappointing launch from both operators. India’s Ministry of Telecommunications confirmed MTNL had claimed 130,000 connections by the end of November, having started with just a thousand connections to show for the seven months since launch in February. That figure has since risen to 200,000 in just under a month as of the end of the year. BSNL had a more encouraging start to the launch of next-generation services, but has since lagged behind its rival. The operator registered just over 73,000 connections as of end-November for its 3G operations, which now spans 241 towns over 7 circles. We covered the initial development of 3G expansion back in our October report, Indian 3G market assessment, which includes our forecasts for the total 3G market assuming the majority of leading operators will acquire spectrum.

In Japan, SoftBank’s run of leading customer additions continued into September, a month that also saw market-leader NTT DOCOMO slip to last place for net additions, behind SoftBank, KDDI and EMOBILE. Sole PHS provider Willcom lost a net 101,500 connections during Q3 2009 but the operator managed to amass 59,600 connections on its newly launched ‘CORE 3G’ network which currently provides subscribers access to DOCOMO’s HSPA network via an MVNO agreement. The operator hopes to complement the service with its own 3G access when it upgrades the current PHS network to XGP later in 2010.

Despite its small market share, EMOBILE squared up to the competition by officially launching its 21.6 Mbps HSPA+ network, the first in Japan, during July. The network was provided by Ericsson and Huawei. SoftBank is the only other Japanese network to express an interest in HSPA+, but all four operators - DOCOMO, KDDI, SoftBank and EMOBILE - have all committed to LTE. DOCOMO hopes to launch a 120 Mb/s network for data cards as early as December 2010 and plans to fully close its 2G network by March 2012.

Malaysian-based Axiata Group announced an overall performance increase in revenue (7% sequentially) and EBITDA (5%) during Q3 2009, notable given the strength of results in Q2 - the best since its de-merger from former parent Telekom Malaysia. Group EBITDA margin fell, however, by 0.6%, largely due to the aggressive addition of 1.7 million connections in Bangladesh. As we mentioned in our recent Snapshot, Axiata surpasses 100 million mobile connections, new management in many of the group’s subsidiaries has seen turn-around performances promoting subscriber profitability over cut-throat market share. Axiata has additionally remained relatively unscathed by the on-going financial climate despite volatile currency fluctuations in its markets and supply chains. Still, the group remains heavily reliant on its home subsidiary, Celcom, which still represents 50% of all mobile revenue, although contributions from XL Indonesia and Dialog Sri Lanka did rise in Q3. As the Malaysian market approaches saturation, the performance of the group’s foreign investments will keep the company in the spotlight.

North Korea’s first non-state network, Koryolink, run by Egypt’s Orascom, has made steady progress in its first nine months of operation. The company has signed up just shy of 70,000 connections as of September 30. Launched in the nation’s capital, Pyongyang, the network has since expanded along the main trade route up to the northern city of Hyangsan and will expand nationwide in 2010. For the first nine months of the year, Orascom reported revenue of US$18.5 million, EBITDA of US$9.9 million (a 54% margin) and for Q3, ARPU of US$21.6, slightly down from US$22.8 in the previous quarter as the network expands away from the higher-earning inhabitants of the capital city. Worth noting for comparative purposes is the state-fixed exchange rate from the North Korean Won to the US dollar, which is somewhat higher than its unofficial black market value.

Eastern Europe

Reflecting the ever-increasing plateau of saturation in Eastern Europe, 18 operators reported negative or static net additions in Q3 2009, representing a loss of 580,000 connections. Eight of these operators are placed in the top ten markets in Eastern Europe, which now represent 88% of all connections in the region. Deutsche Telekom Group was worst affected, losing nearly 85,000 connections in four markets (Hungary, Slovakia, Montenegro and Macedonia) while TeliaSonera lost subscribers in three markets (Lithuania, Estonia and Georgia, together 11,000 connections) and mobilkom austria suffered in Croatia and Slovenia (losing 4,400 subscriber connections).

Deutsche Telekom was keen to highlight revenue growth at its Southern and Eastern European division (increasing year-on-year by €3.6 billion for the first nine months of 2009, including fixed-line operations), primarily due to the first-time consolidation of European partner OTE Group in February. In organic terms, however, revenue decreased by €0.3 billion primarily due to negative exchange rate effects and, in particular, the strained macro-economic situation in Hungary. While the group lost customers in Slovakia, revenue remained stable due to currency translation in its sales channels. In contrast DT’s Croatian unit posted the worst net additions in the last four years alongside the weak performance of the Croatian Kuna. Mobile communications were particularly hit due to the recent introduction of a fixed cellular tax, taking 6% of revenues. The worst market-level loss of the group, Hungary, was also due to an exchange-rate plummet of the Hungarian Forint against the Euro. It was not all doom and gloom for Deutsche Telekom in Europe however - with the exception of Greece, the percentage of contract customers relative to the group customer base increased, aiding a 32.5% year-on-year increase in group data revenue to €502 million and a data ARPU of €2.2 (excluding OTE Group).

Despite customer losses in three Eastern European markets (as well as a negative 31,000 net additions in Denmark), TeliaSonera Group achieved record-high profitability across its mobile and fixed broadband operations, with SEK 2,778 million (US$394 million) in operating income for the mobile division, 34.3% of the group total. EBITDA margin for the mobile division remained unchanged year-on-year at 31.1%. Revenue growth was primarily driven by mobile data and mobile broadband in Western Europe (particularly Sweden with 90,000 contract net additions, mainly on mobile broadband tariffs) as the group struggled with its mobile operations in the Baltic’s, although cost reductions (-2.5% year-on-year) contributed to the stabilisation of EBITDA margins. Net sales in the Baltic countries decreased due to lower equipment sales and reduced traffic revenues, while in the group’s remaining Nordic countries revenue decline was mainly driven by regulatory conditions, namely a reduction in roaming volumes and revenues.

Revenues at mobilkom austria Group’s mobile segment dropped 3.3% to €2,423 million in the first nine months of 2009, citing decreases due to foreign currency rates (local revenues decreased by just 1.1%), lower international roaming revenues and, in Croatia, the expiry of its national roaming agreement. The group was also affected by the 6% mobile tax introduced in July by the Croatian parliament, requiring the group to pay fees on all SMS, MMS and voice revenues for their operations. EBITDA declined by 7% to €957.5 million, primarily due to lower contributions from Austria, Bulgaria, Croatia and Slovenia, though this was offset somewhat by strong results in Belarus (including 164,000 net additions during Q3) and a reduction in initial deployment costs following launches in Serbia and Macedonia. Foreign currency rates negatively impacted EBITDA by €17.8 million. Despite, or perhaps by virtue of, customer losses, normalised ARPU increased by 8% in Euro terms in Slovenia and 2% in Croatia, the only two markets posting a positive ARPU trend for the group.

In Q3 2009, Sweden-based Tele2 Group added 1,306,000 mobile connections during a quarter of poor performance for its fixed-line division, which lost a net 228,000 lines. Of the mobile additions, the company announced 53,000 were mobile Internet users - both total and mobile Internet net additions have doubled since the comparable year-ago period in 2008. Particular success came from Russia where the group launched in seven new regions this quarter, adding 921,000 net connections. The operator is seeing a successful return to positive net additions in almost all of its Eastern European units - only Lithuania reported an overall loss in customers compared to Q2 where five of its six units (Russia being the exception) reported negative results. The group enjoyed SEK 6,130 million (US$867 million) in net sales and EBITDA of SEK 1,596 million (US$226 million) across its mobile division. ARPU remains the highest in its home market of Sweden (and only non-MVNO Western European operation) at US$27.1, slightly lower than the year-ago period, but well above the US$6.70 figure for Russia.

Azerfon’s launch of WCDMA/HSPA in Azerbaijan at the end of 2009 removes the market from the ever shrinking list of those in Eastern Europe to have not yet launched a 3G network. The operator rapidly deployed services in eight cities (including the capital of Baku) as well as the Absheron Peninsula, having paid the princely sum of US$13,600 for a licence earlier in the month. This launch, together with Armenia’s first from VivaCell (MTS) and Belarus’ via life:) (BeST), leaves Bosnia & Herzegovina, Kazakhstan, Kosovo, Kyrgyzstan and Turkmenistan as the only markets unlicensed for WCDMA services in Eastern Europe. WCDMA (Family) services now represent 6% of all connections in the region, up from just 3% a year ago, of which 12% are HSPA connections and 28 networks now run at 7.2 Mb/s or faster and seven are HSPA+ enabled. Poland and Romania are at the forefront of 3G deployment in Eastern Europe, as covered in our recent Snapshot, Poland and Romania account for 50% of 3G in Eastern Europe.

Western Europe

In Western Europe, ten operators reported a negative decline in net additions for Q3 2009 (down from 13 last quarter), although, once again, Italy was the worst affected, dropping 982,000 connections between TIM (709,000) and Vodafone (273,000). Deutsche Telekom and TeliaSonera’s string of losses in Eastern Europe also extended to T-Mobile Austria, which lost 15,000 connections, and for TeliaSonera, its home market of Denmark, where net connections declined by 31,000 connections.

In Italy, Vodafone chalked its losses down to ‘economic weakness impacting usage growth’, causing organic service revenues to fall by 1.4% quarter-on-quarter. Only its fixed-line business grew in terms of service revenues, albeit by 0.4%, though on the mobile side, strong growth in data usage - 24% sequentially - did help to offset the fall. Data revenue was £243 million for the six month period to end-September, third-placed out of Vodafone’s core operations, behind only Germany (£470 million) and the UK (£282 million). The quarter’s results were also affected by a 0.7% decline in service revenue growth as a result of regulatory effects, which the company cited were inclusive of the impact of roaming regulation and a reduction in mobile termination rates. Positive growth in fixed-line and data was, however, enough to seat the Italian operations with the only positive percentage change for the six-month half-year period out of all core markets and the ‘rest of Europe’ segment in terms of service revenue, EBITDA and operating profit. Vodafone expects its trend of high-value contract sales to continue, as well as data revenue from the growing penetration of ‘PC connectivity devices’ and mobile Internet usage, against a background of 150% overall penetration. As part of cost-cutting measures, Vodafone is relying on its network sharing initiative with TIM (and TIM’s with Hutchison) to drive synergy-relating savings.

For Telecom Italia Group, domestic mobile revenues also declined against its customer base erosion, although the group attributed this to the impact of tariff re-pricing in the year-ago period as a result of the continuing price war. Overall mobile service revenues fell by 8.3% from €7,085 million to €6,496 million for the first nine months of 2009. Handset sales were the worst affected, dropping by 33.3%, which now comprise just over 5% of all service revenues. Encouragingly however, sales of 3G devices (including laptops and Internet dongles) has grown strongly and now accounts for 63% of all handsets sold. Outgoing voice revenue was €3,508 million (of which roaming revenues were €177 million), a decline of 5.5% year-on-year. Lastly, value-added revenue totalled €1,497 million, of which the largest segment was still messaging (€717 million), although browsing revenue has caught up significantly in the last year - growing by 13% and now worth €530 million for the nine month period, grossly outstripping content revenue. TIM remains the only operator in Italy to have launched 14.4 Mb/s HSDPA (as well as 28 Mb/s HSPA+ in Milan and Rome) and continues to aggressively up-sell mobile broadband. The company hopes a number of measures, including the axing of activation fees, further choice in tariffs and a streamlined, but more exclusive, handset portfolio will lift its fortunes in 2010, although they will need to be cautious as to not erode the success of the current fixed-line revenue-leading products.

In terms of net additions, the UK, Germany, Spain and Norway posted significant improvements over Q2, filling first to fourth place respectively in the region. Previous first-placed France dropped to fifth in this quarter’s ranking as the number of customers added on a market basis halved to 413,000. We previously discussed pressures at France Telecom in our recent Snapshot, Home market saves France Telecom in tough third-quarter, who like most Western European operators remains under pressure to turn around its voice-centric business models to address a rapidly changing and competitive market.

UK operators achieved the largest improvement on an absolute and percentage basis (adding 1.2 million net additions compared with last quarter’s 29,000), having recovered from the customer losses at Orange, T-Mobile and Vodafone in Q1 and Q2 2009. Q3 marked the best performance for ailing T-Mobile UK in the last 18 months. In terms of higher-earning contract connections, O2 continues to prove itself as a clear winner in a fierce market, adding 312,400 new connections in the contract space, yet is still losing prepaid connections along with Vodafone, although losses have declined significantly to just 20,200 in Q3.

As a whole, Telefónica Group enjoyed a solid quarter in Europe, reaching 43.5 million customers in its four core markets, of which 72.4% are now contract-based connections. Fixed-line services (telephony, Internet and data) grew marginally faster than mobile, highlighting the group’s increasing reliance on its bundled packages, particularly in Germany where it aims to compete with Deutsche Telekom’s entrenched position via its recent acquisition of Hansenet. We previously covered this development in our Snapshot analysis O2 becomes fixed-mobile player in Germany. Overall revenues grew 5.5% sequentially and 5.9% year-on-year to €3,484 million for the quarter. Data ARPU continued to perform well in the UK and Ireland, at €9.6 and €11.6 respectively, while Germany (€4.6) and Czech Republic (€4.9) still run a margin behind. The percentage of non-SMS traffic over non-voice revenues continues to accelerate and now accounts for an average of 37.2% over the four operations. As was the case with their peers, mobile termination rate cuts affected the group revenue growth by 1.6% in Germany, UK and the Czech Republic.

Notable network launches in Western Europe in the second half of the year included eight HSPA+ network deployments in Finland, Greece, Italy, Portugal, Spain and Switzerland. 39 networks now boast speeds of 7.2 Mb/s or faster and 12 are HSPA+ enabled in Western Europe. WCDMA (Family) connections represent 32% of the total in Western Europe (up from 22% a year ago), of which 30% are HSPA-enabled. Additionally - a world-first - TeliaSonera deployed the first LTE networks in the capital cities of Norway and Sweden at the end of 2009. The networks, with infrastructure supplied by Huawei and Ericsson respectively, both operate in the 2.6 GHz band and offer access via a non-backwards-compatible Samsung LTE dongle. The vendor hopes to offer a WCDMA/HSPA/LTE unit in the near future and TeliaSonera has committed to rolling out to 25 cities in Sweden by the end of 2010 at a cost of SEK 500 million (US$70 million) and four additional cities in Denmark as they await further licensing.

Middle East

Turkey remained the Middle East’s largest cellular market in Q3 with 63.8 million connections. All three operators launched their 3G services during the quarter (as covered in our Snapshot Turkish 3G connections forecast to hit 30 million in four years) amidst signs that the Turkish economy is beginning to stabilise following a period of sharp GDP contraction. Net additions for the quarter were 118,000, making Q3 the first positive quarter of growth in 2009 following the loss of 2.3 million connections in the first half of the year. Vodafone broke a sequence of four consecutive quarters of negative net additions to report a gain of 718,000 connections, including 704,000 net ports from its competitors. Vodafone’s Q3 ARPU also improved by 8% year-on-year to TRY 15.30 (US$10.27) and they reported that service revenue decline is slowing. Market-leader Turkcell reported their third consecutive quarter of negative net additions, largely on the back of declining prepaid connections. Contract connections growth of 500,000 in Q3 was offset by the loss of 800,000 prepaid connections, while ARPU decreased by 4% year-on-year to TRY 19.70 (US$13.23). Turkcell also reported that 3G connections reached 3 million. Third-placed Avea (Turk Telekom) also reported negative net additions of 300,000 (with both contract and prepaid connections declining). However, blended ARPU increased by 13% year-on-year to TRY 18.60 (US$12.49), driven by a 27% increase in contract ARPU to TRY 33.40 (US$22.43).

Following a weak second quarter when it was impacted by political instability, the Middle East’s second largest market, Iran, returned to a higher rate of growth as MTN Irancell and MCI (TCI) both reported net additions of 1.5 million in Q3. MTN commented that its growth was attributable to expanded network coverage and promotional activity as Irancell surpassed 20 million connections during the quarter (at an annual growth rate of 58%), while market-leader MCI increased connections to 33 million. It was reported during the quarter that a local consortium (reported to be controlled by the Iranian Revolutionary Guards) purchased a 50% plus one share stake in TCI in a US$7.8 billion deal. Uncertainty continues to surround the issue of a third national cellular licence following the cancellation of the license originally granted to a consortium led by Etisalat, with recent reports linking it to Etisalat’s former local partner Tamin Telecom. In its home market of the United Arab Emirates where market penetration edged over 200% during Q3, Etisalat reported annual growth of only 6%, with Q3 net additions of 180,000 taking their total connections to 7.4 million. Meanwhile, rival du picked up 233,000, to reach 3.1 million connections, an 18% year-on-year increase.

Elsewhere, MTN increased its connections base in Syria by 450,000 in Q3 (13% sequentially) to 4 million, a marked improvement from recent quarters when they struggled with high churn and delays to planned marketing initiatives. In Afghanistan, MTN reported net additions of 303,000 for Q3, taking the total connections to 2.9 million, an increase of 1.1 million (62%) year-on-year. MTN still trails Afghan market-leader Roshan (TDCA), who reported 3.4 million connections in Q3. However, Roshan’s net additions were only 53,000 over the last two quarters.

In Kuwait, Viva (KTC), which launched at the end of 2008, reported that they had reached 550,000 connections following net additions of 130,000 for the quarter, giving them a market share of 14%. Market-leader Zain reported a decline of 8,000 connections for Q3, while second placed Wataniya Telecom gained 54,000 connections. Since Viva entered the market Zain’s ARPU has declined 23% to US$55, while Wataniya’s has fallen 25% to KWD 10.70 (US$37.59).

Elsewhere, Wataniya reported that its iDEN operator Bravo (PTC) in Saudi Arabia increased its connections base by 35% year-on-year to 186,000; however, Bravo’s market share remains less than 0.5%. In comparison Zain Saudi Arabia completed its first full year of operations with 621,000 quarterly net additions, taking their total to 4.4 million connections and giving Zain a market share of over 10%. Saudi Arabia is now Zain’s second largest Middle Eastern market after Iraq (Zain’s Sudan operations are considered in the African section of this report). However, in Iraq Zain reported negative net additions of 132,000 due to strong competition from Asiacell who added 414,000 connections in Q3. Qtel-backed Asiacell gained 1.9 million connections in the last year, taking their connection base to 7.4 million while also reporting strong revenue and EBITDA growth.

In its home market of Qatar, Qtel reported a gain of 214,000 connections, a strong performance in light of the ending of its monopoly with the commercial launch of Vodafone during the quarter. Vodafone ended Q3 with 151,000 connections, giving them a 7% market share and they reported that they had surpassed 250,000 connections in October. Overall, the Qatari market added a record 365,000 net additions for Q3, taking the total to 2.3 million and market penetration to over 140%. Qtel saw its ARPU fall to QAR 133 (US$36.54; a decline of 31% year-on-year) while Vodafone reported ARPU of QAR 173 (US$47.57).

In Oman, Qtel-controlled Nawras continued to close the gap to market-leader Oman Mobile (Omantel) to just 52,000 connections (Q2 121,000). Back in Q2 Oman became the first Middle Eastern market to witness the arrival of MNVOs with the launch of FRiENDI mobile (Connect Arabia) and Renna (Majan Telecommunications) and in Q3 they were joined by Connect Arabia’s second MVNO offering, the youth targeted halafoni. All three have host agreements with Oman Mobile. The expansion of MVNOs appears set to continue with the launch of the first MVNO hosted by Nawras in November (Mazoon Mobile) and the announcements that Nawras has also signed MVNO agreements with samatel and in early 2010 with Injaz Telecom.

USA/Canada

AT&T and Verizon Wireless continue to lead the US market in Q3 with net additions of 2 million and 1.3 million respectively. However, these gains were offset by losses by other carriers as the overall US market reported only 2.7 million net additions for the quarter, well down on the 4.4 million recorded 12 months earlier. The annual growth rate of contract (postpaid) connections declined to 1% (compared to 6% a year ago), while prepaid connections have grown at 21% year-on-year, up from 18% in Q3 2008.

Despite the overall slowdown in market growth AT&T reported their highest-ever Q3 net additions and the third quarter in the last five in which it has achieved net additions close to or in excess of 2 million. The operator also reported that its Q3 data ARPU rose to US$15.05, an increase of 22% (US$2.75) from Q3 2008. AT&T’s third-quarter ‘integrated device’ (handsets with QWERTY or virtual keyboards) growth of 4.3 million included 3.2 million iPhone activations, the largest quarterly total to date, with nearly 40 percent of the activations for customers who were new to AT&T. Over the past year, the number of postpaid integrated devices on AT&T’s network more than doubled to over 26 million, while the ARPU for integrated devices (which include 2G and 3G devices) continues to be 1.8 times greater than other devices. Churn reached a record low of 1.43%, down from 1.69% in the year-earlier quarter. Data revenue increased by 33% (US$0.9 billion) to US$3.6 billion from the year-earlier third quarter, more than double the company’s total in the third quarter two years earlier. Data represented 29% of AT&T’s Q3 service revenue, up from 24% in the year-earlier quarter. Verizon also reported that their pro forma data ARPU increased by 21% (US$2.67) to US$15.59, while data revenue increased by 29% (US$0.9 billion) to US$4.1 billion, with data representing 30.5% of service revenue. PDAs/smartphones increased to 23% of Verizon’s postpaid connections, up from 12% in Q3 2008. Verizon’s churn increased marginally to 1.49%, from 1.43% in Q3 2008.

Third-placed Sprint reported negative net additions of 545,000 in Q3 (including wholesale and affiliates); the ninth consecutive quarter of negative growth and taking its cumulative loss to 5.7 million connections. Once again the bright point for Sprint in Q3 was their prepaid connections with net additions of 666,000 via their Boost Mobile prepaid offering; taking their prepaid net additions for 2009 to 2.1 million since the launch of the US$50/month ‘unlimited’ offer on their iDEN network at the beginning of 2009. However, this was not enough to offset the decline of 3 million postpaid connections (excluding wholesale and affiliates) over the same period. Sprint’s service revenue declined 8% (US$0.5 billion) year-on-year to US$6.3 billion. However, postpaid data ARPU increased by 20% (US$2.75) year-on-year to US$16.25 in the third quarter, led by growth in CDMA data ARPU that increased by more than 15% (US$2.50) to over US$19. Prepaid ARPU in the quarter was US$35 compared to US$31 in Q3 2008, reflecting the growing contribution from prepaid customers on unlimited plans. Churn for the quarter was 2.82% compared to 2.72% in the year-ago period. During Q3 Sprint announced plans to further its ambitions in the prepaid arena by acquiring Virgin Mobile USA (covered in our Snapshot Sprint adds Virgin Mobile USA, looks to dominate US prepaid) - the MVNO running on Sprint’s network and home to around 5 million connections. The acquisition was completed in November.

Following a weak Q2 performance when they reported net additions of only 297,000, the situation deteriorated further in Q3 for the smallest tier-one operator T-Mobile as they lost 77,000 connections; with 63,000 prepaid net additions being more than offset by the loss of 140,000 contract connections. Blended ARPU was US$46 in the third quarter of 2009, down 8% (US$4) from Q3 2008. Despite a 12% year-on-year rise in non-voice ARPU to US$10.12, it failed to offset the fall in voice ARPU to US$35.88. Data revenue increased 18% year-on-year to US$1.0 billion in the third quarter of 2009, representing 21% of service revenue, up from 17% in the third quarter of 2008. 2.8 million 3G-capable converged devices were on the T-Mobile network at the end of the third quarter of 2009, an increase of 33% from the second quarter. Blended churn was 3.4% in the third quarter of 2009, up from 3.0% in the third quarter of 2008.

Regional prepaid operators MetroPCS and Leap Wireless both also had weak quarters in Q3, with net additions of 67,000 and 116,000 respectively (compared to 206,000 and 203,000 in Q2) as increased competition in the prepaid market took its toll. MetroPCS reported ARPU of $41.08 for the quarter representing an increase of US$0.66 (2%) when compared to the third quarter of 2008, primarily driven by a favourable sales mix of their higher value prepaid plans and the launch of their unlimited international calling plan. Leap Wireless reported ARPU of US$39.60 for Q3, a decline of US$3.35 (8%) from Q3 2008 and reflecting the introduction of lower priced prepaid plans. Other regional operators continue to be squeezed by the desirable devices/better coverage available from AT&T/Verizon and the ‘unlimited’ prepaid offerings from the likes of Boost Mobile and América Móvil-owned MVNO TracFone Wireless (who operates the TracFone, NET10, SafeLink Wireless and most recently Straight Talk brands). TracFone Wireless added a further 712,000 net additions in Q3, taking their total connections to 13.2 million (greater than MetroPCS and Leap Wireless combined); representing a gain of 2.8 million (26%) in the last 12 months. Competition in the US prepaid sector appears set to intensify, with América Móvil announcing during Q3 that they will be expanding Straight Talk’s US$45/month ‘unlimited’ offering that is hosted on Verizon’s network nationwide through 3,200 Wal-Mart stores by the end of the year. Additionally, in early 2010 Sprint announced that it will expand Boost Mobile’s US$50/month ‘unlimited’ prepaid offering to its CDMA network – the unlimited plan was previously only available on Sprint’s iDEN network. This appears likely to place more pressure on regional operators such as US Cellular, Cincinnati Bell Wireless and nTelos Wireless, who all reported a second (or more) consecutive quarter of negative net additions. Centennial Wireless also reported its second consecutive quarter of negative net additions in the final quarter before AT&T completed its acquisition.

Rogers Wireless maintained its position as Canada’s largest cellular operator with 6.7 million connections at the end of Q3, following 209,000 net additions for the quarter driven primarily by postpaid net additions of 167,000. Rogers reported that data revenue now comprises 23% of service revenue as data revenue increased 46% year-on-year to CAD 372 million, helped by the activation of more than 370,000 smartphone devices during the quarter, of which approximately 45% were new customers. Rogers also noted that smartphones now represent approximately 28% of postpaid connections, up from 15% in the same quarter last year. GSMA Intelligence calculates that Rogers increased data ARPU to CAD 15.03 in Q3, an increase of 38% (CAD 4.14) year-on-year and helping to maintain blended ARPU that declined only marginally to CAD 66.45 in Q3, a fall of CAD 0.85 year-on-year (1%).

Telus Mobility and Bell Mobility continued their battle for second place, with Bell gaining more net additions (135,000) than Telus (125,000) for the first time since Q4 2007 and increasing their lead marginally to 294,000 (284,000 in Q2). However, over the past year the gap has narrowed from 468,000. Bell completed the acquisition of the remaining 50% of former MVNO Virgin Mobile Canada during the quarter. On a pro forma basis, Bell reported data revenue growth of 33% in Q3 2009 with data device subscribers up 124% year-on-year, and data ARPU of CAD 9.38 representing 18% of service revenue, up from 14% in Q3 2008. Blended ARPU decreased by 5% (CAD 2.50) year-on-year to CAD 52.13. Competitor Telus reported that data revenue increased 27% (CAD 48 million) in Q3 and now represents 20% of service revenue. Data ARPU increased by 18% (CAD1.86) year-on-year to CAD 12.05, while blended ARPU declined by 7.3% (CAD 4.69) to CAD 59.45 compared to the same quarter a year ago.

The competition between the Canadian operators appears only set to get tougher with the news Wind Mobile (Globalive) launched in December following fierce debate over whether its shareholding structure (Orascom indirectly owns 65%) complied with Canadian local ownership and control regulations. Wind looks set to be joined in 2010 by DAVE Wireless, Public Mobile and existing MVNO Videotron (Quebecor).