The overall mobile retail revenue performance in the first half of 2013 was in line with expectations
Various factors explain the slowdown, and their influence is particularly strong in Central Europe.
- Increasing market maturity is having an effect - mobile penetration for the region is well above 100%, and higher than 150% in Estonia, Lithuania and Russia. Potential for bringing new customers into the market is therefore limited, and this has remained one of the main engines of growth in the last 5 years.
- Tightening of regulation - in particular, there were significant cuts in the mobile termination rate (MTR) during the first half of 2013 in a number of countries in the region - for example by 36% in Croatia and Lithuania, 25% in the Czech Republic and Hungary, 77% in Estonia, and 65% in Poland. This has in many cases led to a significant intensification of competition. In the Czech Republic, for example, the number of MVNOs has increased to 50 (as of December 2013) and the introduction of unlimited bundles of voice minutes has caused a big increase in traffic, but also a reduction in revenue.
Our mobile forecast for CEE is largely unchanged, but we have increased handset data revenue at the expense of messaging
Our total mobile retail revenue forecast for CEE remains almost unchanged, at a CAGR of -0.24% for 2012-2018, the same as in our previous forecast. However, some of the service lines that make up the total revenue have been revised more significantly. In particular, we now take a more aggressive view of the prospects for the over-the-top (OTT) market in Europe generally, including in CEE. We have therefore downgraded our forecast of mobile messaging revenue for the region, and increased the handset data forecast.
In the more-mature Central European markets, a number of trends have caused us to make this revision. In several countries, such as Bulgaria, the Czech Republic, Hungary and Lithuania, messaging revenue has entered decline, suggesting that OTT services are already starting to have an impact, either directly or because operators are taking pre-emptive action to stave off the threat. Anecdotally, applications such as WhatsApp Messenger and LINE are gaining in popularity, and as smartphone penetration increases, the impact will intensify, because of the network effect. Tariffing also plays a role - for example in the Czech Republic operators have introduced new tariffs that are re-aligned to favour data over voice and messaging, which will encourage smartphone adoption, and hence OTT usage.
In the less-mature markets in Eastern Europe (such as Russia, Turkey and Ukraine), smartphone penetration is lower, and 3G/4G networks are less advanced (particularly in Ukraine), which serves to support traditional messaging services. However, in the medium term, the OTT threat is, if anything, more intense. In Turkey in particular, there is a young population that has historically adopted new means of communication where available at the right price - for example, 3G take-up in Turkey is the highest in CEE (68% in 2012, versus 31% for the region). The same can be said for Russia and Ukraine. We therefore expect a strong substitutive effect across the region during the course of our forecast.
Operators that wish to counter the OTT threat have several options
Mobile operators worldwide have taken various approaches in their responses to the rise of OTT services. Simply attempting to block OTT services was an option taken up by various European operators when OTT services first emerged, and is still pursued by a number of operators and regulators elsewhere. However, in Europe this is no longer a realistic option (if indeed it ever was) because of regulatory disapproval, customer expectations of net neutrality, and the sheer difficulty of enforcing an effective ban.
Operators would achieve more by addressing the underlying drivers that are causing people to use OTT - particularly pricing. Timing is critical - when OTT applications have become established, it will be very difficult for operators to regain lost ground. Alternatively, partnerships with OTT players are an option, but these will appeal mainly to disruptive operators that are seeking to gain market share generally rather than defend revenue from traditional services. Finally, operators can launch their own next-generation services, either using their own proprietary technologies, or through industry-led efforts such as RCS.
In any case, the future for operators lies in IP-based services, and they should position themselves accordingly.
At the core of Analysys Mason's offer are two key services: consultancy and research. To support these, we have developed skills and techniques that deliver tangible results for clients the world over. One of the features that sets our consultancy work apart is our exclusive focus on telecoms, media and technology (TMT). We are specialists, and proud of it. Analysys Mason works with clients across the TMT sector and across the world. Most important of all, we never forget that the point of consultancy is to make a tangible difference to our clients' businesses. In terms of our research, many of the world's leading network operators, vendors, regulators and investors subscribe to our research programmes and rely on our insight to inform their decision making. Clients also have the opportunity to engage one-to-one with our subject-matter experts for tailored advice on critical business issues.