WCIS Insight: Adapting to the challenges of a harsh operating environment: a study of operator business models in Europe

The European region was hit hard by the economic downturn during the first half of 2009. Although the telecommunications market has proven resilient, mobile operators' financial indicators have been affected and the new challenging scenario has reshaped operator strategies.

Through a series of case studies, this Insight provides an analysis and commentary on the impact of an increasingly complex operating environment on mobile operators. The report explores how mobile revenue streams have been affected by regulatory changes as well as shifts in consumer spending behaviour. The report also highlights those European operators who have thrived during this period and the main drivers behind this trend.

The report also focuses on changes in capital expenditure strategies that operators have undertaken in an attempt to control costs and improve EBITDA levels. In a series of case studies, we analyse how operators have shifted investment patterns relating to cost saving measures and network upgrades in light of customer demand.

In summing up, the report highlights the growing importance of marketing to operators as companies respond to changes in consumer behaviour. At a time when the European mobile market is becoming increasingly crowded and saturated, and with the retention of existing customers at the heart of many operator strategies, the report highlights the importance of promotions and differentiation in achieving this aim.

Key issues addressed:

• How badly have mobile operator revenues been affected by the economic downturn?
• What revenue streams have been hit worst and how much of this is due to regulatory issues?
• What revenue streams have held up better during the last year?
• What are European operators doing to improve EBITDA margins without compromising market share?
• Are operating choose to downgrade capex spending as a result of the economic downturn?
• What are European operators doing to tackle restrained consumer spending?
• What new promotions have come out of this new economic scenario?

Key Highlights:

• Informa Telecoms & Media estimates that total wireless revenues have dropped 2.8% in the year to 1Q09 to €48.6bn in Europe while service revenues have fallen slightly less (-2.6%) to €44.9bn.
• The mid-priced handset appears to be under pressure as mobile customers in Europe shift either to high end smartphones or the low end market through the growing number of SIM-only offers. Some operators such as T-Mobile Germany are subsidizing high end phones while others such as O2 Germany and Orange France have returned to financing handsets and selling second hand devices.
• Informa estimates that despite capex increasing in Europe by 5% y-o-y in 1Q09 to EUR5.84bn, there was a steep quarterly decline of 33%. This q-o-q decline was most pronounced in Eastern Europe where CAPEX slumped by 48% q-o-q to approximately EUR2bn, as compared to a more moderate 21% decline in Western Europe.
• Informa estimates that ARPU in Europe fell by 11% y-o-y to EUR15.68 during 1Q09 with Eastern Europe experiencing a 13% decline (to EUR8.12) whilst Western Europe’s was a rather less pronounced 9% (to EUR21.39).
• SIM-only subscriptions have grown significantly in Western Europe with mobile operators in the UK selling over 1.2 million SIM-only subscriptions during 2008 (one third of net additions in the year) and German operator E-Plus reporting over 10 million no frills subscriptions up to 1Q09.
• New tariff plans and promotions have emerged as a result of the macroeconomic climate. The rise in unemployment has encouraged operators in Spain, France and the UK to offer monthly bill discounts to the unemployed and making the shift from corporate to personal plans easier.