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| Are you prepared to loose many of your prepaid customers? |
European mobile operators must take precautions - especially if a large part of their subscriber base consists of prepaid customers. Competition from Discount Mobile Service Providers will without a doubt result in a significant decline in Prepaid-ARPU. Are you ready for this - it's just around the corner! |
The worst kept secret in the European mobile sector is that the discount mobile telephony will carve a big chunk out of the mobile operators' revenue - a big chunk! The mobile operators will simply loose a large part of the revenue they have been getting from their customers payment of the monthly mobile subscription (line rental). On top of this the prices for voice minutes and SMS will dive to unheard of lows. Our new report shows how mobile operators not only have to adjust to all the above, but will also see a significant decrease in revenue from their whole prepaid segment.
Just 5-6 years ago the European mobile market was flooded by the prepaid wave. The mobile operators gained a tool that enabled them to create a significant growth in their customer bases - that tool was the prepaid concept. Low income customers, or customers who wanted an effective cost control on their mobile consumption turned away from the traditional mobile subscriptions and chose a prepaid solution - and the mobile operators charged high prices for transmitting these new prepaid voice minutes and SMS messages.
But despite the high price pr. minute for prepaid voice- and SMS traffic, the mobile operators always had significantly lower ARPU on prepaid customers, compared to their postpaid customers. Even so, there was fierce competition over prepaid customers - partly to ensure growth of their customer base and partly to get a slice of the revenue that the prepaid customers do generate - even if it is smaller than postpaid revenue.
The size of the prepaid wave that spread over Europe has had the result that many of the European mobile operators' customers today are indeed prepaid customers using prepaid cards. In Greece, all the mobile operators have at least 60% of their customers on a prepaid offering. In Ireland, Portugal and Italy, ALL mobile operators have at least 70% of their customers on a prepaid offering.
See graph Prepaid in Europe
In Strand Consult's recent report "The Moment Of Truth - A Portrait Of The Discount Mobile Service Providers Success" we analysed both the concept and business model that is powering the success of discount mobile telephony. We predicted for example that the traditional postpaid customer would soon be able to avoid having to pay a monthly subscription (line rental) as discount mobile service providers start offering cheap mobile telephony without any form of subscription. That prediction was spot on.
The discount mobile service providers have now established themselves in Denmark and the very latest figures show that even more prepaid customers - especially the attractive segments - are changing over to discount mobile telephony offerings. This is simply because they are switching to an offering similar to what they already have - but with significantly lower prices. It just makes complete sense - there is simply no reason why they shouldn't. Especially the high volume users can easily see a huge saving every month and that is hitting operator earnings on prepaid mobile telephony hard.
So far, Denmark is the only country in Europe where the mobile operators have fully felt the consequence of the fierce competition from the discount mobile service providers. This is especially the case for Denmark's largest mobile operator TDC Mobil that also has Denmark's largest base of prepaid customers. From 1H 2003 to May 2004, TDC Mobil lost a staggering 20% of their 500.000 prepaid customers - most of whom changed over to one of the discount mobile service providers.
That there is no doubt, that it is the high-volume prepaid customers that are changing provider - as can clearly be seen on the chart below.
| | 1Q 2003 | 2Q 2003 | 3Q 2003 | 4Q 2003 | 1Q 2004 | y/y change
1Q03-1Q04 | | TDC Mobil | | | | | | | | Prepaid ARPU | 7,52 Euro | 7,92 Euro | 5,23 Euro | 5,37 Euro | 3,76 Euro | - 50% | | Postpaid ARPU | 32,48 Euro | 33,02 Euro | 30,74 Euro | 29,40 Euro | 30,20 Euro | - 7% |
Source: Strand Consult
The chart shows how increasing competition has led to a decrease in TDC Mobil's postpaid ARPU. But that decrease is nothing compared to the drop in ARPU that TDC Mobil has experienced from their prepaid customers. In just one year, TDC Mobil's prepaid ARPU has fallen by an incredible 50%!
In other words, discount mobile telephony is now also costing the Danish mobile operators lost revenue due to falling ARPU from their prepaid customer base. However, in Denmark prepaid customers make up only a small part of the total mobile customer base. A 50% decrease in prepaid ARPU will therefore have a devastating effect on mobile operators in other European countries where prepaid customers make up e.g. 75% of their total customer base!
The new business area of discount mobile telephony has just been thoroughly analysed in Strand Consults latest comprehensive report "The Moment Of Truth - A Portrait Of The Discount Mobile Service Providers Success" and updated in a new 100-page appendix to the report. This report has examined the Danish mobile market, where discount mobile telephony has in a very short period of time, managed to turn the whole mobile market upside down, completely changing the competitive parameters that were until recently governing the market. This new update of the report contains the latest figures and how they are affecting the market and actual case stories of discount mobile offerings from countries like Norway, Finland and Holland.
The updated report answers many questions about discount mobile telephony that we have been getting from a great number of the European mobile operators, MVNO's and Service Providers after we published the first edition of this report. Many wanted to know more about the business models that enabled two Danish Discount Mobile Service Providers (Telmore and CBB Mobil) acquire no less than 43.7% of all new mobile customers from 2H 2000 to 1H 2003 and how that effected the Danish mobile market after prices dropped by around 50%, so a discount mobile customer can today talk on his mobile phone for just 0.091 Euro and send SMS messages at only 0.026 Euro pr. message. This is an outstanding achievement considering these two companies were both launched at the end of 2000. So what will the future look like? Many mobile operators have asked how long this "discount monster" will continue to grow, when they learn that around 25% of all mobile telephony in Denmark is today sold through discount mobile offerings.
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More information "The Moment Of Truth" - A Portrait Of The Discount Mobile Service Providers Success"
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