How should mobile operators translate the growth in mobile data to increased revenue and profitability? Some are clearly doing much better than others. Many are simply holding on while a few are major winners or losers.
Industry analysts STL partners released some interesting insights about how mobile operators commercial differentiation. I'd not seen this format before, which emphasises just how far apart some are. Separate charts are shown for US and European markets. They've published a shorter article as a teaser to their full report. The results illustrate how much dramatic market impact one European disruptor can have.
The story in the US
This first chart maps the direction of the four main US mobile operators, plotting their profitability (top to bottom axis) against revenue (left to right).
As you can see Verizon seems to be doing best, somehow managing to retain one of the highest ARPU of the industry worldwide and continuing to increase both revenues and profitability. AT&T are also increasing revenues but not quite managing to maintain as good a margin. T-Mobile has made huge gains in it's customer base with some pretty dramatic pricing packages (free international roaming, family data plans, separate handset subsidies etc.) – effectively buying market share at the expense of lower margin. Sprint have a lot of historic issues to fix and seem to be using price as their main weapon. They do have the benefit of a lot of spectrum in their portfolio but haven't yet been able to capitalise on that yet.
Don't forget that Sprint and T-Mobile combined would still be smaller than either Verizon or AT&T when measured by revenues or total subscribers. The FCC recently argued against allowing these two to merge on the basis that this would decrease rather than increase competition.
While Europe tells a different tale
On the other side of the pond, we see quite a different picture. With quite a lot of operators hovering around the left of centre (lower revenue, similar profitability), a few really stand out.
- Vodafone Germany, one of the largest Europe operators, seems to be losing revenue while SFR France is losing margin.
- Hutchison 3 Italy is rapidly growing
- Free France has rocketed up to the top right, increasing both revenue and margin
Guess which one took the adventurous step of installing Femtocells in all its customers set top boxes? (Free France of course, as explained in detail in our earlier article).
None of these charts include the relative size of each operator, so are comparing from small to very large scale organisations. Free and 3 Italy are both relatively newcomers and much smaller by comparison.
What STL conclude is that there are quite different pictures on each side of the Atlantic. In the US, the two large encumbents continue to thrive with T-Mobile making some inroads by buying market share.
In Europe, several of the largest operators are treading water or shrinking revenues in major markets. It's the innovative upstarts, such as 3 and Free France, who are making the greatest inroads.
There are several factors involved here, but the main one has been a clear strategy and cost base to deal with the rapidly increasing volume of data. Free have approached this with their unusual approach of shipping free Femtocells with every set top box – creating a basestation in every customer's home. This has allowed them to offload substantial traffic from the outdoor macro network, reducing their national roaming fees paid to France Telecom and limiting the expense of rolling out more capacity through their own macrocell network.
We're not affiliated or linked with STL Partners, so you'll have to buy their report if you want more. I did think their analysis, even at the top level, was worth noting. The contrast between US and European operator commercial performance, and especially the impact of these innovative approaches shouldn't be overlooked.