The consensus opinion is certainly that mobile broadband is not a profitable business (yet) in Western Europe (especially in countries like UK) where mobile broadband prices are trending lower than fixed broadband prices. I have always wanted to do a quantitative analysis.
The analyst firm Informa claims that fixed-line costs in Europe are near Eurocent 0.1-0.5 per MB, compared with Eurocent 2-3 for mobile networks. We can use this number to compare the cost basis for various operators’ quota-based mobile broadband packages. For example, 3 UK’s package is as follows:
So if you use the 2 Eurocent per MB number, 1 GB costs ~20 Euros (or 18 pounds) significantly more than the 10 pounds that 3 seems to be charging for the 1 GB package. Assuming a user who signs up for a 7 GB package uses ~2 GB, the cost for 3 to support that user is ~36 pounds which is still a lot higher than 25 pounds. I am not sure about you, but I sure don’t see how 3 is making money on these mobile broadband packages.
Tariff Consultancy has released an interesting new report on Mobile Broadband Pricing – an analysis of current mobile broadband pricing in 33 countries across Eastern and Western Europe. There are some interesting, yet not completely surprising, findings from the report:
- The average flat rate package bundle provided has doubled over the last 12 months to almost 4GB (based on the analysis of 100 mobile operators). The most common monthly user allowance price point on offer across Europe is now 5GB and 10GB, closely followed by 1GB and 500MB allowances.
- Pricing in 2008 has fallen by an average of 4% across all countries when compared with the previous year – even though average user allowances have more than doubled. In some countries, mobile broadband pricing has fallen even steeper – as much as 53%, 43% and 35% in Latvia, Austria and the UK respectively over the past year.
- In Ireland, Germany, Sweden and Spain average mobile broadband prices are now significantly lower than the most popular fixed line DSL broadband service, which is driving customers to the mobile broadband offer. I have pointed out this phenomenon earlier in here and here. Ireland and Sweden have always been mobile broadband leaders. Looks like Spain and Germany are following their lead as well.
The most striking feature has been the continued increase in monthly user allowances which have more than doubled last year while pricing has continued to decline. The implication is that the Euro/MB has fallen by more than half – not a very good sign for the operators. Clearly, the key challenge for the operators is to translate the explosion in user growth into profitability. The report also finds that flexible tariff structures that allow for per day and per week pricing (also called pay-as-you-go plans such as O2′s recent offerings) are now available in the market place.
If it is Monday, it must be COTM! Scoot over to Carnival of the Mobilists at Andrew Grill’s London Calling to get the latest news and insights in the mobile industry. I found Chetan Sharma’s report on the 3G Americas Analyst Summit – especially his comments on LTE vis-a-vis HSPA interesting:
I think given the current economic climate, we might see the investment plans being delayed. Of course, with one city launch, some folks can claim LTE launch but pervasive availability will be pushed to 2013 and beyond. I think operators will try to milk HSPA technologies for as long as they can.
This business of “unlimited” data in its current incarnation is not sustainable. You have to be careful what you wish for. Mobile data usage is “here” thanks to smartphones and consumer awakening of what’s possible but I think the networks are not ready for a huge onslaught of data usage – esp. the kind of things we are used on the Internet like browsing, streaming, uploading, etc. – in large quantities. At some point, there will be enough users on a cell-tower that will start damaging the user experience. The incremental revenue doesn’t totally justify the investment required to support such a surge. So, what gives … we are likely to see more tiered data pricing and less emphasis on “unlimited” data.
I am not sure if there really is “unlimited data”. All mobile broadband plans (whether it is for smartphones or USB modems/dongles) come with monthly quotas beyond which Fair-Use-Policies are applied by the operators. So I am not sure what exactly Chetan is referring to here? In fact, as we have discussed multiple times in this blog, mobile operators are trying to go after fixed broadband providers and may be forced to raise the monthly quotas if they really want to compete. He does have a valid point on the huge onslaught of mobile data usage damaging the user experience.
I have been commenting quite regularly in this blog about how mobile broadband (based on USB dongles and modems) is increasingly being used by mobile-only operators (those without fixed assets) to accelerate the replacement of fixed broadband, primarily in Europe. The spectacular growth in mobile broadband subscriptions is being driven by aggressive pricing from mobile operators, along with free laptop bundling offers – built-in 3G support for laptops and netbooks isn’t hurting either. One missing element in this puzzle has been a way for multiple members in a household or a small office/home office to share a mobile broadband connection in a simple plug-and-play fashion. Enter the consumer-friendly WiFi-over-3G Router! 3 UK is rolling out the nifty Huawei D100 router - insert your dongle into the router and share your mobile broadband with WiFi-enabled devices such as PC, Mac or a laptop. The 3 store claim “There’s no need for a landline, because the Wireless Router does all the work” is a clear indication that they are going after fixed broadband. If most people are already making voice calls on their mobile phone, it is a small step for the consumer to wonder if he needs the landline at all! It remains to be seen how many consumers will be happy with a monthly usage plan under 15GB especially with the increased usage in online video. Surprisingly, the mobile broadband plan for the router does not include the 15GB monthly allowance plan (which is an option for the laptop plan) – for some strange reason, only the 5GB allowance is available. One would expect that people who buy into this 3G Router in order to share their mobile broadband would sign up for a plan with a higher monthly data allowance. Clearly, 3 is also looking for this product to create stickiness – 3′s compatibility statement indicates that the router has firmware to ensure that a modem from any other carrier does not work properly.
I am a little surprised that 3 UK is not offering a bundled voice + mobile broadband offering. Both (3) Sweden and (3) Austria have been selling Huawei’s 3WLAN Router E960/E970 for a while now – in addition to 4 Ethernet interfaces and WLAN support, this 3G Router also has a RJ11 interface, ideal for connecting the black phones. It is not clear if voice is transported as VoIP over 3G in this case. Several operators including Vodafone Egypt and Optus (Australia) are offering this product in their mobile broadband portfolio as well.
T-Mobile in UK announced a similar product called “Mobile Broadband Share Dock” earlier in the month, but unfortunately, it is still not available for purchase (unlike 3 UK). The concept is similar – plug in your old T-Mobile USB modem or a new one into the dock and share the mobile broadband amongst as many as three people (3 UK claims their product can support 4 end users). I am betting Vodafone and the other operators in UK will follow suit if this concept catches on.
I guess it was just a matter of time before white-label mobile broadband service offerings entered the mobile data lexicon. Spanish PC manufacturer AIRIS has recently concluded a promotion offering a mobile broadband laptop bundle with no specific operator branding. The white-label offer shows how mobile broadband is rapidly becoming a commodity in Spain and in most of Europe. AIRIS ran the promotion (see picture) with Spanish national daily newspaper El Mundo, offering a free ultra-portable laptop and modem to anyone who collected vouchers from the newspaper and signed up for either a 12-month contract with Telefonica or a 24-month contract with Orange Spain. Although the terms of the contract are not any more favourable than those offered directly by mobile operators, the lack of operator branding shows that operators are not the only players pushing bundled mobile broadband offers in Spain.
The reason for such white-label mobile broadband offers in Spain becomes apparent when you consider that close to 30% of Spanish households have neither PCs nor fixed broadband – a ready target for mobile operators, PC vendors and who knows what in the future. This number is actually higher in Portugal (60%), Greece (40%), Italy (40%) as well as France (30%). Expect such white-label services to be launched in these countries very soon.
The flood of new MVNOs in Spain (most of them through Orange) has been the primary reason why non-mobile operators such as fixed Internet service providers are launching mobile broadband services. In addition to AIRIS, Spanish broadband operators Jazztel and Ono have also recently launched mobile broadband packages. Jazztel is offering both a prepaid tariff costing €0.20 per megabyte and a contract offering 250MB for €7.95 a month. The company offers its mobile Internet service as an extension to the mobile voice service it launched in June through its MVNO agreement with Orange.
Cable operator Ono is also promoting “free” mobile broadband up to 5MB a day under the brand BAMG (Banda Ancha Movil Gratis) for users who buy a dual- or triple-play bundle of TV, phone and fixed Internet. KPN-backed Simyo (offered through Orange again), for example, is undercutting the three network operators by offering up to 5GB of data transfer over HSPA for €24.99 a month, with no fixed contract length. While the data packages of Jazztel and Ono are fairly limited, KPN-Simyo has aggressively priced its mobile broadband offering – traditionally Telefonica and Vodafone have not been too willing to bring down the mobile broadband pricing premium (which is close to 45% above that of fixed broadband), Orange which has probably a lot less to lose has thrown the gauntlet through its MVNO partner.
I have written about the explosive mobile broadband growth in Austria – Sweden is yet another country where mobile broadband growth is rivaling fixed broadband options. This is not very surprising given how competitive mobile broadband is being priced in Sweden compared to that of fixed broadband. Sweden’s National Post and Telecom Agency (PTS) publishes an annual report on the state of the Swedish Telecommunications Market. The 2007 report has several interesting data about the state of the mobile broadband in Sweden called “mobile Internet” in the report.
Clearly, 2007 was the year for mobile broadband in Sweden. During 2007 the number of mobile subscriptions via data plug-in cards or USB modems increased from 92,000 to 376,000 representing a growth rate of around 309%. Apparently, this frenetic pace of growth has shown no signs of slowing down in 2008 as well. USB modems for mobile Internet have for instance been at the top of the sales figures in both Telia Sonera and (3)’s shops during the first months of 2008. This rapid growth in mobile broadband subscriptions has been exceeded by a even more faster rate of growth in mobile data traffic as the accompanying figure illustrates - total mobile data traffic increased by over 1000% during 2007 (from 203 Tbytes to 2,191 Tbytes). This follows a similar pattern in all the countries where mobile broadband is showing explosive growth – traffic increases at a rate significantly greater than the revenue from mobile broadband subscribers, given that the latter pay a flat fixed fee for their subscription. As a matter of fact, total revenues from mobile data traffic in Sweden increased by 60% – compare that to 1000% growth in mobile data traffic!
Telia Sonera with 39% of mobile broadband subscriptions is the market leader. The next largest is Tele2 (25%) followed by 3 (19%) and Telenor (15%). The smallest is Nordisk Mobiltelefon (who is actually a CDMA operator operating in the 450Mhz band) with less than 3% of the market.
What’s the outlook for mobile broadband now?
At the end of 2007, roughly 78% of Swedish households had some kind of Internet access with 62% of the households having broadband connectivity. We can fully expect that the 16% of the households with dial-up access will choose some flavor of broadband in the near future. Mobile broadband is perfectly placed to win over this customer segment – in addition to the 22% of households without any Internet access. In fact, mobile broadband jumped to 12% of all broadband subscriptions in 2007 from a 4% base in 2006. In addition to an extremely competitive price – flat-rate mobile broadband connections with speeds of up to 7.2Mbps are available for SEK199 (US$30.80)) a month, comparable to the price of a 500Kbps fixed-broadband subscription, around 1 million of Sweden’s 4.5 million households are outside the reach of ADSL. Many Swedes are also opting for a mobile broadband connection when they migrate to holiday homes in the countryside during the summer. With no fixed broadband offerings to protect, it is a reasonable bet that (3) will go after this segment aggressively similar to its approach in the other countries in which it operates.
Take a look at this chart that shows the pricing premium (or lack thereof) of mobile broadband over fixed broadband in 26 European markets (Chart courtesy: Analysys Mason Group).
The chart is a little difficult to read – so let me try and break it down.