In some of the world’s more prosperous developing countries, the mobile industry seems to be reaching a major tipping point. Data services are beginning to take over from new subscribers as mobile operators’ primary growth engine. In Latin America, for example, most people now have a mobile phone – America Movil estimates that mobile penetration in the region is now almost 94%.
As the focus shifts to selling existing customers multimedia and broadband services, will mobile operators in these markets learn from the mistakes of their northern hemisphere counterparts, which have mostly failed to squeeze enough revenues out of data services to keep the top line growing at a steady clip?
As they pursue revenue growth, emerging market operators also need to get the balance right between driving demand for mobile data services and ensuring their networks don’t become overwhelmed. This particular challenge looks even trickier in the southern hemisphere than it is in the northern hemisphere. In Latin America, Africa and Asia, fixed-lines are relatively scarce, so wireless networks are the only way many people are going to get on to the Internet. At the same time, mobile operators in these markets tend to have access to less spectrum than they would in Europe or the U.S., so it is even more important that they price data services at the right level to drive traffic, but not too much traffic.
In a narrative all too familiar to European mobile operators, Vodacom said last week that cuts in regulated mobile termination rates curbed its service revenue growth in South Africa in the second quarter. Still Vodacom continued to grow the top line by translating a 55% increase in data traffic into a 43% increase in data revenues – a much better yield than many of its European and U.S. counterparts have been able to achieve. In developed countries, a 100% increase in data traffic has typically led to data revenue growth of 30% or less, reflecting the rollout of overly-generous tariff plans.
Of course, the high rates of data revenue growth in emerging markets can just reflect the relative immaturity of the market and a lack of competition – in many towns, there may be only one telecoms operator offering an Internet connection faster than 100kbps, giving it some pricing power. Moreover, developing countries are very diverse. In the second quarter, America Movil’s performance varied dramatically from country to country – its wireless data revenues grew 81% in Peru and 44% in Brazil, but just 25% in Mexico, for example.
More dollars per megabyte?
If the mobile industry is to stay healthy, mobile operator’s data revenue growth clearly can’t lag too far behind data volume growth. As they fiddle with their data tariffs, there are signs that European and U.S. operators are beginning to get a better return on soaring traffic levels. Vodafone said that its group data revenues, excluding messaging services, grew 25% year-on-year in the quarter ending June 30th – up from 20% the previous quarter and 18% the quarter before that. AT&T said that its wireless data revenues increased 27% year-on-year in the second quarter, outstripping the 24% growth in the number of subscribers on wireless data plans. Postpaid data ARPU was up almost 19% year-on-year. It looks like lessons are being learnt.
Having watched the mobile data explosion in Europe and the U.S., mobile operators in developing countries will likely go to great pains to price new mobile data bundles carefully to ensure that traffic, revenue and capacity rise roughly in tandem. Given a timely release of more spectrum, they would then be well-positioned to translate the burgeoning demand for Internet access into another wave of revenue growth. And if they can do that, their shareholders will give them the leeway they need to invest in new networks and keep the long-term growth story alive.