Mobile services growth decreases while fixed telephony declines

Mobile customer bases worldwide increased by almost one fifth in 2008, yet average revenue per user (ARPU) has declined, offsetting growth. In addition, fixed line telephony has continued to decline, stated a report from research and analysis firm, IDATE.

The world telecom services market is estimated at $1,365 billion in 2008 – a 4.2% increase over the year before – and is expected to be worth over $1,416 billion in 2009.

With a total turnover estimated at $742.2 billion in 2008, mobile services account for 54% of the telecom services market and singlehandedly deliver all of the sector’s growth. But the annual growth rate has dropped from more than 12% in 2007 to 8% in 2008. The mobile customer base worldwide grew by another 17% in 2008, but is offset by a steady decline in ARPU which dropped to $17.50 a month in 2008. Meanwhile, fixed network services are stagnating.

The revenue generated by data services – whose growth is being spurred chiefly by broadband access – rose by $20 billion in 2008, while fixed telephony revenue dropped by as much, even if the impact on the base is still limited; the number of fixed phone lines shrunk by just over 10 million during the year, by just under 1%. The number of broadband connections grew by close to 20% to 415 million at the end of 2008; with an average density of 6.4 broadband connections per 100 inhabitants, this market still has considerable room to grow, especially in emerging economies. In more advanced markets, broadband density is over 30%, between 70% and 80% of households are already equipped.

Amidst the global economic crisis, the global mobile phone market is facing difficult times and growth that were double digits from 2002, are now experimenting the negative impact of this economic turmoil. With a volume growth stated at 15% in 2007, mobile phone sales should continue to be on the growth in 2008, but at a far lesser extent. IDATE states that volumes have progressed by 5% in 2008 reaching 1200 units sold over the year, a forecast reevaluated to the downside after a negative fourth quarter. If these numbers appear positive taking into account the global crisis and the impact it has on the IT and consumer electronics industry, 2008 was a turning point in the mobile phone industry.

First, the mobile phone market has been historically one of the fastest growing markets with double digits growth per year, since the internet bubble burst in 2001 and its economic downturn. The fact that this year market growth may be limited to 5% is a sign of general slow down of the industry as consumers are either differing their handset replacement or first purchase.

Second parameter is to be seen in the second half sales of 2008. In the first half of 2008, handset sales were on the same trend as previous years with year on year sales between 13% to 15%. As of the third quarter of 2008, sales were down to 7.7% confirming the economic impact of the global crisis; and in the fourth quarter, sales were down by 10% year on year. Historically the third quarter has been a ramp-up time for manufacturers to ship phones in preparation for the holiday season and growth have generally been on a 15% to 30% progression year on year. With these low third and fourth quarter sales figures, market should prepare for low first half in 2009 with a inevitable contraction in mature markets.

Starting in the second half of 2008, the economic slow down should continue in 2009 and increase its impact on mobile phone sales. For 2009 perspective, after IDATE first stated that mobile phone market growth should remain positive between 1% to 4%, market warnings by major handset manufacturers and chipset suppliers, indicated that this year will remain extremely tough for every players of the mobile value chain. Sales should therefore be on the downturn reaching 1130 to 1140 units, a 5% to 6% decrease in volume. Mature markets where sales are driven by replacement should be the most impacted with negative sales in North America, Western Europe and Japan. On a longer term, sales in 2010 should remain low (<6%) but with a renewed interest from users for innovative models. Sales may begin to gain traction again from 2011 depending on the evolution of the current crisis. In the mobile access equipment market, overall GSM sales led the good evolution of the mobile market despite weaker deployments of WCDMA networks. Market also faced an intense consolidation inducing a fiercer competition between equipment providers. The mobile access infrastructure market includes cellular network access base stations (BTS for GSM/GPRS/EDGE and CDMA, and Nodes B for UMTS networks), associated equipments (BSC, GGSN, SGSN) as well as Public Network WLAN access base stations (hot-spots), based on WiFi, WiMax technologies. Despite the dynamic investment in mobile networks benefited mobile infrastructure suppliers caused by the intensifying competition in Africa, India, Latin America, and Russia and price erosion for GSM/EDGE/GPRS equipment, there were slowdown in the sector. With the investment reduced from mobile carriers, the mobile market had seen difficulties in 2007 and 2008 and had created a more considerable/ intensive competition between suppliers. This segment had been the most impacted market with the emergence of Nokia Siemens Networks as a second and Alcatel-Lucent at the third place but finally the companies were not aggressive face to Ericsson which continued to grab market share. The fear for the Swedish company could come from the Chinese manufacturers. Indeed, Huawei and ZTE had displayed the most important growth rates in the industry thanks to their success in emerging countries, where investment remained robust and their ability to come compete in the developed countries as in Western Europe where they won several contracts.