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Mobile Phones Market Report 2005
Key Note Publications Ltd, Feb 2005
The mobile phones industry in the UK has grown rapidly in recent years. In 2003/2004, it was worth £13.97bn — more than double its value 5 years earlier. This market now accounts for approximately 40.3% of the revenue accrued by the entire telecommunications market and the proportion of voice minutes on cellular networks is now a third of the telecommunications total.
The majority of the industry's revenue still comes from voice calls, although the proportion of income generated by non-voice services will continue to increase as the uptake of 3G (third generation) gathers pace. Revenue from text and picture messaging continues to show impressive year-on-year growth.
The industry is now entering a crucial phase as the transition is made into the 3G era. The advent of new technology constitutes a risk for the established operators, because it upsets the status quo whereby the largest players have been able to build their revenue streams in a relatively predictable environment. Extra network capacity will result in cheaper voice calls and the squeezing of this revenue stream will be exacerbated by the presence of virtual operators attempting to differentiate on price. A worst-case scenario for the network providers is a prolonged price war that significantly reduces operating margins (although voice calls on 3G will cost the operators less than 2G — second generation — voice calls). The consumer is likely to benefit as network providers offer better deals on voice calls, other services and handsets, in their attempts to maintain or increase market share.
The arrival of 3G consumer services and the increased convergence of technologies also represents a great opportunity for the main operators. Market saturation, increased competition and regulation on termination charges are decreasing margins from voice calls, which means that non-voice services offer the best potential for industry growth. In addition, they represent an opportunity to gain a return on investment and assets, following the huge outlay on 3G licences and preparation of networks. There will be winners and losers, with operators enjoying different levels of success in marketing their 3G services and increasing average revenue per user (ARPU).
Growth in this market will be dictated by how quickly 3G penetrates the mass market and the speed at which the main operators are able to increase their income from non-voice services. Operators will need to differentiate themselves effectively on the quality of 3G services by ensuring that the best content is available in the most user-friendly formats. The operators could also benefit from increased use of mobile phones, if cheaper voice calls encourage people to make greater use of cellular networks at the expense of fixed networks.
The industry will continue to grow in value, but increased revenue from non-voice services will be offset by tighter margins on voice calls and the `cannibalisation' of 2G revenue streams. The most successful operators will be those that are best able to differentiate their 3G services while also building market share by offering the most competitive voice bundles.
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