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October 11, 2013

First Time in Mobile Industry History - Mobile Operators Will Face Global Revenue Declines by 2018

According to new research from global analyst firm Ovum, the mobile party may finally be coming to a close for the wireless carriers. At TCM's ITEXPO events, we routinely examine the issue of carrier mobile revenue - typically under the guise of asking if the wireless carriers can be innovators in the future or if they will evolve into merely being dumb pipes and losing revenue to third party players, such as the OTT (Over the Top) vendors like WhatsApp. We typically conclude that the mobile carriers are not well equipped to continue to drive revenue growth.

It would now appear that Ovum is coming over to our side of the fence on this front. In its latest research report, “Global Mobile Market Outlook: 2013–18,” Ovum predicts that global connections will grow at a CAGR (compounded annual growth rate) of less than 4 percent between 2012 and 2018. It all predicts that global revenues will grow at less than half that rate.

ARPU will continue to decline says Ovum, and as growth slows the wireless operators will find themselves in urgent need of uncovering new ways to serve customers more profitably that goes well beyond the usual focus on increasing subscriber numbers. This is precisely the issue we examine in our panel sessions noted earlier - and as we also noted the answer is typically one that suggests the carriers won't be able to deliver on this urgent need.

Image via Shutterstock

Here are a number of key global report points:

  • Western European operators’ revenue will decline by 1.5 percent CAGR
  • The market in the United States is starting to show signs of its maturity
  • The greatest ARPU decline will be in the Middle East and will fall by 2.5 percent CAGR
  • Africa, on the other hand - and we will note not surprisingly, represents the largest growth opportunity, with revenues expected to grow at a CAGR of 4.2 percent
  • Global mobile connections will grow from 6.5 billion in 2012 to 8.1 billion by 2018
  • Annual mobile service revenues will rise from $968 million to $1.1 trillion

That last bullet point is certainly an interesting one, contain as it does a number measuring in the "trillion" dollar range. That appears to be the pinnacle as far as Ovum can see however. The company then notes the following:

Global service revenues will contract in 2018 for the first time in the history of the mobile industry, declining from 2017 levels by one percent or about $7.8 billion. As such, over the next five years, innovation in services, tariffs, business models, network operations, and partnerships will be key revenue-generating strategies.

Sara Kaufman, analyst for Industry, Communications and Broadband at Ovum and the report's author, says, “Growth will continue to slow in most markets around the world. When you compare connection and revenue CAGRs, it is clear that mobile operators are facing a new reality: they must do much more with much less. Consolidation will help to alleviate some market pressures and is inevitable in many markets. But the need for revenue stabilization is becoming paramount for a sustainable future.”

Kaufman adds, "Operators in developed markets face particularly challenging times. Connections in Western Europe will grow by a CAGR of less than 1 percent, while revenues will decline at a CAGR of 1.48 percent. Several other developed markets will see year-on-year revenue declines in 2018, including the US, which will finally begin to show signs of its own maturity."

The Ovum report underscores that a good deal of the projected revenue decline will be driven by falling ARPU, which Ovum projects will continue to decline across all markets by a 2.7 percent global CAGR between 2012 and 2018. The greatest decline will be in the Middle East, where ARPU will fall by a 2.5 percent CAGR. Kaufman does note in the report that though ARPU declines are inevitable, ARPU itself cannot fall indefinitely. In markets with very low ARPU, it will reach a floor and then stabilize.

As noted in the bullet points above, regardless of the overall anticipated negative global trend, some key growth opportunities will exist, particularly in Africa, where revenues are expected to grow at a CAGR of 4.2 percent throughout the forecast period. Africa will also have the fastest growth rate in connections, increasing at a CAGR of 5.6 percent between 2012 and 2018, and ending the period with just over one billion connections.

Select markets in the Asia-Pacific and South and Central America regions will also drive growth over the next five years, but no other region in the world will see revenue growth at a CAGR above 3 percent during the forecast period. Growth in Asia-Pacific will slow, but this region will remain the largest contributor of new connections, driven largely by China, India and Indonesia. Connections in this region will total 4.2 billion in 2018 and will account for 57 percent of net additions globally through the forecast period.

Is there any wonder why Apple and the rest of the device makers are keen to win in these markets?

Details for the “Global Mobile Market Outlook: 2013–18” report are available directly at Ovum's website.

Edited by Alisen Downey

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