The Wireless Decade: A European Survey
Lucy Berridge, Stephen Stones, Peter Kingsland, Tania Harvey and Ross Parsons
CIT Publications, Exeter, UK
There is no doubt that European mobile communications markets are booming as never before. As ever, strong regional and national differences exist within this cross-European trend. Last year, the engines of Europe’s racing cellular market were Italy, France and Germany where the numbers of mobile customers soared by 75, 63 and 41 percent, respectively. However, in terms of penetration rates, these markets still lag behind the Nordic countries where mobile telephony has been around for a longer period of time. Despite such differences, one factor that unites all cellular service providers in Europe is competition. The cut-throat battle to win new subscribers is being fought ruthlessly in every European mobile market from northern Norway down to the southern coast of Spain. In addition, as competition and growth feed off each other, operators in every European country are finding it more and more difficult to maintain their profit margins.
The Scandinavian countries continued to show the highest levels of penetration in Europe at the end of 1997. Indeed, the figures for Finland (40.1 percent), Norway (38.4 percent), Sweden (35 percent) and, to a lesser extent, Denmark (28 percent) are among the highest in the world. Such is the strength of the current European mobile boom that even these countries (where mobile telephony has traditionally been strong) reported impressive growth rates during 1997, as listed in Table 1 .
At the other end of the European spectrum the former Communist bloc countries are lagging behind their western counterparts. However, even east of the Elbe, mobile is beginning to make significant headway as falling charges mean that a wireless connection is now an affordable option for a larger number of Eastern Europeans. In particular, Poland has seen mobile penetration soar in the last few months with demand driven by the arrival of two newly licensed Global System for Mobile communications (GSM) operators. The mobile subscriber base in Poland rocketed up from 249,000 (0.6 percent of the population) at the beginning of 1997 to 865,000 (2.3 percent) by the end. By July 1998, the number of mobile customers in Poland had reached 1,210,000 and this growth has shown little sign of slowing down.
Cellular growth in Europe is expected to continue its ramp upwards for at least another 20 years — indeed some analysts predict that penetration rates will not stabilise until 80 percent of Western Europeans are in possession of a mobile telephone. The reasons behind this sustained growth are twofold. The cost of connecting to and using a mobile network has dropped steadily since the mid-1990s; on average it is estimated that mobile call tariffs have fallen by 10 to 15 percent annually since 1995. At the same time, the arrival of digital networks with their greater call capacity and improved clarity of signal combined with an increased ability to offer data transmission services has helped boost the popularity of mobile telephones.
One of the key developments helping to fuel growth in cellular telephony has been the introduction of prepaid telephone cards in some European markets. Italian operator Omnitel recently announced that the sale of prepaid cards accounted for approximately 90 percent of the 1,600,000 new customer connections it claimed during the first six months of this year. Selling connections in this way has helped increase the high street presence of mobile telephone companies. Omnitel’s cards can be purchased through the company’s retail outlets as well as at tobacconists, newspaper kiosks and many banks. The sale of prepaid cards effectively removes many of the problems of bad debts and also cuts down on the sometimes lengthy process of credit checking potential customers. This new development appears as if it will push average revenue per subscriber even lower. In addition, the customer base created by the sale of these cards remains at best fluid and, therefore, is likely to increase rather than decrease the problems of churn.
Increasingly in this rats-in-a-barrel climate of ever-more operators chasing the dwindling number of available customers, mobile telephone companies are fighting to reach the so-called quality customers. This effort has led to a change in marketing patterns with direct mail order becoming a more important weapon in the operator’s armoury. Cellular companies are increasingly determined to establish direct links to their customers. The market for corporate cellular services has matured as private individuals have come to account for an increased proportion of the overall customer base.
Companies tend to bulk-buy mobile telephone services and no longer leave it up to the individual employee to choose a package that suits him or her best before charging it to expenses. Corporations are increasingly trying to set up mobile services that are fully integrated with their private branch exchanges. Such accounts have long been a key part of the cellular operator’s business and assume an even greater importance to the operator’s profit figures as the scramble for low revenue private customers increases in intensity and decreases in profitability.
Network Saturation Point
The proliferation of both residential and corporate customers has already seen some mobile networks in Europe struggling to cope with the increased demands. This situation, in turn, has helped hasten the availability of new blocks of frequencies. Some mobile companies’ GSM networks are so densely constructed that frequency re-use is almost impossible without creating interference on signal quality from some base stations. Much to their relief, many operators have been granted extra frequencies in the 1800 MHz range, which enable them to add extra capacity using dual-band GSM 900/digital communications system (DCS) 1800 handsets.
Profiles of the Main European Markets
The march of mobile is far from proceeding at a uniform pace across Europe as demonstrated in a number of brief histories of the main markets.
At the end of 1997, there were slightly over 28 cellular subscribers per 100 inhabitants in Denmark. The country’s mobile market is wide open to competition although Tele Danmark, the former fixed-line monopoly operator, enjoys a strong position, taking an estimated 60 percent (871,000 subscribers) of the market at the end of 1997. Tele Danmark Mobil operates no less than four networks: two analogue Nordic Mobile Telephone (NMT) services (with 12,200 and 222,780 subscribers at the end of 1997), one GSM service (621,000 subscribers) and a DCS 1800 service.
Competition comes in the form of Dansk Mobiltelefon, which is owned by GN Great Nordic and BellSouth and its Sonofon GSM network, which, at the end of 1997, had 551,000 customers. In February, the company awarded Finnish telecoms equipment supplier Nokia a DKr1 B (US$147 M) contract to install DCS 1800 equipment in its digital network. Telia Telecom, the Danish subsidiary of Sweden’s largest telephone company, launched a DCS 1800 service in February and claims it is installing 20 base stations each week to expand coverage.
Finland enjoys the prestige of having the highest mobile teledensity in the world with 40.1 subscribers per 100 inhabitants at the end of 1997. Moreover, according to the 1997 figures from the Organization for Economic Cooperation and Development (OECD), prices for mobile telephone calls in Finland are approximately half the average found in other OECD countries. As is par for the course, national public telecommunications operator (PTO) Sonera (formerly Telecom Finland) has a dominant position with a 74 percent share of the total market (at the end of 1997) or 1,580,000 subscribers. Of these customers, 1,030,000 were connected to the company’s GSM network while the remainder chose the NMT-450 and NMT-900 networks.
Thanks to complete liberalisation of the Finnish telecoms market, licences to offer mobile communications networks are available providing the operator meets criteria laid down by the regulator. Nationwide, DCS 1800 licences have already been awarded to Sonera, Radiolinja and Telia Finland (formerly Telivo), with an additional 10 regional licences currently under consideration. Finnet-backed Radiolinja has operated a GSM network covering 98 percent of Finns since January 1992. At the end of 1997, Radiolinja had 562,000 subscribers (a 36 percent share of the digital market). Telia Finland launched its DCS 1800 network in March.
France’s mobile industry witnessed an explosion in demand in the first six months of this year. In the last six months of 1997, the number of subscribers rose 63 percent to 5,760,000. The following six months saw an increase of 33 percent to 7,690,000. Even though at 13.1 percent the penetration rate is still low, it appears that long-awaited expectations of a mobile boom may be at last on the brink of fulfilment.
France’s cellular operators are France Telecom, Societe Francaise du Radiotelephone (SFR) and Bouygues. France Telecom’s cellular portfolio consists of a digital GSM service called Itineris, an RC2000 analogue service and a DCS 1800 network that has been operated on a trial basis in Toulouse since late 1996. In addition, France Telecom runs one of Europe’s few remaining CT2 services (though it is scheduled for closure this fall). At the end of June, France Telecom commanded a 51 percent share of the mobile market with a total of 3,910,000 subscribers (excluding Bi-Bop). Of this number, less than one percent subscribed to the analogue service. France Telecom expects to invest FFr2.5 B (US$4.2 B) in its network this year, primarily to improve its coverage inside and on the move.
SFR operates both an NMT-based analogue and GSM service. The digital service was launched in 1992 (the same year as Itineris) and, by the end of May, SFR had 2,920,000 customers and a 39 percent market share. The company intends to invest FFr7 B (US$1.17 B) in its digital service in 1998 and extend its coverage of the population to 95 percent by year end. SFR’s analogue service is not in such steep decline as France Telecom’s but, nonetheless, fewer than two percent of its customers are analogue subscribers.
Bouygues is the baby of the market, launching its DCS 1800 service in 1996. Despite the fact that its 798,600 customers gave it a share of only 10 percent as of June, the company has recently been witnessing faster growth than its competitors. In the first six months of 1998, Bouygues’ customer base rose 58 percent, compared to 29 percent for Itineris and 37 percent for SFR. Bouygues’ spending plans are FFr23 B (US$3.85 B) in the 10 years to 2007.
As Europe’s largest telecoms market, it is not surprising that Germany is home to intense competition in the provision of mobile services. Currently, three companies offer cellular services with a fourth, Viag Interkom, expected to launch in the fall. Two of the existing operators, T-Mobil (Deutsche Telekom’s mobile subsidiary) and Mannesmann Mobilfunk, offer GSM services while E-Plus uses the DCS 1800 frequency. T-Mobil also runs a C-450-based analogue service. Metropolitan, Viag’s DCS 1800 cellular service, is scheduled to become available in eight cities this fall as part of its integrated fixed-mobile service.
The first half of this year saw a 30 percent increase in cellular customers, bringing the total to 10,750,000 (of which 95 percent subscribed to digital services). Mobile penetration stood at 13 percent (up from 10 percent at the end of 1997).
The fiercest battle for customers in Germany is between T-Mobil and Mannesmann Mobilfunk. Having fought neck and neck for subscribers since they launched their GSM services in 1992, Mannesmann’s D2 service overtook T-Mobil’s D1 in 1996 and appears to be steadily widening the gap. By June 1998, Mannesmann had over 4,600,000 subscribers and commanded a 42.7 percent share of the market while T-Mobil’s analogue (500,000) and digital (4,200,000) customers together accounted for 43.7 percent. The contest between the two operators has been characterised by a series of price wars, which have helped generate greater increases in the overall customer base. The latest round of these price battles was started by T-Mobil in July, prompting an immediate answering volley from Mannesmann.
While T-Mobil and Mannesmann are contesting the pole position, E-Plus, the youngest entrant to the digital market, is steadily increasing its customer base. Though it has far fewer subscribers than T-Mobil or Mannesmann, E-Plus showed the strongest growth during the first half of this year and succeeded in increasing its customer base by 45 percent to 1,450,000, a greater percentage increase than D1 (28 percent) or D2 (31 percent).
At the end of 1997 there were 11,400,000 mobile subscribers in Italy (up from 6,400,000 12 months earlier), representing growth of more than 75 percent during the year. The leading player in the market is Telecom Italia Mobile (TIM), which operates two analogue networks (RMTS and Extended Total Access Communications System (ETACS)) and one digital network (GSM) to which there were 9,278,000 customers at the end of 1997. Approximately 5,900,000 of these subscribers were connected to the digital network, which, like the analogue networks, covered 97 percent of the population at that time.
On 9 June, the Italian Ministry of Communications announced the award of Italy’s third national mobile licence. Wind, the winning consortium, was founded in November 1997 by Italian electricity utility Enel (51 percent), France Telecom (24.5 percent) and Deutsche Telekom (24.5 percent). The partners already hold a licence for fixed network services and plan to begin offering both fixed and mobile services at the end of this year. Wind fought off competition from another consortium, Picienne (which included British Telecom (BT) and Telenor), to be named the organisation that will compete with Italy’s two established operators, TIM and Omnitel Pronto Italia (OPI), in what has rapidly become the largest mobile market in Europe.
Owned by Olivetti, AirTouch, Bell Atlantic, Telia and Mannesmann, OPI launched Italy’s second GSM network at the end of 1995 and, like TIM, has enjoyed spectacular growth in recent years. At the end of 1997, OPI was able to boast 2,120,000 subscribers to its service, which was available to 88 percent of the country and 98 percent of the population. This number represented an increase of 197 percent during the year. Furthermore, the growth witnessed in the Italian market has continued in the first six months of this year. On 1 July, TIM claimed 10,010,000 subscribers while OPI stated it had broken the 4,000,000 barrier for the first time.
At the start of this year, the number of operators in the Dutch cellular market had doubled. Two dual-band GSM 900/1800 licences were offered for tender by the Dutch government in February and out of the five groups that bid for the licences, Federa (a consortium including Deutsche Telekom, France Telecom and Dutch banks ABN Amro and Rabobank) and Telfort (a joint venture between BT and Dutch railway company Nederlands Spoorwegen) were the eventual winners. At the same time, the government also sold shares in 16 regional GSM 1800 licences to Belgacom (the Belgian PTO) and Tele Danmark, which intended to combine this regional coverage into a national network and have created BruCop B.V., a jointly owned holding company to conduct operations.
However, for the moment, the Netherlands’ largest cellular network remains that of national PTO PTT Telecom. During 1997, the number of subscribers to the company’s mobile networks increased 47 percent to 1,185,000. At the start of this year, Telecom introduced a prepaid card scheme and within two months had sold 80,000 packages. At the same time, the company closed its telepoint CT2 service and transferred the remaining 20,000 subscribers to its GSM network.
The Netherlands’ second GSM operator, Libertel, owned by the MT2 consortium (ING (61.5 percent) and Vodafone (38.5 percent)), had over 531,000 subscribers (of which 28,000 were prepaid) by the end of 1997, an increase of 151,000 (or 39.7 percent) over the figure six months earlier. With the entrance of Federa and Telfort to the Dutch market, the growth enjoyed by PTT and rival Libertel may be curtailed. The two new operators plan to launch their services by the end of the year, with Telfort planning to extend its coverage to 99 percent of the population within 12 months.
At the end of 1997, Norway claimed approximately 1,680,000 mobile telephone subscribers. Of this number, 1,260,000 customers were connected to the three Telenor Mobil networks (NMT-450, NMT-900 and GSM) with the remainder (417,477) subscribing to the NetCom GSM service. Telenor Mobil’s GSM network, which has been in operation since 1993, had more than 871,500 connections while its NMT-450 and NMT-900 networks had 164,652 and 223,100 subscribers, respectively.
Further competition was injected into the market in March with the licensing of three national DCS 1800 operators: Telenor Mobil, NetCom GSM and Telia. While the licensing was reasonably straightforward (those who applied received licences), the conditions attached to the licences were controversial because a number of conditions were deemed only to apply to the new entrant (Telia). According to the Norwegian Ministry of Transport and Communications, newcomer Telia is required to provide DCS 1800 coverage to 90 percent of the inhabitants of the country’s 19 largest cities within three and a half years, while NetCom and Telenor are allowed to use their existing GSM 900 networks to fulfil these obligations. As a result of these stringent requirements, Telia is not expected to launch the new network until the second quarter of 1999.
At the beginning of July, Spain’s third mobile licence was awarded to Retevision, the country’s nascent second PTO. In addition to detailing plans to invest Pta597 B (US$3.95 B) in its mobile services over the next 10 years, Retevision has vowed to undercut the existing mobile operators’ tariffs by 30 percent when it launches the service in December. Until then, the market is divided between established operators Telef¢nica and Airtel. Telef¢nica subsidiary Telef¢nica Servicios Moviles (TSM) offers connection to an analogue service (ETACS 900) called Moviline and, since July 1995, a digital GSM service called Movistar. At the end of 1997, TSM had 3,188,000 cellular telephone customers. Of this total, 1,100,000 were analogue customers with the majority subscribing to the Movistar digital service. Airtel, TSM’s sole competitor, is backed by BT, AirTouch and Banco Central Hispanoamericano and launched its GSM service in October 1995. At the end of 1997, the service had managed to attract 1,150,000 customers (up from 652,000 12 months previously). This number represents a market share of 26.5 percent. As far as coverage is concerned, at the end of 1997 the service was available to 95 percent of the Spanish population (up from 85 percent the year before). A prepaid card known as Airtel Directa was launched in March 1997 and a rechargeable version was introduced in May. No figures have been released on the uptake of the service.
At over 35 percent, Sweden has one of the highest cellular penetration figures in Europe and is surpassed in this respect only by its Nordic neighbours Finland and Norway. The size of the cellular market increased by 27 percent in 1997, taking the year-end total to 98,700 subscribers. This growth dispelled worries at the end of 1996 that the market had reached a point of saturation. Though the market is open to competition, operators must obtain a licence from the National Post and Telecom Agency. There are currently three GSM and two analogue networks in operation in Sweden. The mobile arm of national PTO Telia continues to dominate the market as operator of both the NMT-450 and NMT-900 analogue networks and the largest GSM network. Telia’s GSM service meanwhile has 1,180,000 customers. By March, Telia Mobitel’s combined subscriber base had increased to 1,960,000 due to the addition of 99,000 GSM customers. Analogue services continued to decline during the quarter.
Telia’s nearest rival is GSM operator Comviq (owned by NetCom Systems), which, despite having 370,000 fewer subscribers than the market leader, increased its market share from 19 to 26 percent during 1997. The company attributes this improvement to a combination of tariff reductions, aggressive marketing and the launch of its prepaid service. By the end of the first quarter of 1998, Comviq had 905,000 subscribers of which 322,000 were prepaid customers.
Sweden’s smallest GSM operator is Europolitan (owned by NordicTel Holdings, a consortium comprising AirTouch International (51 percent) and Vodafone (20 percent) with the remainder held by private investors). During 1997, Europolitan increased its share of the Swedish cellular market from 11 to 13 percent and, in doing so, increased its subscriber total to 424,000 by the end of 1997 and 474,000 by 31 March 1998.
In 1996, Sweden’s GSM operators were awarded DCS 1800 licences. A fourth licence was awarded to Tele8. Despite plans to launch its service at the end of 1997, Tele8 instead sold its cellular division to the BT, Telenor and Tele Danmark alliance Telenordia, which has yet to begin services.
The United Kingdom
All of the UK’s four mobile telephony operators experienced solid growth during 1997, dispelling fears that expansion within the sector was slowing down. By the end of 1997, the total number of cellular subscribers in Britain had risen to 8,340,000. This count marked an increase of 22.8 percent over the previous year-end total of 6,790,000. Through a dual process of streamlining operations and bolstering their resources, the operators have managed to carry the trend for growth over into 1998; at the start of April, the nationwide subscriber base broke the 9,000,000 barrier.
Despite competition in the UK mobile sector that is fiercer than ever, the balance of power still rests predominantly with the original cellular competitors Vodafone and Cellnet, both of which were first licensed in 1987 and operate analogue and digital networks. At the end of March, Vodafone had managed to add an additional 290,000 customers, taking its total subscriber base to 3,430,000 (a market share of 38 percent). The company reported that 75 percent of its customers were connected to the digital network, which covered approximately 97 percent of the UK population. Back in October 1997, Vodafone had announced plans to spend £240 M (US$390 M) on installing 1400 extra base stations over the following 12 months.
The BT-backed Cellnet, Vodafone’s traditional sparring partner, reported 2,990,000 customers by the end of 1997 up from 2,680,000 12 months previously — an overall increase of 11.5 percent. By 1 April, Cellnet’s total subscriber base topped the 3,000,000 mark (3,077,000) — a market share of 34 percent. By the end of March, 2,303,000 of Cellnet’s customers were connected to its digital network. At the start of 1997, Cellnet had announced it would be investing £1 B (US$1.63 B) in its GSM network over the next four years to extend its UK geographical coverage from 70 to 80 percent.
In terms of increases in market share, neither Cellnet nor Vodafone can match the gains recorded by One2One and Orange in recent times. A 50/50 joint venture between US West and Cable & Wireless, One2One was the first operator to launch a digital personal communications network service in the UK back in September 1993. After several unsuccessful years due to low network coverage (just 30 percent in September 1995), the operator had managed to attract 1,200,000 subscribers by April 1998, translating into a market share of 13.5 percent. In June 1996, One2One’s market share stood at just 7.2 percent. Its coverage now extends to 95 percent of the UK population.
Unlike One2One, Orange arrived on the cellular scene in 1994 with a network covering 70 percent of the UK population. Since then, the company has managed to attract valuable market share away from the leading operators and ended March 1998 with 1,300,000 subscribers to its DCS 1800 network, up from 785,000 in December 1996 (a 14.5 percent share of the overall UK market). The mobile telephone market share as of April 1998 is shown in Figure 1 for a total UK subscriber base of US$9 M.
All over Europe, cellular customers are being quickly gobbled up, tariffs are tumbling and penetration rates are rising. The fight is now on to retain subscribers and, in particular, to keep the high spending customers. Over the next few years this competition will put an even greater strain on mobile companies’ profits margins. Despite the booming markets, life is far from a bed of roses for Europe’s cellular service providers as we move into the next millennium.
The information used in this article was supplied by CIT Publications, publishers of the Datafile of European Telecommunications (updated monthly). For further details, call +44 1392 493 444.