3G for the masses: Vodafone's launch of consumer 3G services is a major milestone for the mobile industry—but it's still business as usual

Telecommunications International, June, 2004 by Ken Wieland

Arguably, stabilising ARPU is an achievement in itself bearing in mind the ongoing competitive pricing pressures on voice tariffs and regulatory moves to cut mobile call termination fees. But the problem remains--for all mobile operators--of how to grow non-voice and non-SMS data revenue, particularly as the growth in the number of SMS person-to-person messages appears to be slowing down. According to the Mobile Data Association, which tracks the number of texts sent between the UK's mobile networks, the average number of text messages sent daily in 2003 remained fairly constant at between 50 and 55 million, rising slightly upwards in the last quarter, which is traditionally a busier period due to mobile operator promotions in the run up to Christmas and the fact that people send more texts at that time of the year anyway.

Like other mobile operators, the bulk of Vodafone's mobile data revenue stems from messaging. For the 12 months to end 2003, non-voice revenue totalled 15.9 per cent (11.8 per cent messaging and only 4.1 per cent non-SMS/MMS).

What about voice?

If it could be demonstrated that there was still plenty of price elasticity left in mobile voice minutes (that is, the lowering of prices generates sufficient extra volume to create more revenue than otherwise could be achieved with the higher prices) then mobile operators could argue that increasing data as a proportion of overall revenue is not as urgent (or as achievable) as previously thought.

This was the type of thinking used by Vodafone in 2002 when it lowered its mobile data targets from 25 per cent of total revenue to 20 per cent for 2005. The lowering of the target, however, was--sadly--not done on the grounds of price elasticity but because voice pricing was less inelastic than it previously thought. "We readjusted our data estimates in response to voice ARPU being at a higher level than we previously expected," says Earl, "not because it [voice ARPU] was necessarily increasing."

It's hard not to conclude that Vodafone has moved the goal posts here. After all, the original mobile data targets weren't set on the assumption of declining voice ARPU but because there was a belief and desire that mobile data revenue would take off in its own right.

Still, if 3G can stimulate greater voice usage (either because it is better quality than 2.5G or because access to data services encourages, indirectly, more voice calls) then mobile operators need not necessarily squirm on the hook of plodding mobile data revenue growth as a proportion of overall sales. From looking at NTT DoCoMo's ARPU figures for its 3G FOMA subscribers, they do generate higher voice revenue than PDC subscribers (the Japanese 2G standard). For its 4Q 2003 period (three months ended March 2004), aggregate FOMA ARPU was 10,360 yen (6,960 yen voice, 3,400 data) while aggregate ARPU for PDC-only customers was 7,470 yen (5,570 yen voice, 1,900 yen data). Provided that higher voice ARPU can't solely be explained by early adopter FOMA users being more likely to be heavy voice users anyway, this is an encouraging market trend for 3G operators.