Pricing mobile services: Trends and tactics Dr Tim Kelly, International Telecommunication Union (ITU) Workshop on settlement reform and the costing and pricing of telecom services, Vientiane, 16-18 November 1999 Note: The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the ITU or its membership. Dr Tim Kelly can be contacted by e-mail at Tim.Kelly@itu.int. Pricing mobile services Pricing mobile services: Agenda A Mobile Revolution Worldwide Sub-region Pricing Mobile Options Price comparisons Price trends Average revenue per user (ARPU) Pricing mobile relative to fixed-line services A Mobile Future 2 1
A Mobile Revolution Worldwide mobile cellular subscribers (millions) More than 3 million users 25 new users added each day Users double every 2 months Competitive markets 2% 11 3% 16 4% 23 6% 34 9% 55 13% 91 Mobile as % of fixed-line telephone subscribers 2% 144 27% 215 38% 318 199 91 92 93 94 95 96 97 98 Lao P.D.R. Myanmar Cambodia Viet Nam Philippines Thailand 6 9 61 187 Mobile subscribers ( s) Year-end 1998 Sub-region 1'66 1'595 1'957 Malaysia 2'2 2
Myanmar Lao P.D.R. Viet Nam Cambodia Philippines Thailand.2.12.24.5.6 Mobile subscribers per 1 inhabitants 2.2 3.2 Year-end 1998 Sub-region Malaysia 9.9 Myanmar Viet Nam Lao P.D.R. Thailand Malaysia Philippines 3.6 8.6 Mobile subscribers as % of total telephone subscribers 16.1 18.5 28. 33.4 37.1 Year-end 1998 Sub-region Cambodia 71.7 3
Regulating Mobile Number of countries with mobile cellular competition A relative lack of regulation <1% of world market under monopoly Key issues: Coverage and interconnect 49 61 72 93 28 38 1993 1994 1995 1996 1997 1998 Mobile Access Pre-paid mobile cellular subscribers, 1998, as % of total Total pre-paid (m) 74% Mobile can 6% enhance access Pre-paid has given access a major boost, esp. in Europe Mobile is becoming preferred form of access in many developing countries 53% 5% 4% 37% 35% 35% Italy Mexico Portugal S. Africa Austria Greece Philippines 15.2 2. 1.6 1.3.4.8.7.6 4
Pricing mobile services The secret of mobile success Why is mobile currently growing ten times faster (~55% p.a.) worldwide than fixed lines networks (~5.5% p.a.)? Why is the average mobile user much younger than the average fixed-line user? Why do users make calls using a mobilephone even when a fixed-line telephone is available and cheaper? What is the secret of the success of mobile? 9 Price Options A selection of price options From Orange (UK) Plan name Monthly charge for single phone Standard talk time included (per month) Chat 6 17.63 6 off-peak minutes Peak time call charges (per minute) 4p Off-peak call charges (per minute) Talk 3 17.5 3 minutes 3p 5p Talk 12 25. 12 minutes 24p 5p Talk 4 58.75 4 minutes 22p 5p Talk 13 176.25 1 3 minutes 17p 5p Talk 37 47. 3 7 minutes 15p 5p Talk 75 94. 7 5 minutes 15p 5p Everyday 5 5p/day 5 minutes/day 4p 1p 5p Source: http://www.uk.orange.net/kit/index.html. 5
Pricing Mobile High prices stunt network development Specialist mobile companies doing better than integrated fixed/mobile Prices falling by around 4% p.a. Relationship between mobile price and density in Western Europe Price per 1 mins per month (US$) 7 6 5 4 3 2 1 Switzerla nd Germany Greece Spain Ireland Austria Italy Sweden Bel. UK Franc Port. Denmark Norway Neth. Lux. Iceland Finland 1 2 3 4 5 6 Mobile density (per 1 inhabitants) Note: Price basket based on monthly subscription plus 5 mins peak and 5 mins off-peak use. Philippines Thailand Lao P.D.R. Malaysia Basket of 1 minutes mobile calls per month US$, July 1999 5 mins off-peak 5 mins peak rate Subscription Viet Nam Cambodia Note: -Source: 1 2 3 4 For Philippines, the price is based on a pre-paid scheme with 9 minutes included in subscription. ITU World Telecommunication Development Report 1999: Mobile cellular. 6
Declining prices for mobile access, global average, in US$, 1992-98 Connection charge, US$ Monthly subscription, US$ 547 CAGR, 1992-98 = -16.9% p.a. 44.9 CAGR, 1992-98 = -5.8% p.a. 41 38.1 34.2 31.3 231 18 1992 1994 1996 1998 1992 1994 1996 1998 Note: CAGR = Compound Annual Growth rate. Source: ITU World Telecommunication Development Report 1999: Mobile cellular Average revenue per user (ARPU) Bell Mobility (Canada) Revenue/cost per subscriber per month (US$) 12 1 8 6 4 2 Revenue per sub/month Cost per sub/month Subscribers 9 91 92 93 94 95 96 97 98 Source: ITU World Telecommunication Development Report 1999: Mobile cellular 1'6 1'4 1'2 1' 8 6 4 2 Subscribers ('s) 7
Cultivate the high-spenders Expenditure per month 14 per cent of highspending customers generate 53% of revenue 14% 22% 24% 4% Average revenue per user (ARPU) 53% 36% 8% 3% Customers Source: Price Waterhouse Coopers, based on Canadian data. 4 per cent of lowspending customers generate 3% of revenue Mobile ARPU converging with Fixed-line ARPU, Japan (Yen s p.a.) 3 25 Mobile ARPU 2 15 1 Fixed-line ARPU 5 199 1991 1992 1993 1994 1995 1996 1997 Source: ITU World Telecommunication Development Report 1999: Mobile cellular 8
Pricing mobile and fixed: Monthly subscription charges (US$) 25 3. 2 15 Ratio: Cellular/fixed Residential fixed-line Digital cellular 2.4 1.1 5. 1.7 1 5. 5 Malaysia Cambodia Thailand HK Sar Sri Lanka Pricing mobile and fixed: Price of 3 minute local calls (US$) 1..8.6.4 n.a. 18.2 6.7 1. Residential fixed-line Digital cellular Ratio: Cellular/fixed 3. 7.5.2. HK Sar Cambodia Sri Lanka Malaysia Thailand 9
A mobile future Actual and projected subscriber growth, fixed-lines and mobile, millions, 199-21 Mobile has overtaken fixed-lines in Cambodia, Finland, Italy, Korea Mobile subscribers to overtake fixed-line worldwide before 21? Mobile revenue to overtake fixed-line after 24? Fastest growth in developing countries 2' 1'5 1' 5 Source: 199-1998 data from ITU World Telecommunication Indicators Database. 1999-21 ITU projections. Fixed Mobile 199 2 21 The race for 3rd Generation mobiles: IMT-2 Data Transmission Speed - kbit /s 2, 1G 2G 3G 384 144 128 64 32 9.6 Voice Telephone (Voice) Voice Mail Fax Audio Streaming Video Text Messaging Conference (Lower quality) Electronic Newspaper E-Mail Electronic Publishing Data Weather, Traffic, News, Sports, Stock updates Karaoke Video Streaming Remote Medical Video Service Still Conference (Medical Imaging (High quality) image) Video on Demand: Sports, News Weather JPEG Still Photos Mobile Radio Audio Voice-driven Web Pages Streaming Audio Image Mobile TV Video Surveillance, Video Mail, Travel E-Commerce Source: Adapted from Motorola. Time 1
For more information... Publication launch: 1 October 1999 (TELECOM 99) Available on paper and online (PDF format) World Telecom Indicators Database available online Website: http://www.itu.int/ti Other reports launched at TELECOM 99 Direction of Traffic 1999: Trading Telecom Minutes Trends in Telecom Reform 1999: Convergence Internet for Development (updated with latest data) 11