IHS Global Insight Perspective | |
Significance | The OECD has released the latest edition of its bi-annual Communications Outlook 2009 this week with a wealth of data and analysis of the global communications market. |
Implications | International rankings and complex methodologies make a case for some dispute over the figures but the report shows the strong growth of the industry over the last decade. |
Outlook | Such significant revenue growth over the next decade is likely to be more difficult to create depending on new innovations in services, devices and applications rather than simple connectivity. |
The OECD report covers the whole communications market, including mobile fixed line, Internet and broadcasting, looking at regulation, access lines, network infrastructure deployments, revenues, and pricing. Data covers the 30 OECD participating countries as well as some examination of accession countries and China. Data is available for varied periods with some market segments data available only up until the end of 2007 while other segments are available until the end of 2008. IHS Global Insight has previously examined some of the data released through the broadband portal which covered the period up to the end of 2008 (see World: 22 May 2009: OECD Releases Global Broadband Data for 2008). At the time of that data release it was also noted that such a major global comparison of telecoms—in many ways a benchmark of development—tends to attract criticism from interested parties with points to prove:
"Accusations fly that non-comparable data are used, such as the use of 256 Kbps as a benchmark for broadband that is not collected by many nations; no new data actually published by the claimed sources; or that available data are inconsistent with local regulators. The data based on advertised speeds and prices are also notoriously prone to errors from effects such as local advertising regulations, tariff design and hidden additional costs. Other points are made that the data are plainly incorrectly recorded, while little reference is given to source material to facilitate validation."
The press release for the Communications Outlook highlighted the data on mobile phone tariffs/pricing which was produced by creating and comparing a basket of services in August 2008. Three categories of user were identified: low users (360 calls per year of voice calls, 396 SMS; eight MMS); medium users (780 voice calls, 600 short texts (SMS), and eight multimedia (MMS) messages) and high users (1,680 calls per year of voice calls: 660 SMS; 12 MMS). For the medium-use basket, this placed the United States far ahead on pricing, though that all appears to be predicated on fixed monthly access and bundled service charges—which can largely be explained by the level of use picked for the analysis and the bundling of minutes and texts on plans in the United States.
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Source: OECD
Note: The existing mobile basket methodology does not include discounted or free calls to pre-selected phone numbers as part of “friends and family” or “preferred numbers” plans. The inclusion of these calls will be considered as part of a future update of the mobile basket methodology. Pre-paid plans are excluded
Pricing comparisons are difficult given the range of options available to subscribers—as the note to the above table shows, this particular comparison has excluded the pre-pay services which offer most value, and also not taken into account discounted or free calls to set numbers or preferred numbers such as "in network" calling—a major feature of the leading players marketing strategies in the United States. Even within a limited range of price plans significant variation exists. For example AT&T offers three prepay "GoPhones" with tariffs from US$3 a day for unlimited service, a mixed US$1-a-day access fee with calls at US$0.10 per minute, through to a straight US$0.25 per minute rate which is difficult to model.
The CTIA, the wireless industry association in the United States offered a swift rebuttal of the analysis, noting that U.S. customers enjoyed "the lowest per minute rates". The CTI notes that although the high use basket as defined by the OECD includes 1,680 minutes, United States users average 9,600 minutes—though given the North American billing system this is counting both incoming an outgoing calls. The average U.S. user has a calling profile some six times the size of the medium-use basket and with price-per-minute tending to rise as subscriber use declines this would raise the relative price. The tariff assumptions also appear flawed with the price per month for a medium user at around US$53 per month using only 63 minutes, 50 SMS messages, and under one MMS per month. The CTIA's own analysis has put the cost for the average subscriber at US$50.07 with users utilising 760 in/outbound minutes and 400 SMS per month. Plans from low-cost providers such Sprint's Boost unlimited prepay service, MetroPCS and Tracfone offer unlimited voice, text and some web use for around US$50 per month (see United States: 3 July 2009: Price War Heats Up with US$45 Unlimited Offer from TracFone).
Other data, such as subscriber numbers and industry revenues, should be less contentious and the report contains a wealth of such data. Across the OECD, telecoms revenues have grown by an average of 6% each year since 1990, reaching US$1.2 trillion across the OECD in 2007. With prices falling (between 2006 and 2008 mobile-phone call prices fell on average by 21% for low usage consumers, 28% for medium usage, and by 32% for subscribers with the highest consumption patterns) this has been predicated on the increasing subscriptions to new services—namely broadband and mobile. Mobile subscriptions have grown at a compound annual growth rate of 10% y/y over the last two years to reach 1.14 billion subscriptions in 2007 for a (SIM) penetration rate of 96.1 per 100 inhabitants. By the end of 2007 18.2% of subscribers were estimated to be using 3G networks.
Fixed line service costs have fallen by around 1% per year (business services by 2.5% per year) with competition from other fixed-line players but more significantly from mobile providers continually pressuring prices. Spend per head has largely risen overall as take-up of new services continues. The example of Japan, which has always led the pack in terns of industry trends, shows a worrying reversal of this trend. However, 1990-2000 is known as the "Lost Decade" when deflation ran rampant and the succeeding years have largely proved little better
Outlook and Implications
The OECD report provides a good overview of the major changes which have occurred in the telecommunications industry for the member countries. As noted, the reports from the OECD tend to stir up some controversy, particularly as the results are often presented as international rankings and a measure of development, while methodological comparisons are difficult across such a diverse range of countries. The outlook for the future is unlikely to be as positive with increasing competition across platforms (mobile, cable, and telecom networks) driving down prices. The current economic recession will limit business growth and maximise efficiency demands which may increase some forms of tele-working and videoconferencing, but penetration rates which are beginning to reach their ceiling for many services, while the wallet share for total telecoms spend is likely to also be reaching a ceiling. Incremental advances to network speeds and next-generation network deployments may create some limited additional revenue opportunities, particularly as new services such as mobile broadband and fixed-line video attract subscribers. However the inexorable growth in demand for baseline connectivity services which offer major advantages to consumers—mobile voice and fixed broadband—will begin to falter. Such significant revenue growth over the next decade is likely to be more difficult to create depending on new innovations in services, devices and applications rather than simple connectivity.