25 March 2009 | Published by Ovum

London - Newly released mobile broadband forecasts by global advisory and consulting firm Ovum, show that users accessing the Internet via mobile broadband enabled laptops and handsets will generate revenues of $137 billion globally in 2014, over 450% more than in 2008. However, operators will need to content themselves with the fact that user growth will be far faster than revenue growth, meaning more users and more data traffic, but declining average revenues per user (ARPUs).

Ovum estimates over 2 billion mobile broadband users by 2014

Users of mobile broadband services (3G and 3G+ technologies) will grow from 181 million in 2008 to over 2 billion in 2014, growth of 1024%, according to Ovum’s latest research. In 2014 Ovum forecasts that there will be 258 million users worldwide accessing mobile broadband services through laptops, which are connected via USB modems, datacards or have embedded mobile modules. “This is a staggering 1022% growth from 2008, which is when mobile broadband supposedly ‘took-off’” explains Steven Hartley, senior analyst at Ovum and co-author of this research. “Operators can also expect a similar growth rate for handset users of mobile broadband services, but starting from a much larger existing base”, explains Michele Mackenzie, principal analyst at Ovum and co-author. “We forecast that handset users will grow from a base of 158 million in 2008 to almost 1.8 billion in 2014″.

Where will all these users come from?

The most aggressive growth comes from emerging markets, where the unavailability of fixed broadband offers a major opportunity to mobile broadband players. For example, 40% of total mobile broadband laptop users will come from Asia Pacific in 2014. The advent of 3G in markets such as China and India, the sheer number of mobile users and poor fixed line penetration in these markets means that broadband access to a very large number of people will be purely ‘mobile’.

For many though, Internet access will be through the handset. In China, there will be 52.5 million laptop users versus 325 million handset users, a ratio of 6:1. However, even in mature markets such as Western Europe, the slowest growing region between 2008 and 2014, user growth in laptop access over the next five years is set to reach 747%, and 918% in handset access. “Such recession-busting growth will be music to the ears of operators. The ubiquity of the Internet and the desire to be connected on the move are key drivers for this, as will the increasing adoption of prepaid tariffs, which support the complementary nature of mobile broadband in such regions with high fixed broadband penetration” says Hartley.

Revenues grow slower than users

On a global level, revenues grow at just 44% of the rate of users. A signpost as to the reason can be seen in the fact that, as with most mobile services the vast growth in mobile broadband user numbers in emerging markets does not provide corresponding revenue growth. Therefore, the contribution of each region remains broadly the same across the forecast period. In 2008 Middle East, Africa and South & Central America contribute 3% to total global revenues and this only rises to 9% by 2014. The rate of growth between 2008 and 2014 for mobile broadband laptop and handset revenues is consistently below that of users. On a global level this is a factor of the ARPU erosion we assume will take place. Several factors help explain this erosion:

• The adoption of mobile broadband laptop access into increasingly less wealthy segments of emerging markets 
• The introduction of prepaid tariffs driving adoption in mature mobile and fixed broadband markets, which boosts users but dilutes ARPU
• Increasing competition for mobile broadband access driving prices lower.

An operator dilemma: average revenue per user (ARPU) erosion accompanies greater usage

The net result of the above is that ARPU will decline at the same time as usage increases, both in terms of number of users and most likely the amount of data consumed per user. This will mean that ever more data per user will need to be carried on mobile operators’ networks for less revenue. “Several operators have touted the idea of plugging the ARPU decline with value added services, yet we are yet to see anything sufficiently compelling in either the laptop or handset space”, explains Michele Mackenzie.

Evidence from other broadband markets suggests that banking on such revenue to make business cases fly can be extremely dangerous. “The only alternative is to employ ever more ruthless network efficiency to reduce opex sufficiently in order to defend margins”, adds Steven Hartley. The dilemma is that by 2014 network quality will have become an increasingly important service differentiator.

Therefore in Ovum’s view, balancing both sides of the equation will need to become an essential skill for mobile operators if they want to enjoy a share of the mobile broadband spoils.

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