Mark Giles of Wireless Intelligence reveals how the BRIC markets are accounting for an increasing share of global mobile revenue.
Last year the so-called BRIC countries – Brazil, Russia, China and India – generated over $250 billion in mobile revenue, having already surpassed North America in terms of sales during 2011. Sales growth in this grouping has been strong, with an average increase of 13.9% per annum between 2008-12, growing by some 3.6 percentage points faster than the developing market average. Combined, these four powerhouses now represent over half of total revenue in the developing region, and contribute almost 22% of total global mobile revenue, up from 16% four years ago.
In 2012, the BRIC countries added almost $30 billion between them, while among regions of similar size, North America saw revenue increase by $10 billion, and the developed markets within Europe lost a combined $9 billion. If current growth rates are maintained, then developing markets will overtake developed markets in terms of revenue by 2017, with the BRIC countries being the main cause of this shift.
Stellar connections growth has been driving revenue at the BRIC countries for a number of years. However, as subscriber growth begins to slow and maturity approaches, local operators are being forced to adapt to a rapidly changing competitive environment.
Connections growth in China, for example, has been running at between 14-17% over the last four years – high growth that has fed through to positive revenue trends. In its 1H 2012 report, China Mobile, the market leader, highlighted the steady growth of the Chinese economy, alongside rapidly increasing mobile data usage, as reasons behind its continued top-line growth. Regarding the focus on mobile internet revenue, close to 200 million 3G handsets were sold in China in 2012; local operators are expecting to double their sales of 3G handsets in 2013, placing the country as one of the fastest-growing smartphone markets worldwide.
However, China Mobile sees that the “growth potential in traditional mobile telecommunications is shrinking” and as a result, “the competition for customer value will become more fierce”. According to the Chinese regulator (MIIT), mobile subscriber growth in 2012 was driven by more rural demand in Central and Western China, while growth in the more urban areas in Eastern China is slowing year-on-year. This reflects the high level of saturation in urban areas and its implications for future mobile revenue growth, and follows similar trends seen in Russia (200% penetration, on average, in large cities such as Moscow and St Petersburg) and Brazil (148% penetration in the country’s heavily-populated Central-West area).
Chinese and Brazilian operators are likely to follow the example set by the Russian operators, in shifting their focus from customer share to revenue share. Fierce competition in saturated markets naturally drives revenue downwards, forcing operators to move towards strategies designed to promote customer retention and preserve margins.
For example, Jo Lunder, CEO of Russia’s VimpelCom, stated in a recent earnings call that, in Russia, “my understanding is that our focus is shared by the market [competitors] that focus on cash flows, margins and the quality of the services to customers are more important than a focus on subscriber market share and gross additions”. He added that, as a consequence, the operator has seen its “margin going up, revenue market share slightly decreasing and subscriber market share going down”.
In Brazil, operators variously described the market last quarter as being affected by “intense” and “fierce” yet “rational” competition, with Telefonica’s Vivo implementing “a more selective commercial approach focused on value”. Mobile internet continues to drive revenue growth at Vivo; data and VAS accounted for almost 28% of total revenue in Q3 2012, up 2 percentage points year-on-year. Meanwhile, America Movil’s Claro witnessed a 5.6% yearly decline in mobile revenue in Q3 2012 which it attributed to economic slowdown, reductions in interconnection and long distance rates, and more intense competition.
Finally, India exhibits entirely different market dynamics to its counterparts in the BRIC grouping. Our recent research highlighted that unique subscriber penetration in India stood at just 25% in 2012, with consumers accounting for 2.2 connections each on average. This low level of market penetration demonstrates considerable growth opportunities in India overall, reflecting lower levels of development and maturity than China, Russia or Brazil. Revenues in India are predominantly generated from voice services. Market-leader Bharti Airtel announced in its recent earnings call that over a trillion minutes are running over its network annually. Mobile internet in India is still in its infancy but as Sarvjit Singh Dhillon – Bharti Airtel CFO – pointed to last quarter: “India has more than 50% of its population below the age of 26, making it one of the youngest countries in the world from an age point of view… So there is a tremendous opportunity for us to grow as far as data is concerned”.
BRIC total mobile revenue as % of global total, 2008-2012
Source: Wireless Intelligence, “Global and regional mobile revenue trends”
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