quarterly world review - gsma intelligence

Wireless Intelligence

Quarterly World Review

Q1 2010

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Quarterly World ReviewQ1 2010

World

The worldwide cellular market grew by 176.1 million connections in the first quarter 2010 to reach 4.8 billion connections in total. 372 operators reported their total connections in the quarter, despite the discontinuation of reporting from a few key operators, notably Zain Group in Africa, given the sale of the units to India’s Bharti Airtel. These 372 operators represented an 87% market share by their connections figures, a vast majority of the worldwide market.

As operators continue to struggle with the increased, volatile competition in mature markets (some with compounded effect amid a slow macroecnomic recovery), the number of operators reporting a decline (loss) in connections this quarter rose to 93 sequentially and 70 on an annual basis. In total this represents an 18.9 million sequential connections decline across these operators and a 26.9 million decline year-on-year.

Of the 24 overall network deployments this quarter, HSPA+ network upgrades accounted for 7 of these, while Smart Telecom in Indonesia launched the first commercial EV-DO Rev. B network in January. These deployed networks include just one new operator entrant - Viva (Saudi Telecom) in Bahrain (the country’s third network) while inwi represents a branded re-ignition of Wana’s operations in Morocco using GSM/WCDMA equipment to complement the operator’s existing EV-DO Rev. A network.

Wireless Intelligence continuously benchmarks the accuracy of its short-term connections estimates and longer-term forecasts as actual data is released by the operator community. Despite ever-uncertain market conditions, the delta between the Wireless Intelligence estimate for Q1 2010 total connections at the beginning of the operator financial reporting season and the reality at its completion was just 0.88%.

As always, we value your feedback, so please don’t hesitate to contact us via [email protected] to share your thoughts on any topic in this report.

Q1 2009 Q4 2009 Q1 2010

Number of Connections (Millions)

Total 4,172.8 4,648.8 4,825.0

Contract 1,143.7 1,230.1 1,267.2

Prepaid 3,003.4 3,399.0 3,520.6

CDMA (Family) 428.2 465.8 483.7

GSM 3,366.1 3,668.9 3,773.1

WCDMA (Family) 345.4 477.6 526.4

Net Additions (Millions) Total 146.5 188.3 176.1

Contract 23.3 31.2 37.1

Prepaid 122.9 165.3 121.5

Growth Rate, Sequential (%)

Total 4 4 4

Contract 2 3 3

Prepaid 4 5 4

Growth Rate, Year-on-Year (%)

Total 19 15 16

Contract 9 10 11

Prepaid 23 18 17

Market Penetration (%) 62 69 71

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Africa

Africa’s largest cellular market, Nigeria, reached 76.4 million connections following net additions of 3.3 million in Q1 2010. This is down from 4.1 million net additions last quarter but still enough to give Nigeria the region’s highest net additions for the second consecutive quarter. Market-leader MTN continues to dominate with 2.5 million net additions alone (75% of the quarterly total) to reach 33.3 million connections. MTN has now added 7.4 million net additions in the last year - an increase of 29% - taking its market share to 44% in a market with 8 other cellular operators. MTN reported that its ongoing success in this highly competitive market is built upon its network quality and strong distribution network. However, ARPU declined 15% year-on-year to US$ 11 as a result of growth in lower market segments. As highlighted last quarter, the pending introduction of SIM card registration for existing subscribers (new subscribers have been require to register since May) is likely to see some reduction in reported market growth as unregistered SIMs are deactivated. The Nigerian Communications Commission (NCC) also confirmed in June that it plans to introduce mobile number portability (MNP) in the second half of this year. MTN is also set to face renewed competition in Nigeria - and several other African markets - from Zain following the acquisition of the operator by Bharti Airtel as part its deal to acquire its African assets (excluding Morocco and Sudan) for US$ 10.7 billion. The deal was completed in June despite opposition from minority shareholder Econet Wireless which is involved in a long-running dispute over ownership of the Nigerian operator. The 15 African Zain operations acquired are due to be rebranded as Airtel by October. Meanwhile, the long-running saga regarding the sale of incumbent NITEL and its mobile arm, Mtel, continues to drag on while an investigation is underway to review the integrity of the controversial winning US$ 2.5 billion bid made by the New Generation Telecommunications consortium. The investigation was reportedly scheduled to be undertaken in a week but has now taken over three months

Q1 2009 Q4 2009 Q1 2010


Total 399.5 456.4 488.8

Contract 13.4 15.0 17.8

Prepaid 385.0 449.1 471.0

CDMA (Family) 14.2 19.2 23.3

GSM 376.9 428.2 446.4

WCDMA (Family) 7.4 12.0 14.1


Contract -0.5 0.7 2.8

Prepaid 20.5 27.0 21.8


Total 5 4 7

Contract -4 5 19

Prepaid 6 6 5


Total 33 20 22

Contract 24 8 33

Prepaid 32 23 22


ARPU (US$) Blended 10.51 10.15 9.82

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following recent political upheaval requiring the review panel to be reconstituted.The South African market continued to absorb the impact of SIM card registration following its introduction last year. Market-leader Vodacom reported its third consecutive quarter of negative net additions with a further loss of 840,000 connections during Q1, taking the total losses to 2.6 million since Q2 2009. Contract connections continued to fare better with a further 148,000 added during the quarter. Contract ARPU declined to ZAR 436 in Q1 which the operator attributed to additions in lower-end packages as well as reduced out-of-bundle spending. In contrast, prepaid ARPU increased to ZAR 74 assisted by the impact of the disconnections. The highlight in Vodacom’s full-year results (ending March) was that data revenue increased 33% to ZAR 4,363 million - representing 10% of service revenue, up from 8% in the same period last year, with active data users up 29% and data traffic by 58%. The operator reported 2 million active smartphone users (up 45% year-on-year) who

on average used 23 MB per month and a further 3.1 million active internet-capable handset users consuming 14 MB per month on average. The average usage for iPhone users was 150 MB per month. Active data cards increased by 34% year-on-year to 728,000, with average monthly data usage of 480 MB per month. In contrast, MTN managed to report positive net additions of 357,000 for Q1, following three consecutive quarters of negative net additions. MTN reported that the growth was mainly attributable to increased brand awareness including the ‘Ayoba’ campaign and the continued success of the ‘Mahala’ campaign. Blended ARPU increased to ZAR 155 (12% year-on-year) due to a 17% year-on-year increase in prepaid ARPU to ZAR 108.

In Sudan, MTN reported 269,000 net additions in Q1 and in the process surpassed 4 million connections, following a 1.4 million (52%) year-on-year increase. Sudan was one of only two African holdings that Zain Group did not sell to Bharti Airtel (along with its stake in inwi Morocco). Due to the sale, Zain’s full quarterly reporting has been delayed again but it did reveal recently that its Sudanese operations performed particularly strongly back in Q4 2009 with 1.2 million net additions - taking total connections to 8.5 million following a year-on- year increase of 3.3 million (64%). These gains came on the back of a successful marketing and sales campaign. Zain Sudan’s healthy results also stemmed from its ongoing network rollout, extending coverage to 84% of the population (35% geographically) through 1,729 sites. Zain noted that the relatively low network coverage promises considerable potential for growth in the Sudanese market. Zain’s ARPU declined by 25% over the last 12 months to US$ 12 but remains comfortably ahead of MTN’s US$ 5 (unchanged).

In Algeria, following the significant gains in Q4 (2.1 million connections) Nedjma (Wataniya) reported more modest net additions of 243,000 in Q1. Rival Djezzy (Orascom) also returned to growth following the football riot related disruption to its business during the last quarter with net additions of 172,000. Djezzy’s ARPU decreased 13% year-on-year to US$ 9.20 as it extended retention programs aimed at offsetting the effect of the riots and because it had to temporarily suspend some of its contract subscriber base due to cash collection issues. It also reported an 11% year-on-year decrease in revenue to US$ 412.5 million driven by the impact of the riots and subsequent decrease in visitor roaming. Djezzy also reported that it continued with its appeal against the US$ 600 million backdated tax claims against the operator by taking the matter to the Administrative Court. It has now paid the disputed

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principle amount in full but notes it will be recoverable if its appeal is ultimately successful. Tensions with the Algerian authorities clearly remain given the rejection or delays enforced

by the regulator, ARPT, to all new promotions and tariff offers. Djezzy reported that it managed this situation by pushing and revamping its existing offers while re-launching others.

Egypt remained the region’s second fastest growing market (behind Nigeria) in Q1 with 2.3 million net additions as total connections reached 57.6 million, taking annual growth to 12.1 million connections (27%). For the second consecutive quarter the gains were led by Vodafone, which added 1.3 million connections, matching its strong Q4 performance. Blended ARPU declined for the 11th consecutive quarter, falling to EGP 37.70 due to continuing pressure on voice pricing and more recently the additional impact of mobile termination rate reductions. Quarterly service revenue declined 8% year-on-year to GBP 303 million despite strong growth reported in data revenue driven by increased penetration of mobile internet devices. Market-leader Mobinil (ECMS) - which has recently seen its major shareholders, France Telecom and Orascom, finally settle a long-running ownership dispute - reported Q1 net additions of 767,000. This is up slightly from Q4 but is only the second quarter with

less than 1 million net additions since Q4 2006. Like Vodafone, Mobinil also reported a decline in blended ARPU to EGP 32, a decline of 18% over the same period last year, mainly driven by the impact of aggressive competition in the market. Mobinil’s service revenue was up 2% year-on-year to EGP 2,546 million but EBITDA declined 12% over the same period to EGP 1,020 million. The market’s smallest player, Etisalat, reported a fall in net additions to 230,000 in Q1 as it struggled in the face of a fierce price war. These adverse conditions are expected to continue pressuring the revenue growth and margins of all operators. Mobinil also reported that this situation is likely to be exacerbated by the current ‘dials’ (unallocated number) shortage until the new national numbering plan of eight digits is implemented and by the planned introduction of new regulations regarding uncertified handsets, subscriber activation and registration.

In the strategically significant African market of Ghana (with MTN, Tigo, Vodafone and Zain all present) total connections reached 15.9 million following net additions of 563,000 in Q1. Market-leader MTN led net additions for the third consecutive quarter by adding 430,000 connections, taking its annual increase to 1.7 million (24%). MTN attributed its recent success to improved network quality combined with a strong brand position. In contrast, second-placed Tigo reported connections increased only marginally (6,000) since last quarter. Third-placed Vodafone added 115,000 net additions in Q1 and fourth-placed Zain added 36,000. The markets smallest player, Kasapa, reported its fifth consecutive quarterly decline in connections with a loss of a further 34,000 connections in Q1 and has now lost 146,000 or 39% of its connections in the last year to leave it with just 228,000 connections.

In another key African market, Tanzania, connections growth slowed substantially in Q1 as total connections reached 17.6 million following net additions of only 337,000, well down from 1.5 million in Q4. Market-leader Vodacom reported 392,000 net additions in Q1 (down from 618,000 last quarter). Of note, Vodacom reported that it had 428,000 active data customers and 371,000 active customers using its M-PESA money transfer service. Second-placed Zain lost 211,000 connections in the quarter while third-placed Tigo’s net additions

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totalled only 97,000. On an annual basis, Zain’s total connections were up 594,000 (14%) and Tigo’s an impressive 1.4 million (53%). Tigo’s total revenue has also shown a healthy 45% increase over the period to TZS 81,296 million despite a 10% decline in ARPU to TZS 6689. In comparison, Vodacom’s ARPU fared worse with a 21% decline over the same period to TZS 4,472 while service revenue stayed flat.

In Kenya, market-leader Safaricom reported another strong performance with total connections reaching 15.8 million at the end of Q1, an increase of 2.4 million (18%) year-on-year, as the operator continues to benefit from the success of its M-PESA mobile payment service and ‘Bonga’ loyalty program. Full-year revenue also increased strongly to KES 84 billion (19%) due to impressive growth in data revenue while EBITDA increased 31% to KES 37 billion. Registered M-PESA users increased 54% to 9.5 million (over 60% of subscribers) while the number of agents expanded to 17,652 across the country as the monthly value of person to person transactions reached KES 28.6 billion. M-PESA revenue increased 158% to KES 7.6 billion while total data (including messaging) revenue increased 73% to KES 15.7 billion to represent 19% of total revenue - up from 13% in the same period last year. Blended ARPU declined 3% to KES 458.50, attributed to increased penetration into rural areas and lower average tariffs. Safaricom also continues to benefit from having the only 3G network as mobile data users increased 80% year-on-year to 2.4 million. The Communications Commission of Kenya (CCK) has recently cut the cost of a 3G licence by 60% from US$ 25 million to US$ 10 million in a bid to boost competition. Zain has indicated that it intends to launch 3G services in the second half of this year and the other operators are expected to follow suit. Orange (Telkom Kenya) continues to struggle as it reported its second consecutive quarter of negative net additions by losing a further 217,000 connections in Q1.

Over in Uganda, Orange reported net additions of only 8,000 in Q1 - its weakest quarter since launch - as the operator finished its first full year of operation with 358,000 connections. In contrast, market-leader MTN continues to perform strongly with Q1 net additions of 393,000 as total connections reached 5.6 million - a year-on-year increase of 1.6 million (41%). Elsewhere, Orange (Sonatel) did slightly better in Senegal where it reported net additions of 35,000. Orange comfortably remains market-leader with 4.6 million connections. Second placed Tigo added 285,000 connections in the quarter to reach 2.4 million connections despite the ongoing arbitration process over the operator’s licence - which is technically suspended - meaning that it has only been investing the minimum to alleviate capacity constraints in recent quarters. The market’s smallest player, Expresso (Sudatel), added 18,000 net additions during the quarter to finish its first full year of operation with 222,000 connections. Elsewhere, Tigo finished its first full quarter of operation in Rwanda with 114,000 connections - up from 75,000 at the end of Q4 following its launch in December.

After a long-running sale process the Zambian government announced in June the sale of a 75% stake in incumbent Zamtel and its mobile arm Cell Z - the market’s third and smallest operator - to LAP Green Networks of Libya for US$ 257 million, after seeing off competition from other short-listed bidders Unitel of Angola and Russia’s Altimo Group. With a market share of under 10% it is clear the new owner will be required to make significant investments to attempt to catch market- leader Zain with over 3 million connections and second-placed MTN, which reported 128,000 net additions during the quarter - to reach 1.3 million connections.

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Americas

Latin and Central America continue to enjoy a revival as total connections in the region crossed 518 million, off the back of an increase of 9.4 million net additions - a 43% improvement on an annual basis.

Telefónica’s Latinoamérica division continued to contribute a significantly to the region’s renewed growth. At the end of March 2010, the company achieved 138 million connections, an increase of 3.7 million for the quarter (almost triple the net additions for the year-ago period). Importantly for the group, 45% of net additions during the period were from the contract segment (twice that of Q1 2009), and now represent 18% of the total customer base, signalling a more stable evolution of the compositional split by tariff. As discussed in our previous quarterly reviews, data revenue remains a key driver for the group and an emerging battleground for the region as a whole. Year-on-year, data revenue grew 44% and accounted for 21% of first quarter total mobile revenue (increasing its contribution by 5% annually). In particular, the mobile broadband segment has grown 250% since Q1 2009 and now stands at 5 million connections. ARPU for the group’s regional results remained virtually unchanged from the year prior, while churn dropped marginally over the 12 months to 2.4%.

Brazil remains the highlight in Telefónica’s results, and as a market posted its strongest first quarter (5.2 million net additions, 17% growth year-on-year) since 2000. Of the total 179 million connections at end-March, Vivo represents almost 54 million after adding 2.2 million

Q1 2009 Q4 2009 Q1 2010


Total 463.1 508.1 517.5

Contract 80.4 86.5 90.4

Prepaid 382.8 420.0 427.2

CDMA (Family) 40.0 33.9 31.2

GSM 405.6 442.5 451.6

WCDMA (Family) 9.9 20.2 26.0


Contract 3.2 1.6 3.8

Prepaid 4.7 18.0 7.1


Total 1 4 2

Contract 4 2 4

Prepaid 1 4 2


Total 17 11 12

Contract 17 12 12

Prepaid 17 11 12


ARPU (US$) Blended 13.34 13.84 12.83

Churn (%) Total 2.8 2.9 2.8

Minutes of Use per User Total 116 126 124

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in the first three months of 2010 - a figure that outperformed the first six months of 2009, again highlighting the extent of the regional recovery. Signifying the importance of the market to the group (41% of regional revenue comes from Brazil), Telefónica opted in May to tempt its partners in the joint venture, Portugal Telecom (PT), into a buy-out with a EUR 5.7 billion bid for the 50% stake in Brasilcel, the holding company which owns a 60% stake in Vivo. Rejected by the PT board, the group upped the offer to EUR 6.5 billion in June which was also perceived by PT as not reflecting the strategic value of Vivo. The bid was subsequently raised to EUR 7.15 billion at the end of June ahead of a PT shareholding meeting to vote on the proposed sale. Telefónica additionally sold an 8% stake in PT (leaving it with a 2% stake), viewed as a move made out of suspicion that the group would not be able to vote on their own offer.

The results indicate a much improved quarter for Telefónica which, as discussed in our Q4 2009 quarterly review, struggled in four markets reporting negative net additions during the period. In Q1 2010, Venezuela was Telefónica’s only market to remain with customer losses, but against a backdrop of financial instability given the hyperinflation and devaluation (with results presented at a 50% devaluation, year-on-year) of the country’s currency during January. Despite the markdown, Venezuela remains the fourth-largest contributor to revenue, behind Brazil, Argentina and Chile.

Competitor América Móvil saw a similar resurgence in Q1, adding 4.4 million net additions in the quarter (5.5 million including interests in Tracfone in the US, a 41% year-on-year increase). Akin to Telefónica, the bulk of the group’s net additions came in Brazil (1.2 million), closely followed by Mexico (1.1 million), to close the quarter with a total 206

million mobile connections. The group attributed first quarter revenue growth (MXN 98.7 billion) to a reacceleration in consumer spending and an additional increase in data services usage. Equipment revenue provided greater contribution than usual (an 11% share, growing 15% annually) due to the renewed pace in net additions, 15% of which were contract sign-ups or renewals - boosting device sales. Service revenue grew strongly in local currencies, but was marred slightly by unpredictable variable exchange rates in the quarter, managing a 9% increase for Q1 year-on-year. Contributions from data revenue grew from 16% in Q1 2009, to 21% for the previous three months.

In the group’s domestic market, Mexico, the deadline for mandatory subscriber registration imposed by the regulator, Cofetel, expired in April but the penalty of customer disconnection has yet to be enforced. To date, América Móvil stated that a majority of the company’s customers had registered following a high-profile marketing campaign, but with mobile number portability only recently introduced in 2008, all four operators remain wary of an eventual cut-off date. At the heart of the issue is the group’s prepaid split in Mexico - currently 91% of all Telcel customers - for which no registration was previously required. The tariff weighting was also highlighted in a recently updated OECD data set, placing Telcel’s prepaid plans as the second cheapest amongst the 30 countries that comprise the organisation’s remit as of February 2010. Despite this, ARPU for Telcel (US$ 12.76) remains the highest of all América Móvil’s Latin American markets and ahead of Telefónica’s Movistar Mexico (US$ 9.42) but well behind Nextel’s contract-rich business customer base (US$

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47.00).

Digicel announced strong annual results for the year-ending March 2010, with operators across the Caribbean, Central America and (having recently merged with sister company, Digicel Pacific) Asia. Connections grew by 15% to reach 10.8 million over 32 markets (of which 1.7 million connections come from the six markets in Asia Pacific, the strongest growth-driver for the group). Revenue for the year was US$ 2.2 billion (up 12% year-on-year) and US$ 1.8 billion for the Caribbean and Americas in isolation (up 1% year-on-year). Data revenue grew 31% in the Americas and contract connections by 18%.

There were just two new network launches during the quarter which saw Outremer Telecom deploy WCDMA in French Guinea and Guadeloupe during January.

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Asia Pacific

In Q1 2010, India reached 584 million cellular connections, adding almost 60 million connections quarter-on-quarter. Market penetration in the country has crossed the 50% mark for the first time. During the opening quarter of the year, two new operators launched GSM networks in India. Cheers Mobile (Etisalat) kicked off a limited trial launch in nine circles; whilst Videocon Mobile commercially launched in two. Spice Telecom was consolidated in Idea Cellular’s Q1 2010 installed base following the completion of all regulatory approvals for the long-planned acquisition, underpinning an 11 million jump in net additions - compared to an average of four million in recent quarters. In addition, the regulator, TRAI, consolidated the Chennai connections base in Tamil Nadu to reflect a consistent segmentation of 22 circles as per the 3G spectrum auction allocation plans. As a result, Tamil Nadu’s share of Circle A total connections increased by 2 percentage points to 9% with 38 million connections. Circles B and C are still leading the market in terms of cellular growth, showing the significant role of rural demand. The regulator has recently argued that over the past 15 years rural penetration has only reached 25%, which indicates that operators have focused mainly on urban-centric network coverage. In a recent set of recommendations to the Government’s Department of Telecommunications (DoT), the regulator touched on coverage method changes to ensure operators meet demand needs in rural areas with 3G services.

The 3G spectrum auctions finally concluded in May, allocating spectrum bandwidth to Bharti Airtel and Reliance Communications in 13 circles, Idea Cellular in 11, Vodafone and Tata

Q1 2009 Q4 2009 Q1 2010


Total 1,819.1 2,115.2 2,235.5

Contract 449.9 496.8 520.8

Prepaid 1,369.7 1,618.4 1,705.9

CDMA (Family) 205.6 237.3 250.0

GSM 1,466.1 1,695.2 1,781.8

WCDMA (Family) 138.2 171.1 187.2


Contract 14.7 18.3 24.0

Prepaid 86.4 99.4 87.5


Total 6 6 6

Contract 3 4 5

Prepaid 7 7 5


Total 24 23 23

Contract 7 14 16

Prepaid 31 26 25


ARPU (US$) Blended 12.61 12.17 10.91

Churn (%) Total 2.9 3.7 -


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Teleservices in nine, and STel in three. In a recent Snapshot, we estimated that the potential market size for WCDMA and WCDMA HSPA connections could reach 150 million by 2014 - 13% of total connections. In China, third generation services are growing at a steady pace as China Mobile reported 7.7 million TD-SCDMA connections, China Unicom reported 4.8 million WCDMA HSPA connections and China Telecom reached 5.5 million CDMA2000 1X EV-DO connections.

In the region, eight operators reported negative net additions between Q1 2009 and Q1 2010, totalling just over four million connections - or 15% of the total amount of negative net additions globally. Pakistan and Philippines are the markets most affected by declining cellular growth. In Philippines, Globe Telecom lost 1.8 million cellular connections over the year but, nonetheless, recorded a positive growth between Q4 2009 and Q1 2010 with 645,000 net additions. Mobile broadband connections (HSPA (Tattoo) and WiMAX) contributed 80% of the quarterly net additions, bringing the total of mobile broadband customers to 607,000 in Q1 2010 compared to 128,000 in Q1 2009. Over the quarter, the operator introduced its ‘SuperSurf ’ service which offers ‘all-you-can-eat’ mobile chatting, browsing, downloading and emailing for PHP 1,200 per month. But it’s Globe’s TM brand - Touch Mobile - which led the positive growth over the quarter, reaching 10 million subscribers in Q1 2010 (7% quarterly growth). TM is Globe’s value brand offering, focused on

affordable prepaid services, which saw its churn rate reduced by two percentage points over the past 12 months to 6.8% - aligning it with the overall churn rate for all of Globe’s brands (6.6%).

In Pakistan, Warid Telecom saw its connections base shrink 13% quarter-on-quarter as it deactivated 2.7 million subscribers. Singapore’s SingTel - a 30% shareholder - said its share of pre-tax operating losses at Warid declined 19% in local currency terms in the quarter, while operating revenue was up 7% and operating expenses declined 14% due to the cost management measures. Nevertheless, the country’s cellular market grew by 6% year-on-year in Q1 2010, a return to growth from a year ago when the market suffered a slow down due to tax increases and the after-effects of the global recession. In June, Pakistan felt sufficiently confident in the market to begin official discussions with operators over the allocation of 3G spectrum - an issue we discussed in our recent Snapshot.

India’s multi-billion dollar 3G auction has also heightened Bangladesh’s appetite for foreign investment. Bangladesh’s Post and Telecommunications Ministry is expected to auction 3G licenses by the end of August. Axiata rebranded its Aktel operation to ‘Robi’ in Q1 2010 which contributed to an increase in subscriber acquisition cost and a 91% decline in profits after tax. Nevertheless, the operator’s revenue increased by 35% year-on-year and its EBITDA by 11%. Robi’s customer base added 1.5 million prepaid connections over the quarter to reach 13.4 million total connections. Bangladesh’s market-leader Grameenphone (Telenor) confirmed the implementation of infrastructure sharing agreements with Banglalink (Orascom) and Robi, and reported operating cash flow margin of 48%.

In Australia, second-placed Optus (SingTel) saw its market share of net additions jump to 28% in Q1 2010, compared to 6% the previous quarter, as the operator reached a

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http://www.wirelessintelligence.com/analysis/2010/06/indian-wcdma-family-connections-to-hit-150-million-by-2014/

http://www.wirelessintelligence.com/analysis/2010/06/pakistan-eyes-move-to-3g-as-market-shows-signs-of-recovery/

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total cellular connections base of 8.5 million. The operator’s recurring revenue grew by 11% in Q1 2010 compared to Q1 2009, whilst its EBITDA margin remained stable at around 30%. Optus’ blended ARPU also remained stable at AUD 47 while its non-SMS ARPU as a share of recurring revenue increased from 10% in Q1 2009 to 16% in Q1 2010. The operator introduced a number of new services and applications over the quarter such as ‘SocialView’, ‘Business App Store’, as well as new data-centric offers ‘yes Social’ and ‘yes Business Complete’ - which optimise data allowances for social networking tools usage. In other developments, Optus reported that 8% of its users were connected through wholesale, compared to 6% a year ago. According to our recent research, over half of the 72 MVNOs in Asia Pacific are currently found in Australia.

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Eastern Europe

Eastern Europe was the worst-affected region in terms of operators registering negative subscriber net additions - a total of 32 quarterly (3.6 million connections) and 26 on an annual basis (5.7 million). As a region, total connections crossed 483 million with net additions of 3.5 million, consistent with year-on-year figures.

Moscow-headquartered VimpelCom announced a 4% annual rise in Russian connections to 51 million, increasingly supported by the sale of USB modems in the market. The group now boasts 1.2 million mobile broadband connections, having just surpassed the number of fixed broadband lines during the quarter. Overall value-added services as a percentage of revenue increased to 21% in Q1, driven by the strong demand for data, while ARPU and MoU remained stable from the year-prior at RUR 308 and 204 minutes per user per month. Outside of Russia, Kazakhstan provided signs of a return to stability with a 10% year-on-year growth in local currency revenue while the group consolidated operations in Kyrgyzstan for the first time which now serves 1.8 million connections through a management contract with Sky Mobile, having adopted the Beeline brand in June 2009.

For Telenor Group, Q1 2010 marked a key turning point in its negotiations with VimpelCom, over which its interests in the Ukrainian operator Kyivstar has been a running dispute for five years. The formation of VimpelCom Ltd has significantly improved the governance structure at the group, of which Telenor now holds 39.6%. Worth NOK 55 billion on the first day of floatation on the NYSE in April, the deal comes with news that all claims for damages against either company have been dropped as part of the merger. Telenor’s own

Q1 2009 Q4 2009 Q1 2010


Total 450.9 479.9 483.3

Contract 87.9 95.7 96.8

Prepaid 362.8 383.8 386.6

CDMA (Family) 3.5 4.4 4.8

GSM 425.2 430.9 430.9

WCDMA (Family) 22.0 44.5 49.4



Prepaid 1.5 5.8 2.8


Total 1 2 1

Contract 3 2 1

Prepaid - 2 1


Total 12 7 7

Contract 14 12 10

Prepaid 11 6 7


ARPU (US$) Blended 10.79 10.65 10.02


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operations in Central and Eastern Europe were mixed, offering strong prepaid growth in Serbia and Hungary despite losing 36,000 net connections in Hungary and seeing revenue (NOK 1,185, down 10% annually) impacted by a 17% cut in mobile termination rates (MTRs) and the continuing effect of the recession. In Serbia, the group added 46,000 net connections but revenue was similarly hit by financial instability (NOK 606, down 16% year-on-year) and the effects of a 10% mobile usage tax. Similarly in Montenegro, the group lost 33,000 net connections amid an ongoing network replacement, stretching profits in the market. Revenue was down 18% for the year, generating NOK 136 million in the first quarter against a background of recession-impacted spending patterns, driving ARPU down 19% by comparison.

MTS Group saw an equally volatile three months, stating that macroeconomic instability in the region continues to impact financial and operational performance amid striking deals to lower the interest rates on several of its existing key loans (total group debt at the end of Q1 was US$ 7.7 billion). In Russia, the group maintained its leading 33% market share position with 69 million connections, despite a slight 0.4% decline in overall connections from the previous quarter. Market share by handsets was however up, rising to 13% as a share of total devices sold during the quarter. As expected, operators saw a seasonal handset decline in Q1 but sales volumes rose to 944,000 devices with the launch of the iPhone 3GS in March and significant promotions for the MTS Connect modem packages. The company announced 478,000 broadband data connections covering both Connect packages and individual data tariff sales. Ukraine equally registered a 1% quarterly decline (a 210,000 net additions loss) while results were balanced by

its performance in Turkmenistan (8% growth), Uzbekistan (4%) and Armenia (2%) across consolidated markets.

Tele2 contributed a strong set of results to the region, adding 972,000 connections to the customer base (a figure that has tripled from the year-ago period), of which 33,000 were mobile internet users. Total EBITDA for Q1 2010 stood at SEK 2,358 million, which is an annual two percentage point increase in margins to 25%. Most notably, a higher-than-expected contribution was reported in Russia, where growth exceeded expectation in its recently launched rural areas as well as existing penetrated urban deployments. The group added 949,000 customers during the quarter, generating EBITDA of SEK 719 million, which comes as the company finalised commercial launches for all regional licences received in 2007 with an aim to break-even on each within two years. The company now holds licences in 37 of Russia’s districts, covering approximately 61 million inhabitants. 683,000 net additions of the total increase were derived from these new operations. The group remains reliant on its mobile services to bolster a flagging fixed-line division where the customer base continues to decline, pushing Tele2 into a defensive policy of improving churn whilst maximising the return from existing fixed-line customers. Of note during the quarter was the acquisition of NEO Kazakhstan, acquired for SEK 545 million and adding 265,000 non-organic connections to the customer base. Outside of Eastern Europe, Tele2 remains on track to deploy LTE in Sweden during 2010 as part of a joint venture with Telenor and a commitment to meet a fast-rising demand for additional bandwidth in the market.

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Network launches in the first quarter included HSPA+ deployments from life:) (BeST) and Velcom (mobilkom austria) in Belarus (with equipment provided by ZTE and NSN) while both T-Mobile and Vodafone launched HSDPA/HSUPA in Czech Republic, supported by NSN and Huawei respectively.

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Western Europe

In Q1 2010, 26 operators reported negative quarterly net additions, adding up to a decline of four million cellular connections - compared to a decline of 2.6 million in Q1 2009 from 19 operators. On a yearly basis, 11 operators reported a decline in net additions totalling just below 7 million connections - 26% of the World’s negative net additions over the same timeframe. This trend reflects the level of saturation in the region, especially in Germany, Ireland, Sweden, Netherlands, Italy and Greece. Over the year, both Western and Eastern Europe contributed to half of the World’s negative net additions.

In Greece, mobile operators have finally started to clean up their data sets of inactive connections - a move forced by the regulator’s decision to implement prepaid SIM card registration in late 2009. As a result, Cosmote (OTE) and Wind (Weather) have both lost 400,000 prepaid connections while Vodafone’s prepaid base shrunk by 500,000 connections. The phenomenon of multiple SIMs per user has a significant impact on the Greek market and the disconnection of inactive SIM cards had a major impact on penetration rates. Market penetration in Greece declined by almost 10 percentage points between Q4 2009 and Q1 2010 to 181%.

Cellular connections in Italy, Germany and the UK account for half of the total connections in Western Europe. Mobile operators in such highly competitive markets are focusing on customer retention and are pushing for a rapid migration of their prepaid subscriber base to contract. Apart from E-Plus (KPN) Germany and T-Mobile UK, all operators within those

Q1 2009 Q4 2009 Q1 2010


Total 509.0 519.8 519.1

Contract 218.9 230.3 233.9

Prepaid 289.4 288.8 284.8


GSM 376.5 352.9 341.8

WCDMA (Family) 132.5 166.7 177.3

Net Additions (Millions) Total 1.8 4.9 -0.7


Prepaid -1.2 1.0 -4.0


Total - 1 -

Contract 1 2 2

Prepaid - - -1


Total 5 2 2

Contract 9 7 7

Prepaid 2 -1 -2


ARPU (US$) Blended 31.70 31.48 30.61

Churn (%) Total 2.3 2.4 2.3


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three markets have managed to sustain such migration on a yearly basis - showing clear signs that their contract installed base is stealing growth from their prepaid base. Apart from Vodafone Italy, all operators have also managed to reduce contract churn by around 0.1 percentage points to reach 1.5% year on year.

In Germany, E-Plus has recorded 11% yearly growth in prepaid connections and flat growth in its contract subscriber base. This is due to the fact that E-Plus has long been encouraging the development of mobile virtual network operators (MVNO) and currently counts 38 MVNOs and 15 wholly-owned brands - with the vast majority of them offering prepaid services exclusively. The state of the MVNO market is discussed in our recent Snapshot, Global MVNO market surpasses 600 in Q2 2010, and the data can be accessed via our newly launched MVNO Tracking Tool.

Vodafone Italy has seen its recurring revenue (including fixed-line services) drop by 3% quarter-on-quarter and remain flat year-on-year. Fixed-line revenue and data revenue both account for a similar share of total recurring revenue and have grown at the same pace over the year - jumping from 8% to 10% of total revenue between Q1 2009 and Q1 2010. In Italy and Spain, Vodafone’s voice revenue declined by 7% quarter-on-quarter - its sharpest decline over the past 18 months in both countries - compared to declines of 6% in Germany and 2% in the UK. The operator’s 5% quarterly growth in data revenue does, however, offset the fall in voice usage - with Germany and the UK leading the trend by reaching growth of 8% and 7%, respectively.

Year-on-year, TIM Italy lost almost 4 million cellular connections and has stopped reporting its 3G connections and prepaid/contract splits in its quarterly earnings reports. The sharp decline in customer base is justified by a more selective marketing policy, introduced during the

second half of 2009 to focus mainly on high value-added consumer segments. Telecom Italia also registered declines of EUR 22 million in messaging revenue and EUR 10 million in mobile content revenue which apparently improved compared to a year ago thanks to a continued growth in broadband services in both fixed-line (up by EUR 33 million) and mobile (up by EUR 30 million) segments. TIM’s value-added-services (VAS) grew by 8% year-on-year to reach EUR 510 million in Q1 2010 - helped mainly by browsing revenue which increased by 38%. The operator continues the rationalisation of its handset portfolio with a greater focus on smartphone and mobile broadband devices.

In Spain, Movistar (Telefónica) reported a 68% yearly increase in mobile data revenue, pushing non-messaging data revenue to account for one third of total data revenue. This growth was driven by strong demand in high-speed network connections which surpassed three million at the end of the quarter, of which 2.3 million were monthly data flat-rates (2.2 times more compared to Q1 2009). Over the quarter, Movistar registered 9.3 million 3G handsets (1.4 times more compared to Q1 2009). Consequently, data ARPU accounted for 21% of total ARPU in Q1 2010 (growing by 1.7 percentage points year-on-year).

T-Mobile Germany lost 600,000 cellular connections between Q4 2009 and Q1 2010 and the operator’s prepaid customer base declined by 700,000 connections over the

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quarter to 21.2 million due to the de-registration of inactive prepay customers. As a result, the share of contract customers increased by around one percentage point to 45% of the customer base. In Austria, T-Mobile implemented a new rule for deregistering prepaid customers who used its secondary brand, tele.ring. Until December 31 2009, tele.ring’s prepaid customers used to be deregistered from the customer base after a period of inactivity of 90 days. The period of inactivity was extended to 180 days from January 1 2010 - keeping hold of tele.ring customers in the customer base for longer.

In April, T-Mobile and Orange UK announced the successful completion of their merger and the establishment of a new joint venture - Everything Everywhere (E2). Both brands will continue to operate independently for the time being but their results will be consolidated under the new holding company, making it the largest mobile firm in the UK - in terms of cellular connections - with over 30 million connections.

Finally, Germany became one of the first countries in Europe to redistribute the so-called ‘digital dividend’ bandwidth to mobile operators in a spectrum auction that closed in May. The auctions - which netted the government around EUR4.38 billion in total - saw Vodafone, T-Mobile and O2 acquire 800 MHz spectrum whilst E-Plus (which missed out on the 800 MHz spectrum) is reported to be seeking a spectrum sharing agreement. This spectrum is being freed-up by the TV broadcasters’ move to digital TV and is deemed particularly suitable for deploying next-generation mobile technologies such as LTE. We previously discussed this in our Snapshot, Germany prepares to launch LTE using digital dividend spectrum. The German auctions are set to be followed by digital dividend auctions elsewhere in Europe - with Switzerland, France and the UK among others.

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Middle East

Turkey ended Q1 with 61.8 million connections following the loss of 1.1 million connections, the fourth negative quarter of net additions in the last five, and taking the annual decline to 2.7 million connections (4%). As in Q4, the decline was led by market-leader Turkcell which reported its fifth consecutive quarter of negative net additions, with a further decline of 1.1 million. Unlike in previous periods, Turkcell also reported a decline of 100,000 contract connections, exacerbating the ongoing declines in its prepaid customer segment. Turkcell reported that the main reason for the decline in contract connections was the increase in port outs following the implementation of mobile number portability (MNP), while prepaid declines have been mainly due to a drop in multiple SIM card usage, which it indicated has decreased to 14% from 19% since the implementation of MNP. Turkcell cautioned that this trend is expected to continue. On a brighter note, Turkcell grew its revenue by 8% to TRY 2,016 million reflecting growing MoU, higher interconnection revenue and increasing contribution from mobile data. In this regard, MoU per user per month increased 43% year-on-year to 153 minutes, interconnection revenue increased 44% and data revenue increased 70% to TRY 92.1 million to represent 17% of total revenue (up from 16% in the same period last year). Blended ARPU increased by 13% year-on-year to TRY 19.40.

Following negative net additions in Q4, second-placed operator Vodafone reported 164,000 net additions during the quarter, with gains made in contract connections (261,000) offsetting a second consecutive quarter of decline in prepaid connections (97,000). More positive news came from the second consecutive quarter of year-on-year service revenue growth. Vodafone attributed this turnaround to a number of factors including more controlled distribution, increased brand visibility through TV advertising, the acceleration

Q1 2009 Q4 2009 Q1 2010


Total 235.1 260.8 267.6

Contract 59.6 66.4 67.7

Prepaid 175.5 194.6 199.5


GSM 222.1 234.3 238.2

WCDMA (Family) 8.0 20.7 25.1



Prepaid 8.4 8.2 4.9


Total 4 4 3

Contract 3 4 2

Prepaid 5 4 3


Total 24 16 14

Contract 17 15 13

Prepaid 27 16 14


ARPU (US$) Blended 14.16 14.95 -

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of data service revenue growth through 3G investment, enhanced 2G network quality and segmented customer opportunities. Wireless Intelligence calculates that Vodafone’s blended ARPU increased 34% year-on-year to TRY 14.90. At the EBITDA level, however, Vodafone continues to report a small loss. Third-placed Avea (Turk Telecom) reported its fourth consecutive quarter of negative net additions with a further decline of 150,000. Like Vodafone, Avea made gains in contract connections (130,000) but saw them offset by continuing losses in prepaid connections (280,000). Avea also reported success in increasing blended ARPU by 28% to TRY 17.90 and revenue by 22% year-on-year to TRY 647 million driven by ‘all direction offers’.

In the region’s second largest market, Iran, MTN Irancell finished Q1 with 25.4 million connections following net additions of 2.1 million, taking the annual increase to 7.1 million (39%). MTN reported that Iran’s continued subscriber growth is due to ‘acquisition promotions that remain compelling’. Notwithstanding high growth rates, ARPU remained stable at US$ 8. Market-leader MCI (TCI) reported 1.8 million net additions, taking its total connections to 36.9 million - an annual increase to 5.7 million (18%). In neighbouring Syria, MTN increased connections marginally (48,000) to 4.3 million. Elsewhere in the Middle East, MTN reported Q4 net additions of 204,000 in Afghanistan and 166,000 in Yemen to reach 3.4 million and 2.5 million connections, respectively. In both markets, blended ARPU remained largely unchanged compared to 12 months earlier.

In Saudi Arabia, market-leader Saudi Telecom reported that total connections reached 22 million at the end of Q1, a 13% year-on-

year increase. Quarterly revenue only increased 2% year-on-year to SAR 8,370 million. In contrast Mobily, the second-ranked operator, increased revenue over the same period by 27% to SAR 3,581 million. The markets newest entrant, Zain, which launched in Q3 2008, reported that it increased its connections base by an impressive 101% in the last 12 months and an 88% increase in quarterly revenue to SAR 1,094 million. Finally, the market’s smallest player, Wataniya controlled iDEN operator Bravo (PTC), reported net additions increased to 10,000 in Q1, up from just 32 in Q4, to take total connections to 196,000 - a market share of less than 1%. Bravo’s ARPU declined 6% year-on-year to KWD 8.70 while revenue increased 2% to KWD 5.5 million. Elsewhere, Wataniya reported 86,000 net additions in its home market of Kuwait, broadly in line with the previous quarter while blended ARPU decreased 7% year-on-year to KWD 10.40. In its first full quarter of operation, Wataniya reached 164,000 connections in the Palestinian Territories - up from 111,000 at the end of Q4 following its launch in November. Blended ARPU was reported to be KWD 2.30. Incumbent operator Jawwal (PalTel) reported 147,000 net additions for the quarter while ARPU declined 4% year-on-year to US$ 16.60.

After losing 18,000 connections in Q4, Qatari market-leader Qtel returned to growth in Q1 by gaining 4,000 connections. Vodafone which commercially launched in Q3 2009, continues to grab the majority of net additions with a further 111,000 in Q1, taking its total connections to 465,000 and giving it a market share of 18%. Qtel’s blended ARPU declined for a seventh consecutive quarter by falling to QAR 116.60, a decline of 38% in the last 12 months alone. On a positive note prepaid ARPU increased marginally for the first time

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in five quarters. Vodafone also saw a decline in blended ARPU to QAR 101, a substantial (41%) fall from the QAR 171 reported in the previous quarter while quarterly revenue also declined 19% sequentially to QAR 144 million. Vodafone’s EBITDA remains negative but it confirmed it expects to turn cumulatively EBITDA positive by end-2011.

In Iraq, Qtel associate Asiacell returned to growth in Q1 with 390,000 net additions as total connections reached 7.7 million, taking annual growth to 16%. Blended ARPU also increased 13% year-on-year to QAR 51.10. In the United Arab Emirates market penetration continued its steady climb beyond 200% despite market-leader Etisalat reporting a loss of 31,000 connections (as this was more than offset by rival du which reported 262,000 net additions). Over in Oman, Qtel controlled Nawras reported annual connections growth of 344,000 (22%) following 77,000 net additions in Q1. Market-leader Oman Mobile (Omantel) added 501,000 net additions (28%) over the same period including 153,000 in the last quarter. Oman Mobile noted that MVNOs contributed 288,000 (57%) of its annual increase. MVNO FRiENDi Mobile announced that

it reached the 150,000 connections milestone during the quarter. Fellow Omani MVNO Renna (Majan Telecommunications) recently announced it had reached 130,000 connections at the end of its first year of operation.

FRiENDi Mobile announced in June the launch of its second MVNO in Jordan on Zain’s network, making Jordan only the second Middle Eastern market to witness the entry of MVNOs. Also in June, Israel announced that it has awarded its first MVNO licence to Telecom 365, a subsidiary of retail group Hamashbir, which plans to launch services by the end of 2011 following the finalisation of negotiations with potential host networks. As of Q1, only 524,000 connections separate Israel’s three main operators which are led by Cellcom with 3.3 million connections, ahead of Orange (Partner Communications) with 3.1 million connections and Pelephone (Bezeq) with 2.8 million connections. Consistent with recent quarters they all reported a low rate of growth and between them they only gained 70,000 net additions during the quarter.

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USA/Canada

Following strong growth in Q4 2009, connections growth slowed in the US in Q1 2010 (as seasonally expected), with net additions of 4.5 million taking total connections to 290 million. Despite the slowdown it was still the second-highest quarterly net addition total since Q1 2008. As seen in recent quarters the growth was again dominated by the country’s largest operators, AT&T and Verizon, with a combined 3.4 million net additions (76% of the total). Both operators’ gains are increasingly coming from areas other than the traditional retail (non-wholesale) subscribers with wholesale (for Verizon) and connected devices (for AT&T) contributing the majority of the growth. Significantly, their combined retail (non-wholesale) net additions (contract & prepaid) were a much more modest 820,000 connections. The changing dynamics of US cellular market growth in recent quarters was highlighted this quarter in particular by AT&T’s breaking out of ‘connected devices’ - including e-readers such as Amazon’s Kindle and Barnes & Noble’s nook - from its reseller (wholesale) connections. Whilst not strictly comparable, Verizon also reported a new category of ‘Other connections’ for the first time in Q1 that includes telematics, vehicle tracking, machine-to-machine (M2M) connections and e-readers. Making comparisons between the two operators even more complicated is the fact that AT&T historically included ‘connected devices’ in its total connections (as reseller connections) while Verizon has excluded ‘Other connections’ from previously reported figures as it only previously reported total retail and reseller connections.

Market-leader Verizon reported that total connections (retail and reseller) reached 92.8

Q1 2009 Q4 2009 Q1 2010


Total 296.0 308.5 313.2

Contract 233.5 239.3 239.9

Prepaid 38.3 44.3 45.6

CDMA (Family) 160.5 166.8 170.1

GSM 93.6 85.0 82.4

WCDMA (Family) 27.3 42.4 47.3


Contract -1.2 2.7 0.7

Prepaid 2.7 5.8 1.3


Total 1 2 2

Contract -1 1 -

Prepaid 8 15 3


Total 6 5 6

Contract 3 2 3

Prepaid -10 25 19


ARPU (US$) Blended 50.71 49.76 49.13

Churn (%) Total 2.0 2.1 2.0


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million in Q1 following net additions of 1.5 million - down from 2.2 million last quarter. Retail (non-wholesale) connections reached 87.8 million following net additions of 284,000, down substantially from the 1.2 million reported last quarter. Reseller (wholesale) connections increased by 1.3 million to 5 million - an increase of 25% in the last quarter alone. This follows a 1 million increase in reseller connections last quarter. Although Verizon again gave no indication as to which of its resellers are driving the growth, the majority of these can undoubtedly be attributed to its exclusive MVNO agreement with Tracfone’s Straight Talk prepaid offering launched last year and distributed nationwide through Wal-Mart. Additionally, Verizon reported ‘Other connections’ (see above) hit 7.3 million, although no comparative figures were provided. Verizon’s service revenue increased 6% year-on-year to US$ 13.8 billion while data revenue (including messaging) increased 26% year-on-year to US$ 4.6 billion, taking data (including messaging) to 33% of service revenue - up from 28% in the same period last year. Blended

ARPU declined by 59 cents year-on-year to US$ 50.15 while data (including messaging) ARPU increased 18% year-on-year to US$16.71. Blended churn for the quarter was 1.40%, down from 1.47% in the same period last year. Verizon reported that 30% of its retail contract subscriber base now has 3G devices - comprised of 17% with smartphones and 13% with multimedia devices.

AT&T, the market’s number two player, reported total connections reached 87 million in Q1 following 1.9 million net additions for the quarter (comprised of 536,000 retail connections, 269,000 reseller connections and, significantly, 1.1 million connected devices). For the fourth consecutive quarter AT&T reported more net additions than rival Verizon. As with Verizon, the net additions were down on last quarter’s 2.7 million but were still the operator’s highest-ever Q1 figure. It was also the second consecutive quarter of connected device net additions of more than 1 million as total connected devices reached 5.8 million. Interestingly, at the retail connections net additions level, which is probably the best direct comparison between the operators, AT&T outperformed Verizon during the quarter by 252,000 connections. AT&T’s service revenue increased 10% year-on-year to US$ 12.9 billion while data revenue (including messaging) increased 30% year-on-year to US$4.1 billion, taking data (including messaging) to 32% of service revenue - up from 27% in the same period last year. Blended ARPU declined by 21 cents year-on-year to US$49.81 while data (including messaging) ARPU increased by 17% year-on-year to US$ 15.98. Blended churn for the quarter was 1.30% - the lowest ever recorded by the operator and fifth consecutive quarter of year-on-year improvement - down from 1.56% in the same period last year. AT&T reported that the number of contract subscribers with 3G integrated devices (handsets with QWERTY or virtual keyboards in addition to voice functionality by its definition) increased by 3.3 million (7%) to 26.8 million in Q1, the operator’s sixth consecutive quarterly increase of more than 3 million and taking the increase to 15.4 million (135%) in the last 12 months. At the end of Q1, 41% of the operator’s contract subscribers had integrated devices, up from 32% one year earlier. AT&T also reported that the integrated-device growth in Q1 included 2.7 million iPhone activations - 65% more than in Q1 2009 - with more than one-third of the activations for customers who were new to the operator. AT&T also noted that the average ARPU for integrated devices is 1.7 times that of the company’s non-integrated-device base while subscribers on contract data

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plans increased 28% over the past year. Total text messages increased by 53% year-on-year to 143 billion and multimedia messages more than doubled to 2.4 billion.

Third placed Sprint reported negative net additions of 75,000 in Q1 (including wholesale and affiliates) - the eleventh consecutive quarter of negative connections growth - as total connections fell to 48 million which includes 44.4 million retail connections and 3.6 million wholesale and affiliate connections. Retail connections declined by 230,000 in Q1 with the loss of 578,000 contract connections offsetting the gain of 348,000 prepaid connections. Sprint also gained 155,000 wholesale and affiliate connections as a result of renewed subscriber growth by the operator’s MVNO partners. Sprint’s service revenue (including wholesale and affiliates) decreased 2% year-on-year to US$ 6.5 billion. However, it reported its first sequential increase in service revenue in nearly three years with an increase of 2% on Q4. The improvement is primarily due to an increased number of prepaid subscribers as a result of the acquisition of Virgin Mobile and success of the Boost Mobile

‘unlimited’ offering. Wireless Intelligence calculates that Sprint’s blended ARPU declined by US$5.87 (11%) year-on-year to US$ 48.04 due to lower out-of-bundle revenue as a result of increased fixed-rate bundle plans. Blended churn is calculated by Wireless Intelligence to have increased to 3.04%, up from 2.75% in the same period last year.

After returning to growth in Q4 the market’s smallest Tier 1 operator, T-Mobile, reported a further loss of 77,000 connections in Q1 as total connections fell to 33.7 million. T-Mobile indicated that in addition to retail subscriber losses the decline was exacerbated by lower MVNO (wholesale) net additions. MVNO connections totalled 2.1 million at the end of Q1, up from 2 million last quarter. T-Mobile’s service revenue decreased 3% year-on-year to US$ 4.6 billion despite data revenue (including messaging) increasing by 18% to US$ 1.1 billion, taking data (including messaging) to 24% of service revenue - up from 20% in the same period last year. Blended ARPU declined by US$ 2 year-on-year to US$ 46 while data (including messaging) ARPU increased 16% year-on-year to US$10.90. Blended churn for the quarter was 3.1%, unchanged from 12 months earlier. T-Mobile reported that 5.2 million customers were using 3G-capable converged devices in Q1, an increase of 1.3 million (33%) on last quarter and an increase of 3.7 million (247%) year-on-year.

Prepaid specialists MetroPCS and Leap Wireless both reported higher connections growth in Q1. MetroPCS reported net additions of 692,000 in Q1 - the operator’s highest ever net additions - to take total connections to 7.3 million. ARPU declined by 57 cents to US$39.83 in Q1 while churn for the quarter was 3.70%, down from 5% in the same period last year. The fall in ARPU and churn were both attributed to the success of its ‘Wireless for All’ offerings that were introduced in January. Service revenue increased by 17% year-on-year to US$ 853 million. MetroPCS also confirmed that it is on track for initial LTE launches in selected metropolitan areas in the second half of this year. Rival Leap reported net additions of 446,000 in Q1 - the second-highest ever for the operator - comprised of 249,000 voice connections and 197,000 mobile broadband connections and taking total connections to 5.4 million. ARPU declined US$ 4.25 (10%) to US$ 37.96 in Q1 while churn for the quarter was 4.5% - reflecting voice churn of 4.5% and broadband churn of 3.8% - up from 3.3%

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in the same period last year. The decline in ARPU was attributed to the continued success of Leap’s mobile broadband offerings that have a lower ARPU of US$34.30 compared to US$ 38.42 for voice services while increased churn reflected the continuing effects of a competitive marketplace and challenging economic environment. Service revenue increased by 14% year-on-year to US$ 585 million driven by growth in new markets and the expansion of mobile broadband. Prepaid MVNO Tracfone (América Móvil) reported net additions of 1 million in Q1 taking total connections to 15.5 million – an increase of 31% year-on-year. Total revenue increased 61% year-on-year to US$ 605 million on the back of its nationwide roll-out of the highly successful Straight Talk ‘unlimited’ offering. Tracfone’s MoU increased by 107% year-on-year to 153 minutes per user per month while ARPU increased 11% over the same period to US$ 11.

Canadian market-leader Rogers Wireless - with 8.5 million connections - reported net additions of just 13,000 in Q1, with contract net additions of 47,000 being offset by the loss of 34,000 prepaid connections. The operator reported that this primarily reflected a cautious management of sales and marketing expenses and an increased level of competitive intensity. Service revenue increased by 7% year-on-year to CAD 1.7 billion while data revenue (including messaging) increased by 40% year-on-year to CAD 415 million, reflecting the continued penetration and growing usage of smartphone and wireless broadband devices. Blended ARPU increased by 45 cents year-on-year to CAD 62.02, reflecting higher data and long-distance revenue. Wireless Intelligence calculates that data (including messaging) ARPU increased 31% year-on-year to CAD16.28. Data revenue represented 26% of total revenue, up from 20% in the corresponding period last year. Blended churn for the quarter was 1.53%, down from 1.55% in the same period last year. Rogers reported that it activated or upgraded 348,000 smartphones during the quarter, of which 35% were new subscribers to the operator. Subscribers with smartphones represented 33% of contract connections in Q1, compared to 23% in the same period last year. Rogers reported that these subscribers generate ARPU nearly twice that of voice-only subscribers.

Second-placed operator Bell Mobility (BCE) reported net additions of 56,000 in Q1, just ahead of third-placed Telus Mobility which gained 51,000. Bell’s service revenue increased by 7% to CAD 1,056 million due to subscriber growth, the acquisition of the remaining 50% of Virgin Mobile and data revenue growth. Bell’s pro-forma blended ARPU increased by 23 cents to CAD 50.07 while blended churn increased to 1.8%, from 1.5% in the same period last year. Data (including messaging) revenue increased by 40% to CAD 222 million in Q1 to represent 21% of service revenue - up from 16% in the same period last year. Bell reported that data device subscribers were up 70% year-on-year. Rival Telus’ service revenue increased by 2% year-on-year to CAD 1,089 million in Q1 due to growth in the subscriber base and continued data revenue growth. Data revenue increased by 24% to CAD 258 million in Q1 on the back of continued adoption of smartphones and mobile Internet devices, and increased use of data services. Blended ARPU decreased by CAD 2.59 to CAD 55.80 in Q1 while blended churn improved to 1.55%, down from 1.62% in the same period last year. Data ARPU increased by 17% to CAD 13.14 to represent 24% of service revenue - up from 19% in the same period last year. Telus reported that smartphones represented 33% of contract gross additions in Q1, as compared to 18% in the same period last year. Subscribers with smartphones represented 22% of contract connections, up from 15% in the corresponding period last year.

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About the authors

Our analysis

Will CroftAnalyst [email protected]

Will is responsible for managing core operator metrics with a focus on operator groups and forecasting. He is also the information architect for the overall database and its multiple platforms. Prior to joining Wireless Intelligence, Will worked for Ovum Ltd. He holds a BSc (Hons) in Physics from the University of Bath.

Joss Gillet Senior Analyst [email protected]

Joss is responsible for the operator forecasts as well as the ongoing management of the service as a whole. Before Wireless Intelligence, Joss worked at Ovum Ltd and before that for Motorola’s Mobile Devices Division in the UK. He joined Motorola as a product analyst before managing its market intelligence activities in Europe.

Jon GrovesAnalyst [email protected]

Jon is responsible for maintaining the quality of operator reporting in the database and manages the core accuracy of network launches and deployments. He holds a PhD in Environmental Archaeology from Kingston University London and a BSc (Hons) in Geology and Physical Geography from the University of Western Australia.

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Whilst every care is taken to ensure the accuracy of the information contained in this material, the facts, estimates and opinions stated are based on information and sources which, while we believe them to be reliable, are not guaranteed. In particular, it should not be relied upon as the sole source of reference in relation to the subject matter. No liability can be accepted by Wireless Intelligence, its directors or employees for any loss occasioned to any person or entity acting or failing to act as a result of anything contained in or omitted from the content of this material, or our conclusions as stated. The findings are Wireless Intelligence’s current opinions; they are subject to change without notice. The views expressed may not be the same as those of the GSM Association. Wireless Intelligence has no obligation to update or amend the research or to let anyone know if our opinions change materially.

© Wireless Intelligence 2010. Unauthorised reproduction prohibited.

Please contact us at [email protected] or visit www.wirelessintelligence.com. Wireless Intelligence does not reflect the views of the GSM Association, its subsidiaries or its members. Wireless Intelligence does not endorse companies or their products. Wireless Intelligence operates under an Independence Charter. For full details please see www.wirelessintelligence.com/independence.aspx.

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