quarterly world review

Wireless Intelligence

Quarterly World Review

Q2 2009

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Quarterly World ReviewQ2 2009

World

In Q2, the worldwide cellular market grew by 136 million connections to reach 4.3 billion connections in total. Africa remained the world’s fastest growing region, advancing by 29% annually. Asia Pacific edged its way into second place with 21% growth year-on-year followed by the Middle East with 20% growth.

As a result of fierce competition, quarterly declines in net additions were reported by 74 operators across 14 markets, totalling 15 million connections, compared to 77 operators reporting a loss of 18 million connections in the first quarter. As we have stated before, these declines at individual operators are more indicative of significantly increased competition in mature markets than they are of the economic turbulence. Particularly in Europe, the landscape is reflective of on-going termination and roaming regulation, affecting operators’ core voice revenues. Additionally, half of all countries worldwide have penetration above 80% and a move towards reporting active connections has strongly reduced prepaid-heavy bases with one-time write downs.

Wireless Intelligence continuously benchmarks the accuracy of its short-term subscriber connections estimates and longer term forecasts as actual data is released by the operator community. Despite these uncertain market conditions, the delta between the Wireless Intelligence estimate for Q2 total subscriber connections at the beginning of the operator financial reporting season and the reality at its completion was just -0.55%.

As always, we value your feedback, so please do get in touch at [email protected] to share your thoughts any topic in this report.

Q2 2008 Q1 2009 Q2 2009

Number of Connections (Millions)

Total 3,680.44 4,149.59 4,285.20

Contract 1,084.17 1,158.42 1,186.50

Prepaid 2,585.37 2,977.93 3,085.17

CDMA (Family) 413.50 429.52 442.40

GSM 2,986.76 3,342.75 3,428.54

WCDMA (Family) 241.86 349.33 386.98

Net Additions (Millions) Total 170.02 143.27 135.60

Contract 28.50 28.67 28.08

Prepaid 143.30 112.88 107.24

Growth Rate, Sequential (%)

Total 4.84 3.58 3.27

Contract 2.70 2.54 2.42

Prepaid 5.87 3.94 3.60

Growth Rate, Year-on-Year (%)

Total 22.77 18.21 16.43

Contract 12.34 9.73 9.44

Prepaid 27.17 21.94 19.33

Market Penetration (%) 55.33 61.86 63.71

ARPU Blended 20.30 17.61 17.75

Churn (%) Total 2.50 2.66 2.70

Minutes of Use per User Total 257 261 277

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Africa

Whilst clearly remaining the fastest growing region in Q2, Africa has not been immune to the effects of the weaker global economic conditions. Regional ARPU for the quarter came in at USD 10.06, a decline of USD 2.37 (19%) from 12 months ago. Average monthly churn was 3% in Q2, but remains little changed from the levels recorded over the last few years.

Nigeria remains the region’s largest cellular market by connections. However, as highlighted in our recent Snapshot, Nigerian operators face revenue pressure in crowded marketplace, the market is the scene of fierce competition and rapidly slowing growth. Whilst of the seven cellular operators, only one recorded negative net additions during Q2, overall net additions for the quarter were only 558,000, substantially down from the 5.7 million recorded only a year earlier. Zain again reported negative net additions, losing a further 460,000 connections for the quarter and bringing total losses to 2.6 million since the beginning of the year. The operator attributes this decline to the removal of inactive customers. However, they also reported that H1 ARPU declined to USD 7, a decline of USD 3 (30%) from H1 2008; a fall exacerbated by the weakness of the Naira that has declined by 19% against the US dollar in the last year. Market leader MTN remained the frontrunner in capturing new connections; gaining 1.4 million net additions in Q2 but also reported that H1 ARPU continued its recent slide to USD 12, a decline of USD 4 (25%) since H1 2008; again affected by the devaluation of the Naira. Nigeria remains both MTN’s and Zain’s largest African market by connections.

Q2 2008 Q1 2009 Q2 2009


Total 322.25 393.62 414.72

Contract 11.42 13.31 13.70

Prepaid 310.81 379.99 400.71

CDMA (Family) 7.67 14.34 16.66

GSM 310.80 372.29 389.69

WCDMA (Family) 3.77 7.00 8.37


Contract 0.70 0.78 0.39

Prepaid 21.28 16.66 20.72


Total 7.70 4.71 5.36

Contract 6.50 6.21 2.91

Prepaid 7.35 4.58 5.45


Total 35.79 31.56 28.69

Contract 19.23 24.12 19.93

Prepaid 36.40 31.24 28.93


ARPU Blended 12.43 10.28 10.06

Churn (%) Total 2.96 3.05 2.90


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However, market conditions appear likely to get even tougher with several more operators planning to enter the market in the year ahead, as well as the possibility of the government finding a new investor for the struggling Mtel (NITEL), following the announcement that it plans to make another attempt to sell the operator (a previous sale was revoked in June).

With the slowing growth in Nigeria, Egypt has taken over as the fastest growing African market in terms of connections in Q2, and if the recent growth is sustained, is on track to surpass South Africa as the second largest market in region by the end of the year. Market leader Mobinil (ECMS) continues to be the subject of an unresolved ownership dispute between its two largest shareholders; France Telecom and Orascom Telecom. France Telecom has been keen to complete an international arbitration court sanctioned buyout of its partner but has so far been left frustrated by additional court challenges by Orascom and the rulings of the local financial regulator. However, this did not stop Mobinil from adding 1,674,000 connections for the quarter and 5,335,000 over the past 12 months. Mobinil’s closest rival Vodafone also reported strong quarterly growth by adding 1,429,000 connections for the quarter and 5,168,000 in the last year. Both operators reported declining ARPU due to increased market penetration into lower value market

segments and in response to aggressive pricing from Etisalat who is the third (and smallest) operator in the market.

After Egypt, the second fastest growing market in Q2 was Ghana. Ghana is a particularly significant market as it represents a key battleground for the continent’s cellular giants with MTN, Tigo (Millicom), Vodafone and Zain all represented. Vodafone Ghana continued its recent growth by adding 772,000 connections in Q2; its first quarter since its rebranding from Ghana Telecom in April (Vodafone acquired a 70% stake in the operator in August last year). Vodafone is closing in fast on the market’s second- ranked operator Tigo, who has seen growth stall at 2.9 million connections for the last three quarters. Market leader MTN added 442,000 connections for the quarter and successfully managed to hold their market share above 50% over the past year despite the entry of Vodafone and subsequently Zain in December last year. In a fiercely competitive environment Zain managed to surpass the 1 million connections milestone by the end of Q2. However, despite the strong connections growth, the financial results of all the Ghanaian operators were adversely affected by the depreciation of the Cedi against the US dollar by 28% in the last year (7% in the last quarter).

Another market reporting strong connections growth during the quarter was Tanzania, where again a number of the continents major cellular groups are represented. In contrast to Ghana, Tigo’s performance in Tanzania was particularly robust as the operator reported 412,000 net additions for the quarter and 1,381,000 for the year; a growth rate of 81% year-on-year. Zain also enjoyed a successful quarter gaining 330,000 net additions and 1,612,000 for the year; a growth rate of 57% year-on-year. Market leader Vodacom also grew its connections by 250,000 for the quarter and by

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1,422,000 annually, but this was its weakest quarterly net additions since Q3 2007. The operator attributed their lower quarterly growth to increasing levels of churn in Q2 in light of increasing competition.

Zain reported a decline in connections in Kenya that the operator attributed to a ‘clean-up exercise’ of inactive subscribers, strong competition, and the ongoing impact of weak economic conditions (exacerbated by the Shilling declining 15% against the US dollar in the last year); illustrated by ARPU falling 43% to USD 4 compared to USD 7 in the previous corresponding period. In the last year both Orange (Telkom Kenya) and yu (Essar Telecom) have entered the Kenyan cellular market and have gained 697,000 and 400,000 connections respectively by the end of Q2.

The situation for Zain was more encouraging in Sudan, Zain’s second-largest African market after Nigeria (though it is reported as part of its Middle Eastern division). Zain captured over 50% of net additions in the market, with 830,000 for Q2; more than double its nearest competitor MTN’s 367,000. Zain reported that ARPU for H1 was USD 13, the second highest across all Zain’s African businesses

after Gabon; where the reported ARPU of USD 25 for H1 was the highest in Africa altogether. The outlook for Zain in its other African markets was recently reviewed in our Snapshot, Zain eyes US$12 billion sale of African mobile networks.

MTN reported a decline of 197,000 connections for Q2 in its home (and second largest African) market of South Africa that the operator reported was caused by increased competition and difficult economic conditions. The operator reported that this situation was compounded by stock shortages and billing challenges. South African market leader Vodacom also reported feeling the impact of weaker economic conditions but still managed to add 1,110,000 net additions during the quarter. However, the impact of the economic conditions was felt particularly in the contract market as the operator reported that customers limited their spending outside their bundles. This was reflected in contract ARPU declining 8% to ZAR 444 compared to ZAR 481 in Q2 2008 (prepaid ARPU was unchanged at ZAR 64).

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Americas

Brazil maintained its place as the world’s fifth largest cellular market, adding almost 6.1 million net additions during Q2 to reach a total of 160 million connections. Q2 net additions displayed 90% growth compared to Q1, yet still fell short of the record growth recorded in 2008. 1.2 million of the net additions were added by the market leader, Vivo, which reported it has now switched 77% of its total base over to GSM-based connections. The country’s regulator, Anatel, cited aggressive marketing during the quarter as the reason for the boost in connections, most likely due to the first full quarter of nationwide availability of number portability. Anatel stated that nearly a million mobile lines had been ported to date. The communications authority also opened public consultation on the usage of the 450 MHz spectrum band for broadband-based telecoms services. If successful, Brazil will join Argentina, Belize, Ecuador, Mexico, Peru and Suriname where CDMA450 deployments are already in place.

Spanish-based Telefonica enjoyed a successful quarter in its core markets – Argentina, Brazil, Mexico, Peru and Venezuela – driving 1.4 million net additions in the second quarter but suffered competition-wise at its smaller central American operations, as outlined in our recent Snapshot, Cost-cutting Telefonica loses ground in Central America. Despite losing customers in Colombia and El Salvador, the group still managed to boost traffic volumes by 9.3% year-on-year in the region as a whole and maintain churn at a steady 2.6% per month. Data revenues, which now represent 17.2% of all

Q2 2008 Q1 2009 Q2 2009


Total 413.81 463.69 475.19

Contract 72.27 80.40 82.57

Prepaid 341.75 383.26 392.59

CDMA (Family) 48.17 39.53 36.86

GSM 354.88 407.66 419.31

WCDMA (Family) 2.26 9.13 11.39


Contract 4.37 1.76 2.18

Prepaid 16.25 7.93 9.33


Total 4.85 2.24 2.48

Contract 6.44 2.24 2.71

Prepaid 4.99 2.11 2.43


Total 23.11 17.48 14.83

Contract 22.91 18.41 14.26

Prepaid 23.23 17.75 14.88


ARPU Blended 13.47 12.36 12.66

Churn (%) Total 2.72 2.79 2.83



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cellular service revenues, saw significant growth despite an overall fall in ARPU by 2.9% year-on-year. All but two markets registered a decline in blended ARPU, which in Peru, was largely the result of the 16.5% annual growth in connections. Argentina and Venezuela fuelled their ARPU growth through data services, driven by the sharp rise in mobile broadband connections which increased 33% and 66% respectively, year-on-year.

In Colombia, the regulator made changes to tighten up reporting definitions as the market approaches 90% penetration. Telefonica has been hardest-hit having now reported two sequential quarters of net connections losses and subsequently, nearly 2% market share. However, both Comcel (America Movil) and Tigo (Millicom) are equally reporting the lowest net additions in their history. The changes are part of a larger clean-up designed to standardise reporting and normalise active customers. Operators have been required to change the marketing of their SIM-only tariffs and gross addition activation is now subject to more restrictive accounting. As a result, effective price per minute has been driven down below USD 0.04, one of the lowest in the industry. ARPU remained encouraging however, thanks to an overall increase in data revenue as all three operators show continuing commitment to improving their next-generation infrastructure.

Continuing a group-wide focus on cash flow generation and strengthening margins, Millicom announced encouraging results for the second quarter, growing their overall regional market share by just under one per cent. With the deconsolidated disposal of three markets in Asia – Cambodia, Laos and Sri Lanka – Millicom’s operations now solely span Central and South America and Africa. The group’s strongest performers were Bolivia (51% growth), Honduras (despite declining market share attributable to the newly launched Digicel), Guatemala and El Salvador (all 17-19% growth).Value-added services (VAS) contributed heavily to the group’s bottom line and grew 38% annually in Central America and 55% in South America. VAS as a percentage of service revenue has reached 18% for the total group. Despite local currency double-digit growth in South American revenues (USD 249 million) and a minor decline in Central American revenues (USD 332 million), the strength of the US dollar continued to impact the consolidated top line, particularly due to lower remittances from the US. The group ended Q2 with 24.2 million total connections, including 588,000 net additions in the region.

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Asia Pacific

Revenue and EBIT continued to decline at Hutchison Whampoa Group against a background of adverse foreign currency movements and economic uncertainty. In local currency terms, total revenue decreased by 7% for the half-year to end-June – a 20% decrease in terms of HKD, however, indicative of the weak currencies in Europe and political instability in Thailand. The group’s network expansion in Asia largely contributed to the decline in EBIT, notably the launch of new services in Vietnam under the brand Vietnamobile, which garnered 624,000 subscribers in the first quarter of operation. The operator hopes to rapidly expand its 65% population coverage by the end of the year. In terms of the group structure, Hutchison Hong Kong & Macau was spun-off from Hutchison Telecoms International (HTIL) to facilitate floatation on the Hong Kong stock exchange. The newly formed subsidiary, which now accounts for 2.7 million active connections including 1.4 million on the WCDMA family of technologies, posted an 8% first-half increase in turnover and 4% growth in profit in comparison to the losses at parent HTIL. In Australia, Hutchison also finalised their merger with Vodafone at the very end of the quarter, bringing their customers under the Vodafone Hutchison umbrella. The amalgamated operator holds a 26% market share, representing 6.4 million connections which we recently analysed in our Snapshot, Vodafone and 3 create powerful number-three player in Australia.

The world’s fastest growing market, India, has seen a number of new circle launches during the quarter. Aircel (Maxis), MTS and TATA DOCOMO all launched new services

Q2 2008 Q1 2009 Q2 2009


Total 1,554.13 1,802.43 1,883.25

Contract 432.37 459.79 474.96

Prepaid 1,119.78 1,340.99 1,406.09

CDMA (Family) 198.71 207.68 219.34

GSM 1,236.59 1,448.19 1,506.22

WCDMA (Family) 108.00 141.37 153.45


Contract 8.95 18.39 15.17

Prepaid 82.07 78.39 65.10


Total 6.34 5.70 4.48

Contract 2.11 4.17 3.30

Prepaid 7.91 6.21 4.85


Total 29.51 23.33 21.18

Contract 11.09 8.59 9.85

Prepaid 38.28 29.23 25.57


ARPU Blended 14.04 12.22 11.90

Churn (%) Total 2.73 2.89 3.07



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in Metros whilst Loop Mobile has set up trial networks in the Orissa and Tamil Nadu circles. India now accounts for 427 million connections, 10% of the total worldwide figure, and is the top global contributor to quarterly net additions by a margin of almost 10.5 million. The auction process for next-generation licences continued to develop, though arrangements were far from final by the end of June. However, the two government-owned operators, BSNL and MTNL – who have been licenced to operate WCDMA networks at the cost of the final highest auction bid – reported below-par results for their contract-only services launched in February. BSNL fared the better of the two, registering 9,000 connections by the end of June and is targeting 100,000 by the end of Q3. Meanwhile, MTNL could only garner 400 connections by early June and moved to improve results by launching a prepaid tariff as well as expanding the high-speed network to Mumbai in May.

In the context of financial performance, Reliance is the only operator to have substantially increased their revenue, growing 6.5% quarterly. Aircel, Airtel (Bharti), Idea Cellular and Spice Telecom all reported less than 1% growth in total revenue and MTNL registered a 15% decline, mostly affected by investment in their 3G roll-out. Vodafone Essar, despite good operational performance and posting 7.6 million net additions in the quarter, reported a 5% decline in recurring revenue due to a 33% reduction in termination rates; non-voice revenue also declined by 3%. Vodafone’s shared infrastructure partner, Indus Towers, in which the operator has an investment in 100,000 cellular sites, grew service revenue by 7% sequentially.

China remains the world’s largest market by a wide margin, adding 25.1 million net additions in Q2. Despite nationwide penetration of 50%, China Mobile’s quarterly results reflect the higher penetration reached in the more urban areas. The company reported the first

fall in quarterly net income in a decade, down 1.6% to RMB 30.1 billion, a result of declining ARPU. The operator states the results are indicative of signing up lower-ARPU customers in some of the poorer rural areas of China. In terms of next-generation subscribers, China Mobile has now signed up a total 959,000 users on its TD-SCDMA network while China Unicom hopes to capitalise on the initial expansion of its 3G customer base as it expands a WCDMA trial to a further 168 cities, up from an existing 100.

Quarterly growth and net additions dipped slightly in Japan this quarter. On the financial front, DOCOMO and SoftBank Mobile saw overall revenues rise in their local currency while KDDI dipped by JPY 3 billion despite increases in both ARPU and recurring revenue. SoftBank Mobile enjoyed a 41% annual rise in net income to JPY 27.4 billion on the back of slashed costs and tightened inventories. Overall revenue also increased, but only marginally by 2.9% to JPY 666.3 billion. Recognising a slowdown in the contract replacement rate, the operator stated that narrowing its sales channel had helped significantly. Data ARPU also continued to rise steadily, to JPY 1,880, largely a result of securing the exclusive distribution of Apple’s iPhone. Meanwhile, fourth-placed eMobile (eAccess) launched Japan’s first HSPA+ network in August, which it hopes will secure it growth by virtue of providing data rates up to 21.6

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Mbps across 6 initial cities. The company ended the second quarter with 1.67 million connections, a 1.5% market share. Recent growth is attributable to aggressive bundling of datacards with laptops and netbooks, available to both business and consumer customers.

VimpelCom Group additionally moved into the Asian market this quarter, launching operations in Cambodia and Vietnam under the Beeline banner. The Cambodian operations currently cover 42% of the total population and have registered RUR 28 million in revenues. Beeline Vietnam launched in July and its coverage currently reaches around 15 million people.

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Eastern Europe

In Q2, market penetration in Eastern Europe rose to 115%. Over half of the region’s markets have now reached 100% penetration by connections, indicative of the plateau of development in these countries. Of the remainder, only two (Kyrgyzstan and Turkmenistan) are still below 50%, though Turkmenistan remains the region’s fastest growing market. As discussed in our previous quarterly review, the top ten markets represent the majority of Eastern European connections; this has grown to 87% in Q2. Russia still leads in the region with 43% of overall connections.

Seven markets saw an overall decline in total connections in Q2: Bulgaria, Croatia, Estonia, Hungary, Latvia, Lithuania and Ukraine all registered negative net additions. Overall, 27 operators in Eastern Europe lost net connections, of which 16 are in their second or more consecutive quarter of decline. In total, this accounted for a loss of 2.2 million connections across 17 markets.

Ukraine was the worst affected with Kyivstar (Telenor) and MTS reporting declining subscriber connections in addition to losses in market share, whilst VimpelCom managed to stem the losses of the previous two quarters. Market leader Kyivstar in particular has seen an onslaught of price-cut based competition as operators have moved to provide free on-net calls as an incentive to maintain market share. Total connections decreased by 504,000 during the quarter and ARPU slid to NOK 35 from the year-ago position of NOK 46, as the operator matched competitors’ pricing.

Q2 2008 Q1 2009 Q2 2009


Total 415.05 452.06 462.04

Contract 79.05 87.61 90.07

Prepaid 336.01 363.41 370.96

CDMA (Family) 2.43 2.99 3.21

GSM 399.82 426.65 432.30

WCDMA (Family) 12.76 22.38 26.48


Contract 2.53 2.05 2.44

Prepaid 12.22 2.21 6.84


Total 2.77 1.00 2.21

Contract 3.30 2.39 2.78

Prepaid 3.77 0.61 1.88


Total 16.79 11.94 11.32

Contract 19.18 14.48 13.91

Prepaid 12.66 12.23 10.19


ARPU Blended 13.07 9.72 10.08

Churn (%) Total 2.60 2.76 2.69


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Across the region VimpelCom Group reported encouraging growth and, alongside one million net additions, operating revenues rose by 3.3% quarterly to RUR 69 billion. Similarly, OIBDA increased 8.7% to RUR 35 billion, shifting their margin to a healthy 50.6% compared to 48.1% the previous quarter. The group significantly turned around the RUR 8.5 billion losses in net income during the first quarter and ended June with a RUR 22.6 billion profit. Looking ahead, the operator plans to re-instate previous levels of capex spending in order to ensure sustainability, particularly with regards to their next-generation network deployments which now commercially cover 51 areas in Russia.

MTS however was struck by another quarter of net income decline. The group improved on first quarter losses of USD 58 million, posting a positive USD 563 million, but this was not enough to avoid a year-on-year 15% decline. First quarter losses were attributed to foreign currency fluctuations and macroeconomic volatility which the group reported have continued into Q2. The group did however add 2.8 million new additions, placing it just shy of 100 million total connections as it looks to move into Azerbaijan and Kazakhstan. The operator also launched its next-generation network in Armenia as well as rolling out a trial in Moscow during the period.

Greek-based OTE Group met similar challenges in its Eastern European markets, estimating that spending on telecommunications services had decreased by 7% or worse since the beginning of 2009 in Albania, Bulgaria and Romania. Total revenues for the group (including Greece) were down by 6.5% on the first quarter. Notable movements in the group were the deconsolidation of Cosmofon, Macedonia, following its sale in May to Telekom Slovenije Group, for which the operator raised EUR 187.9 million, including EUR 78.5 million of debt. Additionally, OTE Group indicated they are looking to acquire a 3G operator in Romania to help build data revenues and enter the mobile broadband space.

In Macedonia, the regulator’s efforts to stimulate competition between the current three operators – Cosmofon, T-Mobile and Vip – has met another stumbling block. Initial interest for two further 3G licences in the country was high given the opening reserve of just EUR 5 million, but all parties have since withdrawn. The small market – just 2.4 million connections – has already reached 115% penetration but reversed last quarter’s 37,000 connection net loss with an improved 75,000 additions this quarter.

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Western Europe

Continuing the slowdown seen in prior quarters, sequential growth dropped to just 0.22% in Western Europe during Q2 and annual growth fell by over a quarter to just 3.65%. The sharpest falls in growth were seen in Germany, Ireland, UK, Sweden and Austria while only six countries reported a positive trend in growth – Portugal, Liechtenstein, Switzerland, Netherlands, Denmark and France. In terms of net additions, only two markets actually decreased in total connections, namely Ireland and Italy, although 13 operators in total reported negative net additions to the sum of 3.1 million connections.

Italy was the weakest performing market for total connections in Q2, dropping 1.6 million connections, of which market leader TIM accounted for the loss of 1.5 million. The decline in total connections hit overall outgoing voice revenue, down 3.2% annually to EUR 77 million and increased termination rates saw a similar slide in incoming voice revenue to EUR 98 million; a decline of 13.7% annually. Total revenue from handset sales also plunged by almost a third compared to the first six months of 2008, partly due to lower gross additions and retention revenue, but also due to lower margins on higher specification, high-cost handsets focussing on the mobile Internet segment. Just after the close of the quarter, TIM joined with Hutchison Italia to sign a ‘co-siting’ agreement which will see 2,000 sites within three years with shared ‘passive’ infrastructure, namely housing and power supplies with the aim of reducing on-going capex for both operators in rolling out coverage. The decline in total revenue

Q2 2008 Q1 2009 Q2 2009


Total 489.12 505.87 506.98

Contract 206.10 219.77 222.78

Prepaid 282.35 285.90 284.20

CDMA (Family) 0.04 0.05 0.06

GSM 391.88 371.16 360.26

WCDMA (Family) 97.20 134.66 146.66


Contract 5.18 3.52 3.01

Prepaid 2.35 -1.24 -1.70


Total 1.56 0.33 0.22

Contract 2.58 1.63 1.37

Prepaid 0.84 -0.43 -0.59


Total 8.10 5.04 3.65

Contract 11.67 9.38 8.09

Prepaid 5.51 2.11 0.66


ARPU Blended 33.95 30.41 31.48

Churn (%) Total 1.97 2.24 2.16


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was nevertheless balanced by an overall reduction in costs, providing stable EBITDA compared to the year-ago period. EBITDA margin for the domestic cellular business was 46.8% compared to 45.7% a year-ago.

In the UK, Vodafone and T-Mobile both saw declines in total connections, driven by fierce competition. Vodafone lost 159,000 net additions while T-Mobile declined by a net 87,000 connections, results which both represented an improvement on previous quarters. For T-Mobile, the net decline was mainly a result of the fourth consecutive quarter of waning performance at MVNO Virgin Mobile. The UK’s largest MVNO lost 783,900 connections, accounted for within T-Mobile’s prepaid base. In terms of financial performance, Vodafone cited a reduction in consumers’ discretionary spending, resulting in higher prepaid inactivity, a reduction in the average choice of contract spend per month and reduced roaming activity.

Across Europe, Vodafone Group posted a 4.4% decline in organic service revenue reflecting reductions in voice revenue stemming from pricing pressures, slower overall growth in usage and an increase in overall mobile termination rates. Service revenue in normalised GBP increased however, driven by favourable exchange rates. Of its four core markets – Germany, Italy, Spain and the UK – Vodafone’s organic revenues declined in every market apart from Italy, but grew in GBP terms everywhere except the UK due to the strength of the pound. Total service revenue for Europe, including minority markets was GBP 7.1 billion. Within group service revenue, the operator registered a 17.8% increase in data revenues in Europe and 19.4% worldwide. However, growth in data revenues slightly decreased from the previous quarter, due to a reduction in data roaming and a slowdown in usage from the enterprise segment.

Deutsche Telecom Group fared better, recording a 3.9% increase in its European net revenue to EUR 10.6 billion, largely due to the full consolidation of OTE Group, contributing EUR 1.2 billion for its operations in Greece and Eastern Europe. EBIT performance decreased however, by EUR 1.9 billion, mainly the result of impairment losses on T-Mobile UK. The group was correspondingly hit by the newly enforced regulation surrounding roaming and termination charges, while competition ensured costs related to customer acquisition and retention raised the operator’s expenditure. Overall contribution to the group’s EBIT was additionally affected by adverse exchange rates against the Euro in the UK, Poland, Hungary and the Czech Republic while rivalry for customers in Austria and the Netherlands produced similar retention expenses to the UK. The group’s total number of connections in Europe rose to 116.3 million.

Telefonica Europe reached 42.6 million connections at the end of June 2009, resulting in a 2.2% increase in organic revenue and 6.2% growth in OIBDA across Spain, UK, Germany, Ireland and the Czech Republic (EUR 6,571 million and EUR 1,879 million respectively). In Spain, the company recorded a 3% rise in its high-earning contract base (now 62% of all connections) although monthly contract ARPU decreased by EUR 0.10. A positive 16,416 contract net additions in Q2 has improved results, building on the churn rate of the last two quarters owing to number portability

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losses. Traffic volumes and voice ARPU in Spain were impacted by reduced consumer spending, though data ARPU continued to climb, growing to EUR 5.20 in the first half of 2009 with connectivity (i.e. non-SMS) specifically growing by 53.6%, reflective of growing adoption of flat-rate data plans of which the operator stated 1.2 million subscriptions were in use as of end-June. Similarly, sales of WCDMA (Family) handsets rose to over 7.5 million in the first six months of the year.

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Middle East

Turkey remains the Middle East’s largest cellular market by connections in Q2. However, all three operators reported a decline in connections in Q2 against a background of a 7% contraction in Turkey’s GDP. The operators reported combined negative net additions of 816,000, albeit an improvement on the decline recorded in Q1 (1,439,000). Vodafone was again the worst performer as it lost a further 516,000 connections; its fourth consecutive quarter of negative net additions. Over the course of the last year Avea has narrowed the gap to second placed Vodafone to 2.5 million connections from 6.4 million a year earlier. The positive news for Vodafone is that they managed to marginally increase their contract connections for the second consecutive quarter and report an increase in ARPU to TRY 13.71. However, they still lag behind market leader Turkcell (TRY 18.60) and Avea (TRY 16.50) who also both reported higher ARPUs in Q2 on a quarterly basis. Rising ARPU reflects the growth of ‘unlimited’ all-inclusive tariffs in the marketplace but hides the impact on margins of increasing interconnection costs. Turkcell was particularly successful during Q2 in limiting their overall connections decline with the addition of 800,000 contract connections, largely offsetting their prepaid decline. All three Turkish operators are hoping that the significant investments they made in deploying their 3G networks (launched by all 3 operators at the very end of July 2009) will help promote a revival in their fortunes. We recently reviewed the challenges and opportunities for the Turkish operators in our recent Snapshot, Turkish 3G connections forecast to hit 30 million in four years.

Q2 2008 Q1 2009 Q2 2009


Total 202.67 235.91 243.95

Contract 51.92 61.54 65.04

Prepaid 150.66 174.37 178.92

CDMA (Family) 4.02 4.39 4.52

GSM 193.66 223.20 229.69

WCDMA (Family) 4.26 7.51 8.94


Contract 3.96 3.00 3.50

Prepaid 8.16 5.74 4.55


Total 6.52 3.85 3.41

Contract 8.27 5.12 5.68

Prepaid 5.73 3.40 2.61


Total 31.62 23.98 20.37

Contract 34.23 28.34 25.27

Prepaid 30.66 22.37 18.76


ARPU Blended 16.18 13.42 14.36

Churn (%) Total 2.31 2.57 2.77




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Following a strong first quarter MTN Irancell added a further 935,000 connections in Q2. However, this was the operator’s weakest quarterly net additions since Q2 2007 and came amid increasing political instability late in Q2. Uncertainty has also surrounded the issue of a third cellular licence in Iran. It was initially announced in December 2008 that it had been awarded to a consortium led by Etisalat but in May it was withdrawn following claims that the consortium had failed to pay the licence fee. It was reported to have subsequently been offered to both Zain and MegaFon but without success. More recently it has been reported that the Iranian government intends make another attempt to issue a third licence. In the meantime, MTN has said it will continue to prioritise further network rollout in country.

In Saudi Arabia, Zain reported a strong quarter of connections growth with 1,015,000 net additions in Q2; around 50% of the total Saudi Arabian net additions for period; and taking the operators total connections to 3,780,000 since its launch in August 2008. That the operator has achieved a market share of approximately 10% in less than a year of commercial operations is a sizable achievement in a market with three other established operators. In a short period of time Saudi Arabia already represents 5% of Zain’s group connections footprint.

Zain also entered the Palestinian market during the quarter following the completion of the merger of Zain Jordan into Palestinian operator PalTel in May, giving Zain a 56.53% stake in the combined entity. The addition of PalTel provided the Zain group with an additional 1.6 million connections in Q2. The long awaited entry of a second operator into the Palestinian market appears to have

stalled due to a dispute with Israel over access to the required spectrum. Wataniya, who were awarded the second licence back in September 2006, are threatening to abandon their plans to enter the market due to the ongoing delays, leaving PalTel as the sole operator. Paltel’s new subsidiary Zain Jordan continues to build on its market leading position with 452,000 annual net additions, placing it well ahead of second placed Orange (Jordan Telecom) who added only 70,000 over the same period.

Elsewhere, MTN Afghanistan reached 2,598,000 connections at the end of Q2, an increase of 60% year-on-year, despite the operator unsurprisingly confirming that security remains a significant challenge. However, in Syria MTN has struggled to match this success with Q2 connections reaching 3,550,000; growth of only 5% year-on-year. However, the Q2 quarterly net-additions of 122,000 connections at least reversed the decline of 111,000 recorded in Q1. The operator attributed its recent struggles to high levels of churn and delays to planned marketing initiatives.

In Qatar, Qtel reported that it recorded 92,000 net additions in Q2, the final quarter before it will face competition from Vodafone who commercially launched its services in July. The impending entry of Vodafone into the market already appears to have had an impact on the Qatari market by the end of Q2 as Qtel’s ARPU has fallen to QAR 156.50; a drop of QAR 44.30 (22%) compared to Q2 2008. Early reports indicate that Vodafone has made a strong start; gaining 100,000 connections in its first two

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months of operation. We reviewed Vodafone Qatar’s prospects in our Snapshot, Vodafone launches rival mobile network in Qatar, published earlier this year.

In Oman, Qtel’s 56% owned subsidiary Nawras narrowed the gap to market leader Oman Mobile (Omantel) to just 121,000 connections (315,000 in Q2 2008) following annual net additions of 391,000. Oman has witnessed the arrival of three MVNOs so far this year (all using Oman Mobile’s network) but the network operators have reported little impact to date with the MVNOs focussing on niche market segments.

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USA/Canada

Looking at the operational performance of operators in USA/Canada, regional ARPU for Q2 came in at USD 50.54, a decline of USD 1.11 (2%) from 12 months ago. Despite the decline, primary research commissioned by Wireless Intelligence suggests that US and Canadian consumers are in fact spending more by spreading their spending across multiple connections – as revealed in our recent report, Multiple connections per user: The impact on penetration and ARPU. Average monthly churn was 2% in Q2, but remains little changed from the level recorded over the last few years.

In the USA, AT&T and Verizon Wireless continue to lead the market in net additions with 1.4 million and 1.1 million respectively. However, following Verizon’s merger with Alltel in Q1 2009 they continue to hold an 8.1 million lead in total connections over their closest rival. AT&T reported that its Q2 data ARPU rose to USD 14.57, an increase of USD 2.98 (25%) from Q2 2008; offsetting a decline in voice ARPU to USD 36.13, a decline of USD 2.88 (7%) over the same period. The operator attributed this to the continuing success of the iPhone in driving new connections and data usage (AT&T reported that 35% of iPhone connections in Q2 were new AT&T customers). However, Verizon Wireless also reported that their data ARPU had increased to USD 14.96, an annual increase of USD 2.78 (23%) on the basis of their restated post-Alltel merger figures. Both operators reported monthly churn of less than 1.5%.

Sprint continued to lose ground on its rivals during Q2 as it reported negative net

Q2 2008 Q1 2009 Q2 2009


Total 283.39 296.01 299.06

Contract 231.03 236.00 237.38

Prepaid 44.01 50.01 51.71

CDMA (Family) 152.46 160.54 161.76

GSM 99.12 93.61 91.07

WCDMA (Family) 13.61 27.28 31.68


Contract 2.82 -0.82 1.38

Prepaid 0.96 3.19 1.69


Total 1.45 1.15 1.03

Contract 1.24 -0.35 0.59

Prepaid 2.24 6.81 3.39


Total 7.90 5.97 5.53

Contract 6.00 3.41 2.75

Prepaid 19.20 16.18 17.49


ARPU Blended 51.65 50.29 50.54

Churn (%) Total 1.88 2.04 1.98


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additions of 257,000, bringing their annual decline to 3,033,000 connections. Sprint’s monthly churn remains higher than its larger rivals at 2.6%. They reported negative contract net additions of 991,000 for Q2 despite the launch of the highly anticipated Palm Pre device in early June. The bright point for Sprint in Q2 was their prepaid connections where they added 777,000 connections, building on their first quarter success in this area, when they added 674,000 prepaid connections. Sprint’s recent achievements in the prepaid area can be attributed to the success of its Boost Mobile unit that runs on Sprint’s iDEN network. In July Sprint announced plans to acquire Virgin Mobile USA to further its ambitions in the prepaid market. The implications of this are discussed in our recent Snapshot, Sprint adds Virgin Mobile USA, looks to dominate US prepaid.

The smallest of the tier one operators, T-Mobile USA, reported net additions for Q2 of 297,000, its weakest quarterly net additions since the operator was acquired by Deutchse Telekom in 2001. Contract net additions were particularly weak at only 56,000 in Q2 compared to 525,000 only 12 months earlier. Churn for Q2 was 3.1%, up from 2.0% in Q2 2008, and remains higher than its tier one competitors. ARPU also declined in Q2 to USD 47, a decline of USD 4 (8%) in the last year, remaining below the levels reported by its larger competitors.

Amongst the second tier US operators, regional prepaid operators MetroPCS and Leap Wireless both recorded just over 200,000 net additions in Q2 (206,000 and 203,000, respectively), however, for both operators this was a substantial decline on Q1 when MetroPCS recorded 684,000 and Leap 493,000 net additions. As discussed in our recent Snapshot (see above), this decline can be attributed to

the success of Sprint’s prepaid Boost Mobile unit following the launch of its USD 50 ‘unlimited’ plan and also other prepaid operators that have responded by launching their own ‘unlimited’ plans such as America Movil owned MVNO TracFone Wireless who added 730,000 net additions in Q2 (213,000 in Q2 2008). These figures include connections on its Straight Talk brand that launched in June offering a USD 45 ‘unlimited’ plan and runs on Verizon’s network. Straight Talk is distributed through Wal-Mart stores giving it access to a nationwide distribution network and its use of Verizon’s network has been used as a key selling point. America Movil reported that TracFone’s ARPU for the quarter was USD 10, down from USD 11 (9%) in Q2 2008 (and only a fifth of the market average) but it will be hoping that the launch of Straight Talk will help boost this figure. Prepaid regional operators MetroPCS and Leap both reported ARPU of just over USD 40 at the end of Q2 (USD 40.52 and USD 40.73, respectively).

Other regional operators appear to be increasingly finding themselves squeezed between the desirable devices and wider coverage available from tier one operators and the cost conscious ‘unlimited’ offerings from the prepaid operators. US Cellular reported negative net additions of 61,000 for quarter, giving them an annual loss of 39,000 connections. Similarly, smaller regional operators Centennial Wireless, Cincinnati Bell Wireless and nTelos Wireless all reported negative quarterly net additions during Q2.

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Rogers Wireless maintained its position as Canada’s largest cellular operator following net additions of 651,000 in the past year including 142,000 in Q2. They also maintained their market leading ARPU of CAD 63.09 for the quarter. The operator reported that they had activated more than 315,000 ‘smartphone devices’ during the quarter, approximately half of which were new subscribers. Wireless Intelligence calculates that Rogers has increased data ARPU to CAD 12.79 in Q2 an increase of CAD 2.84 (29%) on the previous corresponding quarter, on the back of their attractive portfolio of devices including the iPhone, Android and BlackBerry devices.

Rival CDMA-focused operators Telus Mobility and Bell Mobility recorded 457,000 (Q2 111,000) and 240,000 (Q2 45,000) annual net additions respectively, with Telus narrowing the gap to its larger rival to 284,000 connections over the last 12 months (501,000 in Q2 2008). Telus also sustained a higher ARPU of CAD 58.61 (CAD 62.73 in Q2 2008) than Bell Mobility’s CAD 52.05 (CAD 54.00 in Q2 2008), though the difference has now narrowed to CAD 6.56 (CAD 8.73 in Q2 2008). Bell will be hoping that the launch of the Palm Pre device in August, for which they hold Canadian exclusivity, will help narrow this gap further by driving an increase in data revenue.

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About the authors

Will CroftAnalyst [email protected]

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

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.

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 2009. 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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