I'm wading through the mountains of information surrounding Vodafone's results and strategy review. I'm not going to go over the headline numbers, dividend policy, Verizon Wireless etc, as that's being well-covered elsewhere.
One of the things I'm trying to do is deconstruct some of the data services revenues.
The company's non-messaging data services revenues have increased 60% in the year, up from £516m to £832m. This is on a base of 27m Voda Live! handsets at the end of March, plus 7m Live 3G.
More interestingly, it had 648k 3G Mobile Connect PC data cards, and a handful of other "business devices" (presumably 2G cards and maybe some 3G-integrated laptops). It also had 426k Blackberries in use at the end of March.
I'm trying to gauge how much revenue comes from business vs. consumer use of 3G & other data services.
Looking at last year's numbers, the company had about 500k Connect cards (although more 2G ones), so it seems like an average of 600k during the year seems reasonable. At (and this is a hand-waving estimate) £40/month on average (which doesn't assume much international roaming), this equates to £288m. I suspect that some users are much higher than than £40/mo, while others in large corporates probably negotiate discounts. And let's say £25/mo for the push email part of the Blackberry service - so, at an average of maybe 300k users during the year, that's another £90m or so.
In other works, I'd estimate that perhaps £380m of the total £832m data revenues is from corporate users. Sure, there's a lot of guesstimates in that, but I reckon I'm being conservative if anything - I could easily believe the number's actually well north of £400m.
In other words, 34m Voda Live users (OK, probably an average of 32m across the year), of which maybe 5m were 3G, have contributed a grand total of £450m. Maybe £1-1.50 ARPU per month, probably more likely to be 50p-£1 for 2G, and £1-£2 for 3G users
Dean Bubley's Disruptive Wireless: Thought-leading wireless industry analysis
6 comments:
I hope you aren't trying to imply that the dumb pipe part of Vodafone is the only successful bit of their data business. It'd be shocking to discover that all the users wanted was connectivity, not jingles ;)
Great analysis. Yes, 3G is adding very little to Voda and other European operators until now. However, it is in my opinion simplistic to conclude that what the users want is just connectivity. Some users, especially the ones with a smart-phone/blackberry, want more than connectivity, they want also content. But this content has to be the right one and delivered with a superior ´convenience for consumption´, that is at the right time, with the right format and at a very low/transparent pricing. This didn´t happen until now, that´s why the results are so pitiful.
GLASS HALF EMPTY OR HALF FULL?
Hi Dean and Disruptive Wireless
Very good analysis Dean. It may seem like 3% of total revenues out of non-messaging data is "a failure" and "disappointing". But lets put that number into context.
First, we need to remember all phone users are primarily voice users - even in 3G (excepting for modem users obviously) and therefore it is fair to look at voice traffic and revenues. Like considering the stereo in a car, yes we may listen to the radio, but the primary purpose of the car is still to get us to where we want to go.
Secondly, texting. SMS forms 14% of Vodafone Group's revenues. I would argue that if you ask any internet user, do they use e-mail, they will all say yes - it is the most used application on the web (with Search coming a fast second). If e-mail is considered to be valid data on the web, why is SMS not considered valid data on mobile? Many younger users are addicted to texting and if forced to, could live without voice calls altogether...
But yes, on specifically the 3% non-messaging data. Is this a bad number? It started from zero a few years ago, so it has to be small before it can be big. It did grow 60% from last year - that is an impressive growth rate in any industry.
But wait - do we think Apple's iTunes is a runaway awesome business success? The numbers are actually rather comparable. iPod total user base grew to just over 40 million by end of 2005. Voda Live had 34 users at end of 2005.
So how did iTunes do? To its 40 million iPod users Apple sold just over 400 million DOLLARS worth of music in 2005. Thats what, 230 million UKP... Vodafone's smaller user base of 34 million Voda Live users generated 800 million UKP of non-messaging data revenues.
I think this is a very good result - for now. 3% out of total revenues for non-messaging mobile data is ahead of the global industry, while of course much behind Korea and Japan where non-messaging mobile voice revenues are already at 15% and 10% respectively.
If Vodafone Group can continue this rate of growth, it means Vodafone is only about 3.5 years behind Japan - a country that everybody says is a huge success in its mobile internet industry.
Yes, half empty maybe, in that we aren't earning 15% out of non-messaging mobile data. But hey, 3% is a good number and growing very well. I see the glass as half full.
(But we all know I'm the eternal optimist ha-ha)
Tomi Ahonen :-)
4-time bestselling author and consultant
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Thanks for the comments on this.
Tomi - I hadn't actually said these results were disappointing. In some ways - from the content/"services" point of view - they aren't particularly good. But from the "mobile pipes" standpoint I think they really underscore my general belief that there is a huge latent market for Mobile ISP-type services.
I agree SMS is important and "valid data". But the difference is that it works fine with 2G phones & 2G networks. I also think that SMS pricing is going to come under severe pressure in Europe at some point.
Also "Vodafone's smaller user base of 34 million Voda Live users generated 800 million UKP of non-messaging data revenues" - no, it didn't. My point is that it generated only maybe half that figure, the rest was non-Live! data services.
To back your argument, if you look at the numbers coming out of other operators it's a very similar story.
Last week, for example, Telenor announced 55% of data traffic comes from their 3G users. The largest driver of this traffic increase? Their 3G data card users.
T-Mobile also reported a very similar 60% increase of non-messaging data revenues in 2005 to EUR 900m (from EUR 643m in 2004) for all operations excluding US. The major driver according to T-Mobile? Data card users. It seems that across the board, any significant increases in non-SMS data traffic/revenues is coming from data cards and not from any significant uptake in fancy services.
From a different angle, I've been following the revenues on the Sky Mobile TV service to illustrate the problem of how difficult it will be for VOD's new services to make a difference.
Overall, UK Revenues are £4,568m of which non-messaging data are £221m or 4.8% of the total for the y/e Mar 2006. Recently at MEM2006, Vodafone + Sky announced they had 100k subscribers of which 50k were taking both packages. In other words they have 100k @£10/month and 50k@£5/month giving an annualized run rate of £9m or 0.2% of UK revenues. The service probably has to increase its’ update by 500% just to become less than a rounding error in VOD’s revenue analysis.
Further there is an issue with profitability of the service, there must be a revenue share agreement with Sky (50:50??), there is the production + distribution platforms, there is the fact that the TV streaming uses a lot more bandwidth than the typical data services (eg SMS) and then there is the standard bill+collect processes. Also, VOD allow everyone a 3-month try before you buy to seed the market. There is no way this service is as profitable as voice. The data future is going to be hard work.
This service is seen as a big success and this is bourne out by the relentless promotion by VOD in its’ distribution outlets.
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