Saturday, March 25, 2006

Dutch mobile market: speech still growing; data services slow

(press release) In 2005, the Dutch mobile communication services market grew 5.6% and generates EUR 5.94 billion in services revenue, up from EUR 5.62 billion in 2004, according to research report Dutch Mobile Operators 2005 from Telecompaper.

This report analyses the market's performance in the fourth quarter of 2005, including a year to date analysis. The focus is on mobile network operators including KPN (including Telfort), Vodafone, T-Mobile and Orange and their activities in the Dutch mobile services market. The analysis is based on Telecompaper's continuous research into the development of the Dutch communication services market.

The total mobile customer base, including customers of Tele2 Mobiel, UPC Mobiel and Scarlet, grows to 16.88 million at the end of December 2005, up 2.0% from 16.55 million at the end of September 2005, reaching a penetration rate of 103%.

Despite a relatively weak first quarter in 2005, growth picked up strongly in the second quarter of 2005. Performances in the third and fourth quarter were reasonably good, turned 2005 into a fairly good year in terms of growth. The results are in line with the market outlook we presented in November 2005. Mobile services revenue amounts to EUR 5.94 billion in 2005, up 5.6% from EUR 5.62 billion in 2004. Driven by a good second quarter in 2005 and reasonably good third and fourth quarters, revenue growth in 2005 is on par with the market's growth rate in 2004 (i.e. 5.6%).

The mobile customer base recovers from a dip in the third quarter, when the market declined 1%, and grows 2.0% to 16.88 million mobile customers at the end of December 2005. The mobile customer base is up 5.1% in comparison with the end of December 2004.

Mobile voice services revenue total EUR 5.1 billion in 2005, up 3.7% compared to 2004, when voice services revenue amounted to EUR 4.92 billion. The 3.7% growth rate is equal to the growth rate in 2004, when the market was up 3.7% compared to 2003. Including Telfort from 4 October 2005 onwards, KPN generates EUR 2.34 billion in annual services revenue and takes 39.9% of annual mobile services revenue. Vodafone follows with 27.9% (EUR 1.66 billion), and is slightly down from its performance in 2004. Thanks to a good performance in the fourth quarter, T-Mobile ends the year on a high with a share of 16.7% (EUR 992 million), slightly up from 16.6% in 2004. Orange is stable with a share of 9.1% and annual revenue of EUR 540 million. Telfort's share for 2005 drops to 6.4%, but its share is based on revenue for the first nine months of 2005. Non-voice services revenue grows to EUR 825 million in 2005, up 18.9% from EUR 694 million in 2004, but well below this market's growth rate in 2004, when the market grew 27.9% versus 2003. Given the high expectations for growth in this segment of this market, actual performance in this segment of this market is still weak.

Based on a strong second quarter in 2005 and reasonably good third and fourth quarters, and the fact that pricing pressures have eased somewhat following KPN's acquisition, we predict a growth rate of between 4% and 5% for 2006. Mobile data services will still primarily be driven by SMS services, but GSM- and UMTS based mobile data are expected to slowly but surely start to make more significant contributions to growth in 2006. It is also the main reason why we upwardly revise the 2007 growth rate to 3% to 4%, instead of between 1% and 2% as predicted in November 2005. Increased pricing pressures on mobile voice services are the main factor to drive the revenue growth rate down in 2007, compared to the 2006 growth rate. Pricing pressures on mobile voice services will continue in 2008 and increase pressure on mobile services revenue, but we expect that increased demand for mobile data services will push the growth rate back to the 2006 level (i.e. between 3% and 4%).

In the Netherlands there are 16.9 million SIM cards for 16.5 million people. So every Dutch baby is born with a mobile. On average every Dutchman has a 1.3 mobile unit; of course most have one and some have two mobiles.

The majority of the revenues (5.1 billion euro) still comes from speech, a growth of 3.7%. SMS and mobile data traffic are good for 825 million euro 16% of the turn-over; an increase of 18.9% over 2004.

GPRS and 3G services are not hot. Telcos still hope to yield more revienues from these services, but 40% of respondents to a KPMG survey indicated that they will not use nor pay for mobile surfing, mailing and chatting or even mobile television.

KPN changed this week its house style. The capitals of KPN in their logo have been exchanged for undercast letters. The word link is now at the center of the pay-off.

In the summary of the report not a word is said about the I-mode service. In 2003 it was a hot item for KPN. The company wanted to have the European monopoly on the service which originated in Japan. NTT DoCoMo even bought itself into KPN. But the service did not fly in 6 months. This week there was a bit of information on I-mode in Het Financieele Dagblad. Ludolf Rasterhoff, a KPN manager, indicated that active users of I-mode turn over 100 million euro. Whether this is turn-over for total KPN in Germany, Belgium and the Netherlands or for the Netherlands is not clear.

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