Convergence driving Spanish market, but mobile market still contracts

Monday 3 February 2014 | 13:15 CET | Background

Competition in the Spanish market has centred on the promotion of bundles of both fixed and mobile services, offered by the leading mobile operators as well as alternative fixed operators. The latest quarterly reports from operators show they are all gaining customers for the quad-play offers. However, the winners in the mobile segment have been mainly the MVNOs and fixed line operators Jazztel and Ono. Overall, Spain's four main mobile operators lost 4.9 percent of their customers in the year to September 2013, according to Telecompaper's latest research on the Spanish mobile market. Mobile service revenue also contracted, as the shift to converged offers puts pressure on prices, according to Telecompaper's latest research on the Spanish mobile market.

Movistar, Vodafone lose mobile customers; Orange, Yoigo and MVNOs add users 

The four MNOs, Movistar, Vodafone, Orange and Yoigo, lost 2.7 million connections (4.9 percent) in the past 12 months, although this slowed to a drop of 0.2 million (0.4 percent) during the third quarter alone, for a total base of 51.6 million at the end of September 2013. The total excludes MVNOs at Movistar (such as Lycamobile and Ono) and Vodafone (with MVNOs such as Lebara and R Cable), but includes M2M connections in the numbers reported by Movistar and Orange. 

Of the 2.7 million mobile lines lost, almost 2.6 million were prepaid, while postpaid only dropped 0.1 million. As a result, the share of postpaid in the total base increased to 71.2 percent at the end of Q3 2013, versus 67.8 percent a year earlier. Movistar and Vodafone lost the most in prepaid and were also the only operators to show a net loss in postpaid connections, both annually and quarterly. The drop in customer numbers was mainly due to disconnections of inactive customers (mainly prepaid) but also to MVNOs gaining customers. 

Figure 1: Mobile connections of Spanish MNOs (in millions and %), end September 2013 vs end September 2012. Source: company quarterly reports.


Converged offering helps Movistar and Vodafone limit customer loss; Ono and Jazztel main winners with 1.3 million new mobile customers;

A year after the launch, Movistar’s converged offering Fusion reached 2.6 million customers at the end of September, according to the company accounting for 52 percent of fixed broadband customers and 39 percent of mobile contract customers in the residential segment (including additional mobile lines, which exceeded one million lines). Nevertheless, its total postpaid lines declined by 4.7 percent in the year to September 2013 (or 0.7 million) and it lost 1.0 percent (or 0.1 million lines) on a quarterly basis in Q3. 

Vodafone also reported growth mainly in converged offers, but noted that this trend is putting pressure on prices and churn, due to the popularity of discounted converged offers in the market. The operator said that 46 percent of consumer contract gross adds were related to converged offers in August 2013, versus 24 percent in June 2012. 

According to the Spanish regulator, the total MVNO market (with around 20+ players) reached 6.1 million subscribers at the end of Q3 2013, up by 1.5 million annually or 31.5 percent. The regulator does not report individual MVNO shares, but of the MVNOs that do report financial figures, we believe that cable operators Ono and Jazztel showed the strongest growth in mobile. 

Cable operator Ono, one of Movistar’s MVNOs, has reportedly filed a preliminary prospectus for an IPO, but also may be a takeover target for Liberty Global or Vodafone. Ono reported a strong uptake for its mobile services, due to its converged offering. It showed annual growth of 0.6 million mobile customers, almost tripling its base, to a total 902,000 at the end of September 2013. However, Ono confirmed the pressure on prices from converged offerings, saying: “We fully expect convergence to be a dominant force going forward as more and more households see this as a positive product solution for their entire telecommunication needs based on simplicity and significant savings. But convergence puts a lot of pressure on telecommunication companies as all operators are trying to defend their customer base even at high price discounts.” 

DSL and Fiber operator Jazztel, a MVNO on the Orange network also offering bundled fixed and mobile service plans, reported almost quadrupling its mobile customer base, from 236,000 to nearly 1 million at the end of September 2013. The company said that its convergence strategy brought an incremental increase in ARPU of around 50 percent (compared to pre-convergence) and also reduced its churn. 

Service revenues decrease 16.0 percent year-on-year to EUR 2.9 billion in Q3 2013 

Mobile service revenues in Spain reached EUR 2.9 billion in the third quarter of 2013, down by 16.0 percent or EUR 555 million from almost EUR 3.5 billion a year earlier. The decrease was mostly caused by the cut in MTA fees set by the Spanish network regulator CNMC, which reduced the termination rate by 75 percent to EUR 0.019 per minute in 1 July 2013 from EUR 0.04 in April 2012. The cut in termination rates as well as competition had a negative effect on voice revenues, which dropped by EUR 597 million or 23.6 percent year-on-year to EUR 1.9 billion in Q3 2013. This was not offset by growth in non-voice services, which only rose by EUR 42 million or 4.5 percent to EUR 971 million in the third quarter. According to the regulator, highly competitive market conditions and easier portability were two of the reasons for the sharp drop in the price of mobile telephony in Spain in 2013. 

The above figures are based on Telecompaper’s database on the Spanish mobile market, which are available for purchase. For more information, click here.

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