Dutch mobile market: turning the corner to growth in 2016?

Tuesday 26 January 2016 | 14:54 CET | Market Commentary
The Dutch mobile market has started to show signs of a possible return to growth, while at the same time expanding to four operators, after the recent launch of Tele2’s new LTE network and pricing. Ahead of the operators’ latest quarterly results and annual figures for 2015, Telecompaper's Dutch Mobile Monitor report looks at the state of play in the market, which shows diverging performances at each of the operators.

Telecompaper’s most recent quarterly report on Dutch mobile operators shows mobile service revenues in the Netherlands fell by 1.0 percent year-on-year in Q3 2015 to EUR 1.27 billion. The annual drop in revenues has slowed considerably, from a fall of 7.4 percent in Q3 2014. The improvement is mainly due to a reduced impact from regulatory price cuts, as the last reduction in termination rates dates from 2013. In addition, the widespread availability of LTE networks and handsets is helping operators migrate more customers to ‘all-in’ postpaid plans with bigger data allowances, which tend to carry higher monthly fees.

KPN in the lead, T-Mobile falling behind

While the overall market is showing signs of improvement, the performance of each of the four operators varies widely. KPN has been the main winner in the past year, gaining both revenue and customer market share to further strengthen its lead. The incumbent returned to growth in retail service revenues in Q3 2015 – the only one of the big 3 operators - amid success at migrating customers to postpaid plans (68% of retail customers at the end of Q3 2015). This is supported in part by its bundling strategy, offering benefits such as extra data and mobile discounts to customers who take both fixed and mobile contracts from the operator.

Since launching the ‘KPN Compleet’ offer for fixed-mobile subscribers in 2014, KPN has signed up over half a million quad-play customers and nearly a quarter of its consumer broadband base now also take mobile services from KPN. In the past year KPN also took advantage of Ziggo’s distraction while it was digesting the merger with UPC, offering extensive promotions on its multi-play subscriptions.

The opening up of the quad-play market, by KPN as well as Ziggo, has exposed Vodafone’s relatively weak position on the Dutch fixed market. Vodafone has maintained its market share and solid second place on the mobile market in the past year, but its service revenue growth has been largely flat in mobile. In Q3 2015, it also saw its first loss of postpaid subscribers in over five years.

The importance of a ‘total communications’ (both mobile and fixed) strategy is not lost of course on the Vodafone group. The company has been trying to rectify in the past year its slow start on the Dutch fixed market. Vodafone is working both on organic growth, by launching new fixed offers, as well as possible acquisitions, through talks on a possible deal with Liberty Global (Ziggo). However, given the dominant positions of KPN and Ziggo on the fixed market, the organic strategy will likely prove difficult, putting Vodafone’s mobile business also at risk.

The main loser on the Dutch mobile market has been T-Mobile, which underperformed the market significantly in the past year. In the first three quarters of 2015, the company showed double-digit declines in service revenues and its market share fell steadily. In addition to no presence on the fixed market since the sale of its broadband ISP Online in 2014, T-Mobile only completed the roll-out of its 4G network in October 2015, over a year after KPN and Vodafone.

More recently, T-Mobile seems to have realised it will have to look for new sources of growth, and the company has announced new services for the enterprise market and plans to launch an OTT TV service in 2016. Again, it faces an uphill battle against the market leaders KPN and Ziggo, and the recent efforts may purely be window-dressing given the recurring reports of a possible sale of the company by parent Deutsche Telekom.

Tele2 shakes up the market

The wild card in the market remains Tele2. Since acquiring its own mobile spectrum licence at the end of 2012, Tele2 has grown its mobile subscriber base over 75 percent. It has also successfully moved the vast majority of customers to postpaid plans and 4G handsets, in anticipation of taking advantage of its new LTE network and pricing introduced at the end of 2015. As promised, the company has shaken up the market with relatively cheaper plans and bigger data allowances. It’s also improved its image, as Telecompaper’s latest ‘Word of Mouth’ scores show over half Tele2’s postpaid mobile subscribers would now recommend the company, an improvement of nearly 10 percentage points in the past half year.

Tele2 still has less than a 5 percent share of the overall Dutch mobile market. Will it be able to capitalise on the new network and positioning to achieve its goal of a 20 percent share? Tele2 is not wrong in its assessment that Dutch consumers want more data. According to KPN, the amount of data consumed by its customers nearly doubled last year, up 95 percent to an average 913 MB per customer in Q3 2015. Telecompaper’s Consumer Panel shows also that there is growing interest in larger data bundles: 23 percent of consumers expect to take more than 1 GB per month on their next subscription, up from just 8 percent two years ago. Tele2’s new plans start at 1 GB per month for just EUR 10, and unlimited calls and texts with 1.5 GB costs EUR 16. This already gives it the lowest price per GB on the market.

Meeting demand for data

Over half Dutch consumers had 4G smartphones in September 2015, double the figure a year earlier, suggesting data usage will continue to grow at high double-digit rates. We expect Tele2 to step up its marketing in the coming year in order to highlight the advantages of its big bundles and 4G network. According to Tele2 CEO Alison Kirkby, giving customers the freedom to take full advantage of the network without worrying about using up their data bundle helps build customer loyalty and reduce churn.

It will be high churn at other operators that Tele2 needs if it is to become a significant player on the Dutch mobile market. We expect T-Mobile will be the most to suffer from this, at its pricing is the closest to Tele2’s offers. T-Mobile has tried to build off its supposed speed advantage in 4G, but given that 4G speeds are increasingly available even from low-cost providers, this is unlikely to win over many new customers.

For the market leaders KPN and Vodafone, the key will be holding on to their shares and restoring revenue growth this year. Their window of opportunity is short though, with the ACM expected to announce a new cut to termination rates by the summer. In addition, the operators face further cuts to EU roaming prices from April and a ban altogether on roaming surcharges from next year. Capitalising on the strong demand for data services, including for M2M and the IoT, will be critical to returning the Dutch mobile market to any signs of positive revenue growth in 2016.

For more information, please see Telecompaper’s latest Dutch Mobile Monitor. The semi-annual report provides a comprehensive overview and analysis of the Dutch mobile market in all its aspects, from apps to operators, regulation to consumer trends.

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