Lean times for operators as mobile use is dialled back
Published 22/06/2014 | 02:30
Carphone Warehouse joins a growing list of new mobile operators in Ireland. But can any of them make money?
Pretty soon, Ireland will have three aggressive 'virtual' mobile operators: Tesco Mobile, UPC and The Carphone Warehouse. Despite only one of these being a new entrant (The Carphone Warehouse already operates a service here under the 'Lyca' brand), all three could turn out to be formidable players in the Irish market.
But can any of them make money here? And what of existing mobile operators?
Figures from Ireland's telecoms regulator show that the average revenue per user (Arpu) earned by Irish operators here has slumped from €45 to €27 per month over the last six years.
It's still falling, too: some analysts expect it to hit €20 per month in the next couple of years, as we continue to move over to 'free' data-based internet calls and messaging on our smartphones.
€20 per month is enough for infrastructure-light players such as Tesco, UPC and The Carphone Warehouse to make a few euro. But €20 per month is likely to leave established, infrastructure-laden operators with a huge commercial challenge.
At present, only one mobile operator in Ireland, Vodafone, makes any significant profit here. The rest are either losing money or scraping by (O2 could record its first loss in Ireland in its next set of results, while 3 Ireland has leaked hundreds of millions in the years it has been operating here).
To the punter, the situation right now is optimal. We have consistently falling mobile bills with the promise of more to come.
We also have existing operators continuing to invest hundreds of millions in new networks so that we can get 4G services for our ever-decreasing mobile bills.
But from an operator's perspective, the time may be soon coming when Ireland is starting to look uneconomic.
Make no mistake: if 3 Ireland had not succeeded in purchasing O2 Ireland, it would have exited the market here, leaving two operators for sale at knockdown prices.
Perhaps we shouldn't care too much about this. After all, in that scenario, it would simply have been one firm (Hutchison Whampoa) suffering a large loss and the market correcting itself. (O2 Ireland would have been sold for less, but Telefonica has made a profit on its operations in Ireland.) That's business life, right?
Besides, today's market is a far more preferable state of affairs to the duopoly that existed up to five years ago, with two companies (Vodafone and O2) making obscenely large profits in the Irish market (and largely transferring them over to subsidise their competitive UK operations).
On the other hand, there is a feeling that this tranche of network investment by Vodafone (in particular), might be its last on a grand scale.
Rivals such as Eircom's Meteor long ago decided that there wasn't a return to be made on large-scale infrastructure investment, with that company now depending on network-sharing arrangements (with 3 Ireland) to deliver decent mobile services to its customers.
So Vodafone and 3 Ireland are the last big spenders here, with both expected to drop over €500m (cumulatively) into new network investment in the next three years.
Ironically, these are the two players most exposed in Ireland by being 'mobile-only' network operators (Vodafone is lined up to become a partner in ESB's fibre network, but this deal is taking a peculiarly long time to complete).
With the market heading the way of virtual operators and €15 per month deals, it's hard to see anything like this kind of large-scale investment taking place again.
Vodafone isn't taking all of this lying down. The threat of legal action contained in its initial angry response to the European Commission's greenlighting of the Hutchison Telefonica deal is very much alive, according to company executives and other industry players.
Vodafone's main beef lies with 3 Ireland having potentially cornered more 4G spectrum than it may competitively be 'entitled' to.
But it's hard to see how any legal action could succeed, unless it is to somehow force the telecoms regulator (Comreg) to reallocate spectrum.
In the long run, Vodafone may simply have to come to terms with the fact that Ireland is not an especially lucrative market anymore.
Sunday Indo Business