Wireless subscribers in MEA above global average

Subscriber growth for wireless networks in the Middle East and Africa (MEA) region remains above the global average, according to a new report.

However, average revenue per user (Arpu) fell by 11 per cent year-on-year to $11.1 (Dh40.7) per month, slightly faster than the 10 per cent decline recorded globally.

According to the "Wireless operator performance benchmarking: Q2 2009" report, the latest from the Wireless Network Strategies series by research firm Strategy Analytics, annual service subscriber growth in MEA remains above the global average – 17 per cent versus 12.6 per cent – though net additions were weak during the quarter.

Similarly, service revenues in MEA grew 5.1 per cent year-on-year in Q2, compared to 2.5 per cent globally, but recorded only a 2.5 per cent growth between Q1 and Q2, compared to 3.2 per cent globally for that period.

"Earnings before interest, taxes, depreciation and amortisation [Ebitda] margins were stable at 45 per cent of service revenues in MEA, beating the 42 per cent global average. Again, annual growth in MEA is outperforming the world, although Q1-Q2 growth was slower than the global average. So there is an underlying trend that the region is doing better than the rest of the world in Q2 when compared with 2008 levels, although perhaps seeing more of an impact on operational performance and financials in Q2 versus Q1," said Phil Kendall, Director, Wireless Network Strategies at Strategy Analytics.

He added: "That is not suggesting that the rest of the world is seeing the mobile sector recover from recession, while MEA still struggles – all regions are finding it hard currently and the high level of prepaid ownership within Africa allows users to adjust spending behaviour rapidly to accommodate financial circumstances."

The report explained that Q2 2009 mobile operator results were impressive in aggregate given the global recession's continued impact on consumer and enterprise behaviour. While rates of growth of many metrics slowed (subscribers, net additions, revenues, Ebitda), these remained in positive territory, and a reluctance to over-commit on capital expenditures resulted in very strong free cash flow. Europe remains more affected by the recession than many other regions as total Ebitda fell in both the Eastern and Western regions, with exposure to the faster growing markets in Asia and Africa helping to soften the blow for many European-based operators.

Mobile subscription growth globally showed a marked decline in Q2 2009 as the global recession continued to cause volatility in the market. Gross additions posted a 10 per cent growth year-on-year (y-o-y), though a strong increase meant a 28 per cent fall in net additions. This general pattern was seen in all regions, suggesting end-users are rationalising their ownership of mobile subscriptions in the current economic climate, though perhaps not completely exiting the market.

Given the high level of subscription penetration in many markets (33 of the 72 countries tracked had a penetration rate in excess of 100 per cent), there is an element of natural evolution and maturation in these results. However, this is just one part of the picture with the slowdown in net additions also occurring in some lower-penetrated markets such as Bangladesh, Indonesia, Kenya and Pakistan.

Arpu continues to drop at 10 per cent annually in Q2, fuelled by a levelling off of average minutes of use, which suggests existing customers are using falling prices to reduce their spending rather than increase usage. This dynamic has resulted in very slow revenue growth: service revenues grew by 2.5 per cent year-on-year in Q2 2009, compared with the 6.4 per cent y-o-y growth seen in Q2 2008 and the 5.2 per cent growth seen in Q4 2008. Q2 2009 was the fourth consecutive quarter of falling voice revenues, down 3.8 per cent over Q2 2008. The 16 per cent growth in data revenues more than compensated for this weakness, and Strategy Analytics believes there will be a further deterioration in service revenue growth in Q3.

Subscriptions and service revenues continue to grow, although Europe in particular remains a very challenging environment where service revenues (not just their growth rates) have been falling.

According to Strategy Analytics', handset sales volumes will fall by seven per cent in 2009 and sales revenues will fall by eight per cent. Revenues from services are depressed at present, but for many operators they are still growing.

In the Q2 2009 financial results, mobile operators have successfully adjusted their cost base to cope with the industry slowdown. End-users may be using voice price declines to save money rather than increase usage, but operators have been able to link costs to revenues and not traffic. So Ebitda margins (as a percentage of service revenues) were stable at 41 per cent in Q2 2009 and Q2 2008. However, the global figure masks some regional variations. Margins were up an impressive 2.2 percentage points across Latin America, with operators in Argentina, Brazil and Mexico all posting strong results and margins were down one percentage point in North America. In Asia-Pacific, margins were down 0.5 percentage points though overall Ebitda continued to rise.

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