Executive Summary

Three easy representative trials over the next 12 weeks demonstrating substantial additional voice ARPU will justify a mobile operator launching a systematic programme to more than double voice-service NPV of customers in less than 3 years.

In just 24 months from April 2000, the telecom industry (and particularly mobile operators) has lost the confidence of the financial community and investors, reducing share-values by more than USD 1,000 Billion. Since then recovery is slow and minor. At the peak of the Internet/Telecom stock-market bubble, Vodafone paid USD 7,800 per customer to acquire Mannesmann Mobilefunk. Now the average NPV (Net Present Value) of Vodafone customers is less than 1/5^th of that at USD 1,400.

Investors perceive the mobile market is saturated now that penetration is above 85% in many markets and with a world average GSM ARPU that more than halved from USD 68 in 1997 to USD 31 per month in 2002. This low and decreasing ARPU and high churn makes it increasingly difficult to justify a voice customer NPV of even USD 1,400, Additional 3G licenses have brought increased competition and pressure on margins, which makes a shakeout of both fixed and mobile operators inevitable.

There is little new cash available to fuel telecom growth. Lack of confidence in the future of the industry has led the financial industry to both reduce the percentage of total loans and equity they are prepared to allocate to the industry, and to increase the discount rate used to evaluate business models. Still over-allocated in telecoms, banks can’t give additional credit and fund managers can’t buy telecom stocks.

Operators propose that 3G services will produce new revenues, but investors are frightened by major write-offs and heavy debt, and doubting whether there are killer data applications to repay heavy investments in 3G. This scepticism leads them to apply an even higher discount rate to data revenues, making 3G business cases non-viable.

To restore confidence of the financial community, and so gain access to funds and equity value to fuel growth, mobile operators must demonstrate much higher NPV of their businesses, to encourage both a higher funds allocation, and to lower the criteria for funding business cases.

Despite the widely held view that voice revenues are saturated, we suggest that there is indeed sufficient evidence to justify investing at least a modest resource in doing some quick tests:

Three easy representative trials over the next 12 weeks demonstrating substantial additional voice ARPU will justify a mobile operator launching a systematic three-phase programme to more than double voice-service NPV of customers in less than 3 years

1.      Today voice is the most credible “killer application” that has the potential to produce the higher NPV necessary to unlock funds and resources required by growth plans for data services and 3G

2.      Mobile voice is far from saturation, capturing less than 20% of voice services and less than 2% of total conversations and is less price-sensitive than fixed

3.      Capturing even a modest 10% of current fixed telephony at current mobile tariffs would nearly double NPV

4.      There are at least seven types of methods for generating additional voice ARPU

5.      Systematic tools help a mobile operator to develop additional ARPU- methods, to evaluate them and so set priorities for the most cost-effective methods

6.      A mobile operator could rapidly prototype at least five methods to test them on representative markets, and so gain confidence that a systematic programme would be worth developing

7.      The trial results should guide the mobile operator as to the priority bundle of methods best for them in a systematic programme to roll-out voice-ARPU boosting methods

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