No Meltdown (Yet) in Mobile Services

Posted by: Andy Reinhardt on September 22

Feeling blue about the state of the world’s financial markets? Here’s a bit of cheerful news about one area of the economy that’s still powering ahead: mobile phone service.

According to a study released Sept. 22 by London-based market researcher Informa Telecoms and Media, the number of mobile subscriptions around the world will reach 4 billion by the end of this year, just 15 months after the market topped 3 billion. That growth translates also to handset makers: Though average selling prices are slipping as the ratio of low-priced phones increases, strong unit sales are still boosting results for the likes of Nokia, Samsung, and LG Electronics.

The engine for this rapid growth, Informa says, is emerging markets. Both China and India have added more than 50 million new mobile subscribers in the last six months alone. There has also been huge growth—in excess of 10 million subscribers—in Indonesia, Vietnam, Brazil, Iran, Pakistan, Russia, and Nigeria.

The fastest-growing region this year, in percentage terms, is expected to be the Middle East, where subscriptions will surge 37.33%, to 144 million. The laggard—perhaps not surprisingly—is North America, where sign-ups are forecast to grow just 7%. Still, some industries would kill for 7% growth.

That’s the good news. (You knew this silver lining had to have a cloud.) The problem facing the mobile industry going forward is saturation.

Informa figures growth will slow down over the next few years as market penetration climbs. Global subscribers should hit 5 billion in the fourth quarter of 2011, but by that time more than 70% of the people in the world will have mobile service, leaving less upside for growth. Only in Africa will penetration still be less than 50% in 2011.

All told, compound annual growth in subscribers between now and 2013 should work out to about 5.75% worldwide--a lot slower than the kinds of numbers the mobile industry is used to. But don't forget, that's building off a base of 4 billion, so annual adds will still number in the hundreds of millions.

Also, these figures reflect only subscriptions, not sales of phones, so the "victims" of the slowdown will be mobile operators, not handset sellers. If emerging market customers start replacing and upgrading their phones at the annual or bi-annual rates seen in developed countries, growth in unit sales will be a lot higher than the increase in subscriptions. And if mobile operators find ways to boost revenues per subscriber--say, through increased use of data services or mobile video--their top line sales could grow faster than their subscriber bases. (That's a big if, however, given that non-voice services haven't yet provided enough lift in developed countries to counteract price competition for voice calls.)

The fastest-growing region will be Asia Pacific, with 7.51% compound annual growth. The slowest will be heavily-penetrated Western Europe, with just 2.55%. And here's a weird tidbit: By 2013, North America will be the world's second-smallest regional market for mobile subscriptions, with 343 million users. (Only the Middle East will be smaller, with 197 million.)

Chalk it up to population, current mobile penetration rates, and the relative strength of fixed-line phone service in the U.S. and Canada. In places where fixed-line isn't as established, like Africa, mobile is the best way to get phone service. That's why Africa will boast nearly 500 million mobile subscribers by 2013, Latin America will count 560 million, and Asia will have more than 2.5 billion.

Figures like that help explain why the mobile business today is so focused on encouraging uptake in emerging markets. Sure, growth inevitably has to slow, but the prospect of continued expansion is a bright counterpoint to the gloom now surrounding the world of high finance.

For Excel tables containing the data referenced above (except for the CAGRs, which I calculated myself), click here.