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Summary:

Declining sales in Spain and France suggest that Europe’s relationship with mobile has reached the ‘it’s complicated’ stage. But what are the reasons for the precipitous falls being witnessed by mobile companies across the continent? And is it actually a bad thing?

crying woman with mobile phone, courtesy of Shutterstock/Yuri Arcurs

Forget the fact that it’s summertime: it must feel pretty chilly right now if you’re a mobile operator in Europe. Across the continent, evidence is mounting that people are starting to change their relationship with the mobile industry — and it has operators worried.

A few days ago, it was revealed that record numbers of Spaniards are ditching their handsets — with the number of lines dropping by around 380,000 in April.

And now statistics from France suggest that the number of mobile sold will be down substantially this year. In fact, according to figures published by the French newspaper Les Echos, handset sales in France are set to fall from to their lowest level in years.

The mobile sector is in turmoil. And operators are not the only ones to see a change: handset manufacturers are also experiencing disruptions. According to the firm GfK, in 2012, the number of mobile phones sold in France will be lower than last year, with about 22.5 million phones set to be purchased this year, against 24.3 million in 2011.

It’s all a long way from a few years ago, when Europe (and the world) seemed locked in a romance with mobile that would never end. But suddenly that romance feels like it’s on the verge of turning into a tragedy.

So why is this happening? Are Europeans finally ending a decade-long affair with mobile? Is Nokia’s decline having an impact on the rest of the market?

It’s complicated

Well, the best answer is probably just to say that it’s complex. There are several reasons for declining mobile adoption, and none of them give the complete picture.

First there’s the big fat obvious issue. The economic crisis and continuing trouble in the Eurozone is making life tough for ordinary people — especially in Spain, where unemployment is running at around 25 percent. That means many people on low incomes are cutting back, which is why (for example) the hardest-hit part of the Spanish mobile sector was prepay.

But Spain’s month-on-month drops have been happening for several months, and now the cutbacks are deeper than most people expected. In fact, depending on how you look at the numbers, they even look a little counter-intuitive: after all, some analysts had quite logically concluded that pre-pay would rise while subscriptions would fall as cash-strapped users cancelled their contracts and went for a pay-as-you-go option. That’s not happening.

There are also little local quirks to remember. In France, for example, analysts suggest that part of the sales decline could be the arrival of innovative new provider Free, which offers customers extremely low cost packages because it offloads voice traffic over Wi-Fi wherever possible. Lots of people are joining Free with unlocked phones — buying SIM cards, but not new handsets.

Meanwhile in Spain, Telefonica and Vodafone have tested out a new business strategy of cutting subsidies on handsets, and it has really hit them hard where it hurts.

But the more concerning issue for the industry is that these drops are not just limited to troubled nations like Spain, or even indirectly troubled nations like France (which has been dragged into the mire through its relationships with the struggling Mediterranean economies). It’s also happening elsewhere: in the Netherlands, for example, the mobile industry has been watching things drop away for some time.

But lower turnover is not necessarily a bad thing

If you look at this from a different perspective, however, things may not be so terrible. Profits may be under pressure, but the market is moving towards smartphones — which are far more valuable to operators than the throwaway, highly-subsidized lower tiers of the market.

Maybe people are purchasing fewer phones because they’re more expensive. Or maybe they’re just making the old ones last longer. Maybe the old ones are just better. Maybe people are canceling contracts because they’re being more sensible about their spending and reining in costs in an appropriate manner. Don’t forget that for many years, most major European countries have had more than 100 percent mobile penetration.

Even if there are still reasons to be cheerful. Mobile penetration is enormous, and actual data usage is still sky high.

Europe may not be infatuated with mobiles any more. Things are rationalizing. It’s not longer Romeo and Juliet, it’s When Harry Met Sally.

Photograph of crying woman copyright Yuri Arcurs/Shutterstock

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  1. Also bear in mind that with smartphones, a 2-year agreement is pretty much standard. Compare that the 12 month standard only a few years ago.

  2. Reblogged this on Marcus Sanford and commented:
    Really interesting. I wonder what the sales mix is going to look like here in relation to smartphones vs dumb phones, and what ramifications there may end up being for the major players.

  3. Nazir Kaker Friday, June 22, 2012

    One other possible reason is the introduction of longer term contracts. In the UK 5 years ago most contracts were 12 months creating an annual renewal of contracts. Now it’s more like 18 or 24 months meaning people hold onto phones twice as long. The UK also has a growing second hand market meaning phones are being used by 2 or maybe 3 people in its life span again reducing the purchases if new phones. Possible theories of mine thou… Not quite fact! ( @mr_kaker )

    1. That’s a good point Nazir. Certainly the more expensive the handset (which we could use as a proxy for smart vs dumb phones) the longer the contract. Longer contracts=less turnover. I’m going to try and look for some data to see what we can work out.

      1. One additional point I would make Bobbie is that although phone ownership maybe going down revenue from handsets I would believe is increasing. I have two lines and pay around £120 a month basic rental, partially to get my phones free (Bold 9790 & iPhone 4S) and partially to as I am a heavy user. That in the past would be an unheard of monthly cost but with data bundles and more minutes, and 3G to 4G (LTE) ‘average cost per contract’ is probably becoming more important than actual amount of contracts to the providers…?

  4. Bastian Nutzinger Friday, June 22, 2012

    Here are to more possible reasons:
    1) As mobile companies become better in understanding the way people use their phones. The need to have more then one contract per person to optimize costs is declining.
    2) Maybe we reached a point where everybody has a mobile phone. If the market is saturated who’s gonna buy a new phone?

    1. Bastian, interesting reasons but I would wonder about them.
      1) It’s not necessarily in the interests of mobile companies to help you buy fewer handsets. And the Spanish figures are about an absolute reduction in the number of mobile users, not just in sales.
      2) I mentioned penetration toward the end of the piece. But again, mobile phone companies often *want* you to upgrade or buy a new handset, or sign a new contract. Europe has been at very high saturation levels for a few years now, but the decline is only really starting now… the key is how often you purchase and upgrade.

      1. 1) Yeah, thats why it took so long. I guess the competition is forcing them to make contracts better suited to their customers needs.

        Is this absolute reduction in the spanish number really a number already corrected for multiple contracts/user? I’d guess it’s an absolute reduction in contracts, not? In that case my point remains valid

        2) Sure they wan’t me to upgrade. Still: As long as the penetration is not 100% (actual penetration per User not counting multiple contracts/user) Sales figures per year are always part renewals part entirely new contracts. Now if the penetration reaches 100% there are only renewels and no more new contracts.

        In any case: I’m not implying that the explanations you are providing are wrong. Just wanted to add some more possible factors. As you mentioned yourself: “It’s complicated”.
        Who really knows how many different trends are playing into this?

      2. And I wasn’t saying your suggestions were wrong either — just bouncing them back. This is a fascinating and bafflingly complicated topic :)

  5. I also believe this is largely due to iPhones(in my experience anyway) they are cheap affordable and quite often come with amazing deals to both the contract itself and also extras such as consoles, in my family there are 3 iPads 2 iPhones, not to even mention my reletives. These “smartphones” adaptability is amazing and when a newer version comes out there are so many people looking to get one it’s easy to sell and buy the new the new one that reaching out to”old” hardware is exactly that, looking around the restaurant now I see iPhones blackberrys and htc’s even many of my collage friends who often cannot afford their daily cigarettes own smartphones on contact, and are definatly not looking at changing them anytime soon.

  6. Javier F. Escribano Friday, June 22, 2012

    Hi Bobbie,

    As a Spaniard, some reasons of these changes as I have analyze them for my business (founder of TouristEye travel app).

    – There was a penetration of 118%, so there were too many mobile lines.
    – Because of the crisis many companies are removing lines to employees. There were many people with company and personal phones (the reason of he extra 18%).
    – About 2 years ago MVNOs started to get traction, they offered way lower call prices (like 1-3 cents per minute). They needed time before people could rely on them and see them as an reliable option. Now it’s the time, specially when you can go from a 60€ bill to a 15€ bill.
    – In all the world more people are buying unlocked phones. I believe 90% of people with unlocked phones have MVNOs in Spain.
    – Tuenti (the biggest social network in Spain) has a MVNO too, thousands of teenagers are changing to them so they have integrated their messages and chat. Yes, that’s what Facebook would love to do ;)

    – And an important problem for Apple is that with those changes, in the last 3 months, 90% of new smartphones are Android. Just 5% are iPhone. Some months ago, the numbers were like 40% – 40%. And that’s a real problem for Apple and a really interesting fact for developers who target Spain.

    My two cents :)

    regards

  7. More than 100% penetration means that people own more than one phone, or sim card. They did this in order to get cheaper call rates. This is all over the world, not only in Europe. Now, with competition heating up, they can afford to own only one phone and sim, and with the use of NOIP, still reduce further their phone bills. The use of smart phones and VOIP has drastically reduced calling expenses.

    1. Bobbie Johnson Pat Monday, June 25, 2012

      A great point, made by a few people. It’s something I hear a lot more of in southern Europe than in the north.

  8. We have OVER-PRODUCTION! One line in factory can produce phones for all the world. The same is in ALL branches! When we start taxing manufacturing ( I mean machines) and give people jobs? …. This masonry world had to end! Give 90% tax for rich ones that buy yahts and third (empty) flat….

  9. Maybe Europe is just hitting a market saturation point?

  10. Richard Bennett Saturday, June 23, 2012

    Europe is waiting for 4G. We have it in the U. S., but the GSM technology mandate in Europe is a roadblock, as is their mandatory wholesaling of E1 backhaul. They’re going to fall behind the U. S. until they reform their regulatory structure.

  11. 1- waiting for Iphone 5
    2- we hate our operators: Apple help us!

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