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Value-Added Service Market is Moving Slowly

According to the latest study by Analysys Research, despite numerous attempts to improve data revenue, voice was still the major source of income for mobile service providers in Western Europe in 2006, representing 80.7 percent of total revenue.

Voice revenue will continue to dominate for the next five years, according to a new Analysys report entitled "The Western European Mobile Market: trends and forecasts 2007-12." However, voice ARPU has declined in most Western European markets (falling from EUR27.1 in 2002 to EUR24.4 in 2006).

Previously, growth in the number of mobile subscribers has largely offset the negative effects of falling voice ARPU, leading to a steady increase in voice revenue in many markets. In 2006, however, a handful of countries in Western Europe (Germany, the Netherlands and Sweden, for instance) have for the first time recorded negative growth in voice revenue.

These cases give a disquieting foretaste of what may happen in other mobile markets, if subscriber growth fails to make up for the erosion of voice ARPU. So, as most markets in Western Europe approach saturation, can mobile operators arrest the fall of voice ARPU?

According to Analysys, the quick answer is that, in the short term, they will find it very difficult to do so.

The decline in voice ARPU in many Western European markets in recent years has been caused largely by reductions in MTRs imposed by regulators and by intensifying price-based competition between operators -- and these market conditions may be expected to continue over the next few years.

Some regulators have already said that they will continue to push down MTRs: for example, the UK regulator, Ofcom, announced that MTRs would be reduced by a further 10-20 percent by April 2011, and the regulators in France and the Netherlands have stated that rates will come down over the next few years.

Also, the increasing number of MVNOs, SPs and new entrants -- for example, new 3G/4G entrants -- is likely to stimulate competition. That's exactly why I believe that development of superior marketing and sales talent -- that can actively create momentum for incremental value-added services -- is of paramount importance.

Granted, it's likely that all service providers have already attempted to build their team's skills beyond the traditional core voice services. That said, the required transformation often includes tackling long-standing business culture issues -- where the value-added services were driven by a small elite sales team, while the vast majority of front-line employees are still focused on commodity voice services.

Furthermore, any notion of finding that single application that will drive a new round of high-margin revenue for a mass-market consumer group seems to be without merit. There is no apparent new service windfall on the horizon, just a cluster of niche applications -- each requiring fully researched and highly targeted marketing strategies.

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