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More Turbulence Ahead for Mobile Operators

An Informa Telecoms & Media market study suggests that the ongoing financial crisis started to make an impact on the global mobile phone services sector during the second half of 2008.

Informa's view is that the slowdown in the growth of global mobile subscription numbers and the device market is likely to accelerate in 2009.

The world's mobile phone subscription market grew by 18.5 percent in 2008 -- down from 22.5 percent growth in 2007 -- and is set to increase by just 12.7 percent this year, although Informa does note that this reduction in growth is partly due to the effect of natural market development, particularly in Western Europe and USA.

Of more concern to the industry is the 7 percent fall estimated by Informa in the handset replacement market in 2008. Unsurprisingly, the world's developed markets will be hit especially hard with the total device market in Western Europe set to contract by 13 percent in 2009.

Informa estimates that it could take as long as three years for the mobile device market to get back to 2008 sales levels.

"The handset market is facing a difficult period with the average replacement cycle likely to increase by 6-8 months in 2009, which would result in a 5 percent decline in the number of total devices sold globally to 1.16 billion," explains senior forecasting analyst at Informa, Nidhir Maudgalya.

And things could get even worse than this, as depending on the extent of the deterioration of global macroeconomic conditions, the year-over-year fall in the number of total devices sold could double to 10 percent with replacement cycles increasing to up to 12 months.

Informa research suggests there is evidence of a strong regional divide on the impact of the economic downturn. New subscriptions in the emerging markets of Africa and South Asia continue to drive growth and the mobile device market should remain resilient, albeit with users buying basic and low feature handsets.

"India became the world's largest market in terms of net additions in 2008 for the first time with 102 million new mobile subscriptions over the 12-month period, ahead of China," notes Nick Jotischky, Principal Analyst for emerging markets at Informa.

But Jotischky does have a warning for those investors looking to escape the saturation of developed markets. India and other emerging markets have their own difficulties as mobile operators continue to work out how they can deliver profitability in the face of increasingly brutal competition.

Until now, mobile operators have not been substantially impacted by the deterioration of the economic environment and have shown impressive resilience. Contingency plans are being prepared for the year ahead with many operators preparing to lower cost bases and downsize their business.

Handset and network vendors will be affected more than mobile operators in the first instance as the number of consumers choosing not to upgrade devices will increase. This will place an indirect hit on network investments as growth in data usage is not as sustained as expected leading to less than expected pressure on networks and operators electing not to upgrade networks.

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