The number of mobile phone subscribers is rising quickly in Europe, but an increasing proportion of low-volume users and competition among operators could wrench profits over the next decade, forecasts CIT Research Ltd.

“For the first time in 12 years, we are sounding a real note of concern. Falling mobile phone prices, the high cost of network construction and the dogfight between operators over low-spending consumer subscribers will put a real squeeze on profits,” said Rob Ollerenshaw, CIT’s director of market analysis, in a recent report. Last month the London-based firm released forecasts for mobile phone markets in the United Kingdom and Europe.

Competition has driven down the cost of handsets. The average cost for a digital cellular phone in Europe is $385, and $400 for analog, said Ollerenshaw. Germany, which accounts for 30 percent of digital subscriber unit sales in Europe, prices digital phones around $315, significantly lowering the regional average.

Because carriers vary appropriation of costs-sometimes offering phones for free with service contracts-Ollerenshaw said he uses suggested retail prices as a means of comparison. The rush to build digital networks has dramatically reduced analog phone sales.

Less airtime means less revenue for carriers. Customers with low usage calling plans accounted for 90 percent of new subscriber growth in the United Kingdom last year, Ollerenshaw said. Total subscribers reached 5.3 million at year-end 1995. That number is expected to double in the next decade, said CIT in its annual market report, “Mobile Communications in Europe 1996.”

However, revenue growth will be disproportionate to customer growth, forecasts the firm. Money generated from subscriber equipment sales and services in the United Kingdom will increase only 10 percent by 2005, said CIT. If the trend continues, revenue per subscriber could drop to about $255. Market leader Vodafone plc ended 1995 with revenue per subscriber of $770, said Ollerenshaw, a 20 percent decrease from year-end 1994.

Europe at large also will see subscribers increase during the next decade, predicts CIT. In 1995, total analog and digital subscribers topped 22 million in western Europe and 668,000 in eastern Europe. Ollerenshaw projects those numbers will climb to 63 million and 11.4 million, respectively, in 2005. In the same time frame, carriers’ revenues are expected to increase only 25 percent, reported CIT.

More players in the market has intensified competition across the continent. Five years ago, Europe had 20 operators, said CIT. The market now encompasses 37 operators, many with multiple investors, which is more than in years past. “Deregulation has spawned deal after deal,” said the report. “The trouble is that the investment needed to roll out a national network is enormous and license fees are very expensive. Few operators can afford to take that risk.”

London-based Vodafone and Cellnet each reported about 2 million mobile phone subscribers in the United Kingdom at year-end 1995 for a combined market share of 85 percent, said Ollerenshaw. But the bottom lines for the two companies could be hit hard with switching, base station equipment and other buildout costs associated with converting their networks from analog to digital. The majority of Vodafone’s and Cellnet’s subscribers already use digital service. The United Kingdom’s other mobile phone operators, Orange and Mercury One 2 One, provide digital service only, and claimed about 400,000 and 380,000 subscribers, respectively, at the end of the year.


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