Analyst Angle: 2010 Carrier forecasts: Back to the new normal

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
The joke among forecasters is that the toughest thing to forecast is the future. At IE Market Research Corp., we like to give our clients a full and complete accounting of how accurate our forecasts were. So in the spirit of the new year, I’d like to review what I said in this Analyst Angle at about this time last year to see how much crushed glass I need to eat and to set myself up for some comments about our forecasts for the next two years.
Consider the following table:

Subscriber Growth was stronger than we expected but low by historical standards
We had forecasted that the average subscriber growth at the 200+ operators we cover would come in at about 5%, given our view that wireless services are consumer discretionary items and were bound to be hit by the global recession. While average subscriber growth figures in 2009 were stronger than we expected (at 6.1% A vs. 5.0% F), I would like to point out that these subscriber growth figures are still low by historical standards. For the 2004 – 2008 period, our data show that subscriber growth figures averaged 22.3%. So a 6.1% growth is a far cry from previous years. In short, the recession did have an impact on subscriber growth at carriers, as we predicted, and slower subscriber growth is here to stay in most major developed markets.
Average Revenue Per User (ARPU) declines were stronger than expected but carriers continued to have some pricing power
Coming into 2009, we were seeing some pricing power at carriers and predicted that by the time 2009 was out, average ARPU growth would be about -3.1% globally. Actual data on ARPU growth is showing us that while ARPU declines were stronger than we expected (-3.8% Actual vs. -3.1% Forecast), most of the declines can be accounted for by ARPU declines in emerging markets such as China, India, South Africa, etc. Some emerging markets (particularly Russia) actually saw double-digit ARPU increases in 2009. In developed markets, we are seeing consolidation and greater market share among national carriers leading us to believe that in most developed markets, major carriers will be able to slow down their ARPU declines as they gain more pricing power.
Eating crushed glass on our Service Revenue Growth Forecasts
While we were predicting that service revenue growth at carriers would come in at +5.6% for 2009, our projected data suggests that service revenue growth will average a robust +9.1%. This increase in service revenue was partly driven by stronger than expected subscriber growth figures and greater pricing power among carriers in mature markets. The robust growth in service revenue was a surprise to us and we have revised up our 2010 and 2011 forecasts, accordingly.
EBITDA Margins forecasts were bang on while CAPEX was slightly higher than we expected
Our average EBITDA margin forecasts were very close to how 2009 is going to close out for carriers worldwide. Readers should keep in mind that our view on EBITDA was driven by the notion that carriers would conserve free cash flow by scaling back on opex and capex. While average capex spending was marginally higher than we expected (11.1% Actual vs. 9.9% Forecast), carriers in North America and Europe did adopt models that reduced their operating expenditures by reducing their handset subsidies and moving away from their stand-alone retail store models.
So, what is our forecast for 2010? Essentially, we have revised up our previous 2010 subscriber growth forecast by 320 basis points on strength of the overall global economy and the most recent guidance given by carriers (see Table below). Given ARPU performance at carriers last year, we have revised down our ARPU growth forecast by 80 basis points to -2.0% for 2010 (which is still robust by historical standards). For 2010, we have revised up our service revenue forecast by 80 basis points to 5.3% (again on strength of the service revenue growth figures announced in 2009). Finally, we continue to hold the view that EBITDA margins at operators will be flat at about 37.5% over 2010 and 2011 as opex and capex come back in line to historical levels. On capex, particularly, we are revising up our 2010 forecast by 220 basis points to 10.8% of reported revenue.

Our interviews and surveys of carriers confirm our view that there is a “new normal” when it comes to opex and capex at the carrier level. Most carriers have started rationalization measures that will see previously planned implementations that were “nice to have” being shelved. At the same time, core network infrastructure investments and next generation network infrastructure investments (such as WiMax and LTE) are now priorities for many carriers as they see broadband wireless as a key differentiator to attract customers in the next two years.
Questions or comments about this column? Contact Nizar Assanie at nizar.assanie@iemarketresearch.com
The opinions expressed in this article are the true opinions of the analyst(s) and IE Market Research Corporation (IEMR) about the firm(s) and/or industry appearing in this article. Any “forward looking statements” are the best estimates and opinions of the analyst(s) and IEMR based upon information that is publicly available and that the analyst(s) and IEMR believe to be correct. There is no guarantee that forecasts appearing in this article will materialize.