The worldwide installed base of cellular subscribers reached 53 million users by the end of 1994, a remarkable growth rate driven by a number of observable trends, the most important of which is the introduction of competition into the service provider marketplace.
Increased competition is driving down the costs of cellular equipment and service in many regions of the world. A declining cost of ownership is lowering the barrier to entry for many potential subscribers. Operators are also repositioning to target opportunities in new markets and create markets for the personal use of cellular.
The prospects for the worldwide cellular market are excellent. Fueled by increasingly competitive service provision markets, the industry is likely to post strong annual subscriber gains through the end of the decade. Norwell, Mass.-based BIS Strategic Decisions anticipates that the worldwide cellular subscriber base will grow by 24.4 percent compound annual growth rate between the end of 1994 and 2000. This represents 197 million subscribers at the end of the year 2000, according to a July BIS report titled “Worldwide Cellular Market Forecast 1995.”
Major Market Drivers
The single most important factor driving the growth of the worldwide cellular market is increased competition in providing cellular services. Outside of North America and the United Kingdom, where competitive cellular markets were founded in the early and mid-1980s, wireless services have traditionally been the realm of a single, state-owned operator with responsibility for all telecommunications services. However, regulatory authorities-first in leading Western European countries such as France and Germany, and later in other European and Asia Pacific Countries-are using the licensing of digital cellular personal communications services as a vehicle to deregulate their telecommunications markets.
The development of digital wireless technology has been employed by regulators as an opportunity to license new competitors to the embedded cellular providers. Western Europe has been the pioneer of digital cellular services, replacing a patchwork of analog standards with a single digital standard, Global System for Mobile communications, to enable higher quality services to be offered. The consumer market also is being stimulated via the licensing of second and third service providers. GSM-based services are online in 17 Western European countries and within two-and-a-half years have captured almost 4 million subscribers. As a result of the European-wide GSM standards effort and the licensing of new digital service providers, Europe dominated the fledgling digital market with 72 percent of the total at the end of 1994.
The traditional monopolies for wireless services are being cast aside in favor of robust competition all across the world. Competition to the state-run monopoly providers of telephony services has been mandated by governments in many countries. This trend will continue into the second half of the decade as another wave of licensing occurs, furnishing new or existing operators with consent to operate digital cellular services in additional countries in Asia Pacific, the rest of Europe and other regions including the Middle East, Latin America and Africa.
Operators worldwide are expanding their target markets and repositioning to create mass markets for personal use. This is being enabled by falling handset costs and the introduction of consumer-oriented flexible pricing packages on the part of the service providers. The rate of adoption varies considerably by country.
Personal users have already grown to 60 percent of the U.S. market. New consumer-oriented initiatives were launched in Canada in 1994. In Western Europe, 21 percent of all users are personal users and this is anticipated to rise considerably by the end of the decade. In Australia, a consumer market is rapidly developing with growth expected soon in Malaysia and Singapore.
However outside of these countries, Asia Pacific and other operators are concentrating on the lucrative business market.
Handset prices will continue to decline accelerating the adoption of cellular worldwide. Adoption is being advanced by falling handset prices, as markets enjoy economies of scale. The natural decline is being accelerated by operator subsidization of handset prices in North America and Western Europe. As more operators across the globe are faced with competition from newly licensed operators, this trend is set to continue with further incidence of handset subsidization further eroding the cost of cellular handsets.
Worldwide Cellular Market Forecasts
BIS anticipates 197 million cellular subscribers worldwide by the year 2000, from 53 million at the end of 1994. North America will lose share of the total installed base to 34 percent of the total as strong growth is experienced in the Asia Pacific and other markets. The Asia Pacific region will represent 25 percent of the world total followed by Western Europe with 23 percent by the year 2000. The remarkable growth is being driven by the introduction of competition in the service provider market, rapid deployment of digital services and new operators being licensed in Asia Pacific and other markets. By the end of 2000, 54 percent of all cellular subscribers will be on digital systems.
The worldwide market for cellular services is anticipated to generate a cumulative total of $747 billion in street-level service and equipment revenues between the end of 1994 and the year 2000.
Shipment revenues will grow to a street value of $36.9 million by 2000. Total worldwide unit shipments of cellular phones will grow to total street shipments of 67 million units by the end of 2000. North America will continue to lead the market in terms of unit volume with 34 percent of shipments, followed by Asia Pacific markets and Western Europe.
Handset prices are falling at varying rates across the globe driving down the barrier to entry for many potential subscribers. Prices are declining by a combination of increased competition in the service provider market and development of a mass market for cellular telephones. The average cost of a handset varies considerably by region. In North America, where handsets are already heavily subsidized (by an average of $250 in the United States last year), retail values are actually lower than wholesale values. The average cost of a handset across the United States and Canada in 1994 was slightly more than $80.
In Western Europe the average handset costs are considerably higher at $500 for the region. The lowest handset prices are found in the United Kingdom, where handset prices have been subsidized for some time. Rapid price declines are expected as more operators subsidize handsets following the United Kingdom, for example. Handset prices are still very high in most Asia Pacific countries. The average price across the region in 1994 was $1,200.
Worldwide cellular services revenues are expected to total $100 billion in 2000. Analog cellular services of $41.7 billion, or 42 percent of the total, are anticipated in the year 2000.
Digital cellular services revenues will rise to $58.2 billion or 58 percent of all service revenues by the year 2000. North America will account for 30 percent of the total, followed by Asia Pacific and then Western Europe.
Conclusions
The future will be challenging. As competition between carriers increases, service providers face falling monthly subscriber revenues and increased costs of acquisition. For the consumer, the battle for market share means lower cellular service and equipment prices and improved value for money.
Operators must develop innovative service plans and bundling to retain existing customers while managing the rising cost of customer acquisition. Increased carrier competition means the service providers involved must spend more money on mass market advertising, research and promotion.
For the carrier, minimizing churn or at least holdi
ng it at the current industry average will be critical for long term financial health. For equipment vendors and their suppliers, the challenges are to develop more consumer focused products at price points much closer to the residential telephone than the premium priced portable cellular phone of today.
Ann Lynch has been a wireless market analyst for BIS Strategic Decisions market advisory services in North America and Western Europe for almost five years. She specializes in paging, wireless data and the worldwide markets for cellular.
