04/14/08


Will 3G help the revenue growth of cellular operators?

 

The growth of the cellular base has been the main factor for revenue growth of cellular operators in Brazil.

 

Note: The revenue growth of cellular operators in 2006 and 2007 was influenced by the end of the Bill & keep partial in Jul/06, which caused an increase in revenue from interconnection of operators. With the Bill & Keep partial, on calls between cellular operators in the same local area, an operator was required to pay only the rate of interconnection (VUM), the traffic was above 55% of the total in both directions.

 

With Brazil approaching a cellular density of 100 cell/100 inhab in the next few years (more details), the trend is the decrease of cellular growth rate for less than 10% a year. In this scenario, the growing importance for cellular operators seek other revenues not only the voice. This is one of the motivations for the deployment of 3G by Brazilian operators. With 3G they could enlarge its revenue from other services, offering mobile broadband in cellular (Smartphones) or to PCs.

 

The following figure shows the composition of cellular operators revenue in Brazil in 2007.

 

Note: Average of the operators Vivo, Tim, Oi, BrT, Amazônia, Telemig and CTBC. Claro and Sercomtel don't publish these values.

 

The gross revenue of services represents 88% of the operators revenue. With the end of Bill & Keep partial Jul/06 and sale growth of "chips" from Operators like Oi and Tim, the participation of revenue sale of appliances dropped from 19% in 2005 to 12% in 2007.

 

Revenue from voice services represent 91% of the gross revenue of services from cellular operators in 2007. Of this percentage, 33% are revenue of network usage, corresponding to the rate of interconnection (VUM) paid by other operators. In net revenue, this participation is even greater, since operators do not collect ICMS on revenue of interconnection, only PIS and Cofins. In Vivo, for example, the participation of revenue of network usage in the gross revenue from network services is 35% and net income 39%.

 

The VUM received by operators, about R$ 0.41 per minute (excluding taxes) is one of the factors that contribute to the high price of calls fixed-mobile and mobile-mobile (another operator), pushing down the usage of the cell phone. The MOU (minutes of usage) in Brazil grew from 83 minutes in 4Q06 to 92 minutes in 4Q07 because of promotions with cheaper prices for calls between cell phones of the same operator.

 

The voice services are under strong competition and the trend for the future is the fall of the price per minute of the services offered through packages and promotions. This trend reinforces the importance of operators in its range of services.

 

The participation of revenues from other services (including data and Vas) in services gross revenue increased from 8.4% in 2006 to 8.9% in 2007. Teleco estimates by 8% the participation of the revenue from other services in the net income of services from cellular operators in Brazil. This is below the percentage found in major 3G operators in the world.

 

Vivo and Tim are between the operators where the revenue from other services have a greater participation in the gross revenue of services of the operator. Claro doesn't publish this indicator.

 

R$ Millions - 2007
Vivo
Tim
Oi
BrT
Gross Revenue of Services
14,539
15,377
5,446
2175
Service of Data and VAS
1,331
1,217
335
104
Other services*
1,556
1,308
336
148
Service of Data and VAS/
Gross Revenue of Services
9.2%
7.9%
6.2%
4.8%
Other services*/
Gross Revenue of Services
10.8%
8.5%
6.2%
6.8%

*including data and VAS

Note: Tim surpassed Vivo in Gross revenue of services because of the R$ 1,890 milions with Long Distance (41).

 

The usage in Brazil of Data/Vas services is low, even to 2G services such as SMS (more details).

 

A search of TIC Household NIC.br (more details) showed that 51% of those who use cellular in Brazil send and/or receive SMS and 15% send and/or receive photos and images.

 

The table below shows the percentage of users who sent SMS and used photo message to the main countries of Europe and United States.

 

-
Sent SMS
Used photo message
UK
86.6%
30.3%
Italy
86.4%
31.7%
Spain
84.0%
32.3%
Germany
80.3%
22.0%
France
74.4%
23.7%
US
44.1%
19.6%

Source:M:metrics

 

The difference is even greater when considering services that benefit from the greater speed of access provided by 3G networks.

 

According to the search TIC Household 5% of cell phone users in Brazil accessing the Internet. The following table shows the percentage of users who accessed the Internet to track news through browser, that is part of who access the Internet through cell phone, in several countries.

 

-
Accessed the Internet via cellular to track news through browser.
UK
16.6%
US
13.1%
France
9.5%
Italy
7.9%
Spain
7.5%
Germany
5.5%

Source:M:metrics

 

In the United States the percentage of 13.1% of the table rises to 58.2% among those with smartphones and 84.8% among those who have an iPhone.

 

In 2007, 10% of the cell phones sold in the world were smartphones. In Brazil, 11.8% of the models approved in 2007 were smartphones.

 

You could ask:

  • Will 3G help the cellular operators revenue growth?
  • What will be the most succeed service?
  • The interactive tv shows (BBB, Domingão do Faustão, etc) could contribute even more to services data? How will be this interactivity in the 3G world?
  • When the participation of the revenue data in the revenue of services of the cellular operators in Brazil will surpass 20%?

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