Mobile Phones and Network Providers - UK

One of the more dynamic consumer markets, with considerable development since 2005: mobile broadband (or 3.5G) is finally becoming a reality, while at the same time features offered by handsets have expanded. In terms of networks, the increasing amount of MVNOs has continued to make the market highly competitive.

Mintel defines the mobile phones market as handset manufacturers and network service providers. The report covers mobile phones purchased by consumers and used for domestic and/or business use. Mobile phones (sometimes referred to as cellular phones) are defined as phones that are fully portable and do not rely on a connection to any base unit, instead relying on signals from mobile phone masts of the mobile phone networks operating in the UK.

There are two main types of mobile phone package offered in the UK at present. These are:

• Standard contract or post-pay subscription packages - the customer pays a monthly line rental, with payment usually made via direct debit. Users therefore need to have a bank/building society account and, generally, a good credit rating profile to be accepted onto such packages. Most are also based on a minimum term of 12 months, although one network provider is offering six months. Handsets are usually subsidised by the network provider for new customers and hence tend to be comparatively inexpensive, or even ‘free’ with certain tariffs.
• Contract users can choose from a range of tariffs, depending on how heavily they are likely to use their phone. Most packages offer a 'bundle' of free minutes per month and call charges are generally lower than on prepay schemes.
• Pay-as-you-go packages - the customer buys a mobile phone handset and purchases calls in advance, usually via vouchers but increasingly by using a credit card or via top-up cards. Call charges started off being higher than for contract packages but have fallen in recent years, making such phones more attractive to those who do not use their mobile phones on a regular basis.

Issues in the Market

Key themes

Definition

Market in Brief

Increasingly saturated market

Consumers want value

Technology moves on

Competition increasing for all

Many consumers remain conservative towards manufacturer and operator efforts to drive the market

Internal Market Environment

Key points

We’re all mobile these days

Figure 1: Mobile phone ownership, 2003-07

Figure 2: Outbound call minutes, by fixed and mobile line, 2002-06

Mass ownership brings troubling consequences for networks

Figure 3: Who pays mobile phone bill, 2005 and 2007

Are networks really suffering?

Figure 4: Real cost of mobile voice and SMS per month(1), 2002-06

Figure 5: Average monthly expenditure, by fixed and pay-as-you-go, 2003-07

But a mature market does present networks with challenges

Triple play

Figure 6: Summary of multi-service operators offering mobile and other services, 2007

Increasing network loyalty

Networks want to focus on handset manufacturing

Established handset makers are moving into new markets, too

Competitive Context

Key points

Social networking

Fashion handsets

Advertiser-funded networks

Fixed line

The lure of the iPod

Strengths and Weaknesses in the Market

Strengths

Weaknesses

Market Size

Key points

Mobile subscriber numbers continue to rise…

Figure 7: Mobile phone subscribers, 2002-07

...boosting mobile revenues

Figure 8: Total mobile phone revenues, 2002-07

Handset sales also record strong growth

Figure 9: UK retail sales of mobile phone handsets (including contract), by volume and value, 2002-07

Market Value Forecasts

We predict the development in the mobile market on basis of the following assumptions:

Figure 10: Monthly fixed contracts, average annual % change, 2003-07

Consumer groups used in analysis

Figure 11: Monthly fixed contracts, average annual % change, 2003-07 applied to consumer groups

Average annual expenditure of consumer groups

Figure 12: Number of subscribers within consumer groups, average monthly expenditure, 2007

Three scenarios

Static scenario

Figure 12: Static scenario - forecast of subscribers, value sales and monthly expenditure by consumer groups, 2007-11

Figure 13: Static scenario, Past market’s growth rates per annum and forecast value sales

Stable scenario

Figure 14: Stable scenario - forecast of subscribers, value sales and monthly expenditure by consumer groups, 2007-11

Figure 15: Stable scenario, past market’s growth rates per annum and forecast value sales

Growth scenario

Figure 16: Growth scenario - forecast of subscribers, value sales and monthly expenditure by consumer groups, 2007-11

Figure 17: Growth scenario, Past market’s growth rates per annum and forecast value sales

Market Segmentation

Key points

Prepay remains main market for new handset sales...

Figure 18: UK retail sales of mobile phones, by volume and type of package, 2004-06

Contract is increasing its share of the subscriber market...

Figure 19: Total network subscribers, by type of agreement, 2004-06

As is the profile of the MVNO sector…

Figure 20: Total network subscribers, by type of operator, 2004-06

3G sector begins to show growth

Figure 21: Total network subscribers, 3G v other, 2004-06

Market Share

Key points

Handset market

Sony Ericsson outperforms all others

Figure 22: Estimated mobile phone handset brand share, by volume, 2002-06

Major brands win out against new upstarts

Operator market

Fragmented market with O2 and MVNOs gaining share

Figure 23: Total network subscribers, by network operators, 2002-06

Shift between prepay and contract presents a more complicated picture

Figure 24: Mobile phone subscribers, by network operator and payment type, 2004 and 2006

MVNOs - what future do they have in the market?

3G - 3 facing increased competition

Figure 25: Estimated share of 3G subscriptions, 2004 and 2006

Companies and Products

Handset manufacturers

LG

Motorola

Nokia

Samsung

Sony Ericsson

Network Operators

3

O2

Orange

T-Mobile

MVNOs

Tesco Mobile

Virgin Mobile

Brand Communication and Promotion

Key points

Network expenditure rises while investment on handsets stalls

Figure 42: Main monitored media advertising expenditure on mobile phone handsets and advertising as a percentage of sales, 2002-07

Figure 43: Main monitored media advertising expenditure on mobile phone networks and advertising as a percentage of sales, 2002-07

Investment by manufacturers is concentrated in the hands of a few companies

Figure 44: Total main monitored media advertising expenditure on handsets, by manufacturer/other company, 2004 and 2006

Big four invest in their fight for market share

Figure 45: Total main monitored media advertising expenditure on networks, by operator/other company, 2004 and 2006

Use of low-cost mass media is popular with handset manufacturers...

Figure 46: Main monitored media advertising spend on mobile downloads, by channel, 2003-07

...with television remaining popular with network operators

Figure 47: Main monitored media advertising spend on mobile downloads, by channel, 2003-07

Advertising strategies

Operators - looking to maximise opportunities in a crowded market

Manufacturers - heavily focused on the promotion of specific models

Channels to Market

Key points

Independents lose out as new channels strengthen share

Figure 48: Retail volume sales of mobile phone handsets, by outlet type, 2002-06

Support and integrated approach vital

Network operators tighten grip on specialist sector of the market

Figure 49: Principal specialist retailers of mobile phones, by number of outlets, 2002-06

Consumer - Purchasing

Key points

Traditional retail outlets remain main purchase channel

Figure 50: How last mobile phone was purchased/upgraded, 2007

MP3/Radio proving popular as a feature

Figure 51: Which of the following mobile phones do intend to buy or currently own?, June 2007

Consumer - Mobile Handset Usage

Key points

Text services and camera features proving most popular

Figure 52: Features have and features used on mobile phones, 2007

Basic phone functions are the most used every day

Figure 53: Which of the following do you do with your mobile phone? And how often do you do it? June 2007

The Consumer - Mobile Network Decision-making and Usage

Key points

Price, price and price again

Figure 54: Important factors when choosing mobile phone network, 2007

Healthy network market exists although some operators perform better than others in customer retention

Figure 55: Please indicate your service provider and plan type. Please can you also indicate if you have ever been with another service provider and switched, June 2007

Appendix

Consumer research

ACORN

Advertising data

Abbreviations

Consumer - Additional Data

Figure 57: Features have and features used on mobile phones, 2003-07

Figure 58: Important factors when choosing mobile phone network, 2003-07

Attitude cluster analysis

Figure 59: Consumer typologies, by gender, age, region, socio-economic group, household income, media usage, presence of children, supermarket usage and TV reception, June 2007

Attitude clusters and cross-tabs

Figure 60: Consumer typologies, by attitudes towards mobile phones, June 2007

Figure 61: Consumer typologies, by interest in features, June 2007

Figure 62: Consumer typologies, by network operator and target group, June 2007

Figure 63: Consumer typologies, by interest in features and number of features used, June 2007

Figure 64: Monthly fixed contracts, average annual % change, 2003-07

Figure 65: Numbers of features on a mobile handset used

Figure 66: Breakdown of payg and fixed contract mobile users, 2007