March February 2008 N° 7

Vision The Quantifica Newsletter

OMSYC is now QUANTIFICA. On January 1st 2008, OMSYC (World Observatory Of

Communication Systems) became Quantifica.

Comparing the European Union 15 and American

cell phone markets
Asmaa Zaher, Analyst.

Data used to write this article come from the Quantifica database
at www.quantifica.fr.

Americans use their cell phones four times more than Europeans, and pay three
times less! Yet, more Europeans have a cell phone than Americans.

The European and American cell phone
markets present two key differences. In
Europe, GSM (2nd generation) and UMTS
(3rd generation) are the two sole standards,
while in the United-States, competition
between standards is a de facto, especially
between GSM and CDMA. The second key
difference lies in tariffs. In the United-
States, the «Receiving Party Pays» applies;
the called party pays the call termination
received on his/her cell phone. In Europe,
the caller pays for the call ( «Calling Party
Pays»).

Figure 1 : Mobile penetration rate in the population and prepaid share in the overall client base in 2006

160% 100%
138%
140% 87%
Prepaid (%) in subscriber base

118% 80%
120% 109% 106% 104% 103%
67%
Penetration rate

100%
59% 60%
82%
78%
80% 51%
45%
40%
60%
35%

40%
20%
15%
20%
6%
0% 0%
Italy United EU 15 Finland Spain Germany France USA
Kingdom

Penetration rate Percentage of prepaid in subscriber base

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Vision – The Quantifica Newsletter March 2008 N° 7

In the United-States, cell phone characteristics of the US markets: a low

penetration appears below European
levels. In the United-States, SIM card
penetration at end-2006 in the overall
population totaled 78%, much lower than
the average European penetration rate of
109%; Italy even announces
138%penetration rate. Moreover, the US
market posted a 9% cell phone take-up
between 2005 and 2006 versus 8% over the
same period in Europe. The prepaid
market accounts for close to 87% of active
SIM cards in Italy. Given this context, the
number of people who concomitantly own
at least 2 active SIM cards is very high and
contributes to « boost » the penetration
rate. The proportion of prepaid cards in
the subscriber base is much lower in the
United States, where it does not represent
more than 15% of the base, versus
Europe’s average 59%.
American market dynamics have favored
(postpaid) calling plans, appealing to
consumers with deep pockets and heavy
phone use. In Europe, France shares
penetration rate, with a small number of
prepaid plans. Across Europe, the dual
SIM card holder reflects cell phone
marketing pushing prepaid plans. In
short, America’s cell phone penetration
a mirrors Europe’s. Penetration rates can,
therefore, be defined as individuals having
access to and regularly using a cell phone
within the overall population.
Amazing! Americans call four times more
than Europeansi ! An American cell phone
subscriber averages 833 minutes
(outbound and inbound), whereas in
Europe, average consumption across the
same perimeter totaled a mere 176
minutes, with Finnish consumption
totaling an average 315
mn/habitant/month1.
i Voice consumption for Europe was calculated
using the American method which includes calls
received.

Figure 2 : Average consumption per inhabitant vs price per minute2 in 2006

0,25 Germany

United Kingdom
0,20

EU 15 Italy
Price per minute ($)

0,15 Spain

France

0,10 Finland

0,05 USA

R2 = 0,96

0,00
0 100 200 300 400 500 600 700

Average consumption per inhabitant (Min/month)

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Vision – The Quantifica Newsletter March 2008 N° 7

In 2006, European users averaged 45 number of SMS messages exchanged

SMS/per SIM card/per month with major between subscribers has grown quite
differences between the countries. In 2006, rapidly, from 0.25 in 2001 to nearly 39 SMS
Denmark posted an average 158 in 2006.
SMS/subscriber/month versus 27 SMS for
France. Price per minute was calculated by divding Voice
iv

ARPU by average consumption per subscriber

In the United States, interconnection which is expressed in minutes.
between operators for SMS messages has
been effective since April 2002. The

Figure 3 :2006 EBITDA margin and revenue growth 2005- 2006

50% 20%

18%
40% 38% 37% 16% 16%
33% 33% 33%
32%
29%
30% 27% 12%

Revenue growth
EBITDA margin

11%

8,63% 9%
20% 8%

5,01%
10% 4%

-0,23% 0,04%
0% 0%
Vodafone Orange Telefonica Tmobile AT&T Verizon Sprint Tmobile
UE 15 UE 15 UE 15 UE 15 US US US US
-10% -4%
EBITDA margin Revenue growth

Vodafone EU 15: Germany, Spain, France, Greece, Ireland, Italy, Netherlands, Portugal, United Kingdom
Orange EU 15: Belgium, Spain, France, Netherlands, United Kingdom
Telefonica EU 15: Germany, Spain, Ireland, Italy, United Kingdom
T Mobile EU 15: Germany, Austria, Netherlands, United Kingdom

The price of a cell phone minute in the Mobile USA), the other two operators
USAiv is much lower than in Europe, or 5 apply the CDMA standard (Verizon and
ct$/mn versus 17. Compared to France, Sprint/Nextel). The four key American
where prices are deemed competitive, operators, akin to Europe’s top four cell
price per minute is three times less, and phone companies, post EBITDA margins
five times less than Germany where prices averaging 33%. In 2006, the American cell
are relatively high. phone companies grossed higher revenues
on their domestic market than their
The American market counts some 180 European counterparts. This difference
telecoms operators and more than 60 can be attributed to external growth
MVNOs. But, with mergers between operations which the European operators
AT&T, Cingular and BellSouth in 2004, have carried outside of Europe.
followed by Sprint with Nextel in 2005, the In 2007, Verizon acquired 3 regional
American market has furthered operators. Sprint, recently purchased a
consolidation around four operators. local cell phone company local, and
Today, these four operators control 85% of AT&T‘s acquisition of Dobson is awaiting
the market. While two operators use the approval by the FCC. Moreover, fixed–
GSM standard (AT&T/Cingular and T- cell phone-Internet convergence is
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Vision – The Quantifica Newsletter March 2008 N° 7

speeding up mergers amongst operators,

iv Price per minute was calculated by divding Voice
and contributing to the overall
ARPU by average consumption per subscriber
consolidation of the American
which is expressed in minutes.
telecommunications market.

Figure 4: Cumulated market shares of the leading two operators HHI index1
Cumulated market share of the leading two

100% 5000

83% 82%
79%
80% 73% 72% 4000
3755 3666 3768

3098
operators

60% 2992 52% 3000

52%

HHI
40% 2284 2000
1835

20% 1000

0% 0
France Finland Spain Italy Germany United USA
Kingdom

Cumulated market share of the leading two operators HHI

The current cell phone consolidation competition level stems from its license
taking place in America is, however, granting process, which created a high
limited compared to the number of number of small cell companies,
national markets across Europe (see Figure operating either on a local or regional
4). basis. More, the 60 MVNOs have
First, the United States is nearing the reinforced the diversity of the offer. In
United Kingdom in terms of cumulated 2006, MVNOs counted more than 16
market shares held by the leading two cell million subscribers, representing close to
phone operators. Indeed, both countries 7% of the subscriber base. Two MVNOs
post 52%, while in both France and dominate: TracFone, a subsidiary of
Finland the two leading operators have a America Movil, targeting the Hispanic
combined share of 80% of the market. community and Virgin Mobile, a joint-
Further, in the United States the HHI1 venture between Virgin Group and
concentration index is less than in Europe. Sprint Nextel targeting the youth market,
Generally speaking, the American cell and mirroring Virgin’s target in Europe---
phone market is more competitive than which has been successful.
most European countries. American

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