Data growth cannot bolster Vodafone

When reporting earnings, Europe’s mobile-phone operators like to headline the growth of their data-services revenues, hoping to distract investors’ attention from the shrinkage elsewhere. But the latest, disappointing set of results from UK-based Vodafone shows just how meaningless that metric has become.

When reporting earnings, Europe’s mobile-phone operators like to headline the growth of their data-services revenues, hoping to distract investors’ attention from the shrinkage elsewhere. But the latest, disappointing set of results from UK-based Vodafone shows just how meaningless that metric has become.

At £10.77 billion ($16.71 billion), Vodafone’s revenues for the quarter just gone were 7.7% lower than in the same period last year. The chief culprit was southern Europe, where consumers hit by the latest economic downturn have been reining in their usage and scouting the cheapest tariffs available. In Spain, for example, Vodafone blames “macroeconomic weakness and high unemployment” for a 10% drop in service revenues, saying customers have been driven “to reduce or optimize their spend on tariffs”.

In such a context, any increase in revenues attributed to the use of data services is largely irrelevant. Indeed, in the same section of its earnings release devoted to Spain, Vodafone boasts of a 24.9% increase in data revenues, owing to the take-up of smartphones and the introduction of so-called “integrated tariffs”. Yet consumers are spending less overall. Average revenue per user (ARPU) in the country has fallen from €23.1 ($28) a month in the first quarter of 2011 to just €20.1 today. Two years ago, ARPU was as high as €26.9.

There are a couple of problems with looking at data-services revenues in isolation. For one thing, in a stagnant economy, consumers cannot keep increasing their expenditure on data services without cutting back elsewhere. Vodafone’s Spanish customers might have spent £9 million more on data services last quarter than in the same period last year, and £17 million more on text messaging, but they also saved £28 million on voice calls. Even in a healthier economy, there is probably a limit on the percentage of disposable income a consumer will fork out for communications services, or – at least – on the annual increase in spending on those services. For that reason, operators’ double-digit growth rates for data-services revenues can be quite misleading.

Perhaps more importantly, the use of “integrated tariffs”, which Vodafone lauds for helping to boost data-services revenues, makes it hard to separate spending on data services from that on voice. Ofcom, the UK’s communications watchdog, has given up trying in its annual sector reviews. Consumers, certainly, are not cognizant of spending specific amounts on voice, text messaging and data. The whole point of the “integrated tariff” is to bundle those three service components into a single bill: £30, say, for 200 minutes of voice calls, 250 text messages and 500 megabytes of data usage each month. Only when a customer exceeds those limits can his or her charges easily be allocated to specific types of usage.

In many respects, operators are to be applauded for simplifying tariffs and making data services more appealing to consumers. But the “integrated tariff” has also obscured the way that operators apportion revenues to particular services, even as they continue to brag about the increase in data-services revenues. In the meantime, a venture that really does shore up the top line continues to prove elusive.