The decline isn't such bad news: while the proportion of pre-pay customers is still rising, the rate is slowing as Vodafone targets higher-paying contract customers. Of more concern is the news that 95% of Vodafone's data revenues are still from basic text messaging. For Vodafone to realize mCommerce's potential, it needs to migrate SMS users to premium services.
Vodafone, the world's largest mobile operator, has revealed that it earned less money per subscriber in June in its two largest European markets than it did three months earlier. The UK business saw average revenue per user (ARPU) fall by 4.9%, while the German business saw a 9.5% fall.
The news follows Vodafone's announcement earlier in July that it had increased the proportion of new higher-paying contract customers. The group's stated aim of increasing ARPU rather than sheer numbers seemed closer, with 44% of its new customers in the UK and 29% in Germany on contracts rather than pre-pay phones compared to 26% and 17% in the previous quarter.
To be fair, the announcements together show Vodafone is moving towards a higher ARPU customer base. Pre-pay customers have heavily driven the last two years' strong growth in subscriber numbers; the ratio is now slowly moving in favor of contract customers. The figures for Q3 should show smaller declines in ARPU than for Q2, but Vodafone must try harder to encourage people to take out contracts.
The company has also announced the proportion of revenue from data services rose to 8.6% from 8.1% last quarter. But once again, this statistic shouldn't be taken at face value, since 95% of these revenues came from text messaging, with just 5% from mobile Internet. The proportion of data revenues coming from mobile Internet services actually declined compared with Q1.
SMS has been a useful cash cow for mobile operators, but its long-term revenue growth prospects are limited. Operators will need to boost uptake of either mobile Internet or enhanced messaging services including premium information and instant-messaging communities, if they are to benefit from substantial mCommerce revenues. For Vodafone to achieve its target of 20-25% of revenue from data by 2004, it needs to ensure today's texters become tomorrow's mConsumers.