2014/08/07 Smartphone penetration is key to driving mobile revenue growth worldwide: the ratio was 1:1 during 2008–2013

There was a 1:1 ratio between the growth in mobile revenue and the increase in smartphone penetration worldwide during 2008–2013, according to Analysys Mason's recently updated global telecoms forecasts. Mobile retail revenue grew at a CAGR of 5% worldwide during 2008–2013, while smartphones' share of handsets grew from 4% to 29% – that is, by 5 percentage points on average per year.

More than 50% of handsets in developed markets are smartphones, and take-up of the devices is gaining momentum in emerging regions – particularly emerging Asia–Pacific and Latin America. We expect smartphone adoption to continue to drive worldwide revenue over the next 5 years, although at a lower ratio because smartphone penetration has reached maturity in developed markets. Mobile retail revenue will grow at a 3% CAGR worldwide during 2013–2018, while smartphone's share of handsets will reach 51% in 2018 – that is, a 4.5 percentage point increase on average per year.

Mobile retail revenue will reach USD1 trillion worldwide in 2018, and handset data revenue will account for 38%

Handset data revenue will be the largest contributor to mobile retail revenue growth worldwide during the next 5 years. It will grow by USD151 billion, driven by value growth (that is, increased spending on data services) in developed regions and volume growth (that is, the increasing number of smartphone users) in emerging regions. Some of this growth will be offset by a decline in voice and messaging revenue – particularly in developed markets, where there is a strong threat from over-the-top (OTT) services. Overall, mobile retail revenue will reach USD1 trillion in 2018, up from USD900 billion in 2013 (see Figure 1).

Figure 1: Mobile retail revenue by type, smartphones as a percentage of handsets, and handset data revenue as a percentage of mobile retail revenue, worldwide, 2008–2018 [Source: Analysys Mason, 2014]

Smartphone and mobile data spending dynamics vary substantially by region, which creates different challenges for telecoms operators.

Developed regions

• The key challenges for telecoms operators are to stimulate data usage and spending by increasing LTE availability and offering more-attractive and flexible data packages. They also need to drive smartphone adoption in the low-end market by offering financing plans to make devices more affordable, offering refurbished and operator-branded low-end smartphones, and pre-loading popular apps (such as Facebook and YouTube) onto devices.
• Developed Asia–Pacific and North America will have the highest smartphone penetration rates in 2018 (at 88% and 82% of handsets, respectively), driven by LTE take-up and a higher propensity to spend on data services. Western Europe will be close behind with a penetration rate of 76% in 2018.
• Central and Eastern Europe will have strong growth in smartphone penetration (at 69% in 2018, up from 28% in 2013), but growth in handset data revenue will be less dramatic (at an 11% CAGR) because of low disposable income levels.

Emerging regions

• Smartphone adoption is still low, but is gaining momentum. Brazil, China and India will account for 36% of smartphone net additions worldwide during the next 5 years.
• In Latin America, 57% of handsets will be smartphones by 2018, and handset data revenue will grow at a 20% CAGR during 2013–2018. Growth is also strong in emerging Asia–Pacific, where smartphones' share of handsets will reach 47% in 2018, and handset data revenue will grow at a 16% CAGR.
• The addressable market for smartphone users will increase in the Middle East and North Africa and Sub-Saharan Africa as GDP per capita increases and mobile infrastructure improves, but smartphone penetration will remain low through 2018 (at 34% and 26% of handsets, respectively).
• Inexpensive devices, handset subsidies, targeted campaigns and promotions for young users, and voice–data packages will become increasingly important as means of driving growth because new adopters have lower disposable incomes than established subscribers. Promotions – even if short-lived – help to improve the handset mix, which is likely to drive data spending. Zero-rated data tied to specific apps, such as Facebook and WhatsApp Messenger, and advertising-funded data provision may also help to drive smartphone volumes.