James Myring, Head of Internet and Telecoms Research at Continental Research reveals the findings of research into the impact of the credit crunch on consumers mobile phone spending habits
The price of old fashioned boring essentials like food, heating and
petrol has gone through the roof recently. For the first time in many
years disposable income is falling as pay rises fail to keep up with
inflation. The spectres of recession and rising unemployment hang over
the country. The mobile industry has matured during a period of
continuous economic growth. New technologies were paid for from a
growing disposal income - buying a new mobile phone did not necessarily
mean that people had to make savings elsewhere. But now that the credit
crunch is biting income, we wanted to understand how a more challenging
economy is affecting peoples expenditure on mobile phones. Its
impossible to survive without food and heating, but even those of us
who might wonder how we would live without our mobile will acknowledge,
perhaps grudgingly, that once we did just that.
This doesnt mean that well suddenly go back to communicating with landlines mobiles are seen as essentials - but our research indicates that the way people will use them will change as belts tighten. Mindsets are changing and this will impact the mobile industry.
Two fifths of all mobile owners plan to reduce their bill in the next 12 months According to our survey of 972 mobile phone owners in August this year, 41% expect to do something to reduce their mobile spend in the coming 12 months due to worries about an economic downturn. A concern for networks will be that the desire to make economies is concentrated amongst the highest ARPU groups - 63% amongst 25-34 years olds compared to only 12% of mobile owners aged over 65. Similarly, it is 56% among the more valuable contract customers, compared to 32% of pre-pay mobile users.
The particular worry for the mobile industry is that expenditure is fairly discretionary as a result of concerns about the economy, 21% of pre-pay customers expect to reduce the volume of calls they make to reduce bills. This will be less effective for those on a monthly contract, but 24% of contract customers expect to downgrade to a cheaper deal in the next year. Handset manufacturers could also be threatened, with 13% of contract and 10% of pre-pay customers saying they are likely to put off buying or upgrading to a new handset in the next 12 months.
Forget the extras
Indeed, there will be some downward pressure on usage of extra services. As a result of a possible economic downturn, 14% of 16-24 year olds and 11% of 25-34 year olds expect to use fewer additional premium services such as mobile Internet and TV, ad text message updates. In other words, if newer services such as mobile Internet and Moile TV are to grow strongly, they will need to drop significantly in cost. Advertising revenue can help to reduce the price to mobile users, but at a time when advertising budgets are also under pressure, it would be nave to expect advertisers to invest significant funds without the guarantee of a large audience. Now, more than ever, there is a need for technological advances to help bring down the price of advanced mobile services.
Opportunity from adversity
Furthermore, unlike the Internet, which can offer the opportunity to make savings by buying online, the mobile industry is one that does not generally offer cost savings calls cost more than landlines, mobile Internet is expensive and an inferior substitute to the real Internet and the same can be said for Mobile TV. The only advantage (and it is of course a massive one) is that with a mobile phone you can do these things wherever you want.
How will the relatively new and inexperienced mobile industry adapt to a situation that looks threatening? Many of the relatively youthful senior managers at mobile companies will have no experience of running a business during a sharp downturn in consumer spending.
The answer is that the industry has to adapt to a different economic climate and fast. The companies that will succeed look likely to be those that acknowledge the reality of the situation and work with mobile users to reduce bills. Innovation will be as important as ever, but the focus must be on using technological advances as a means to reduce costs to consumers, rather than generate additional revenue streams.