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Orange increases voice earnings: no sign of data surge yet

Orange will be praised by City investors for increasing ARPU - average revenue per user. But what it carefully didn't say, is what is happening to its plans for mobile data.

The bit of the picture that Orange will want to ignore isn't in its results. It wants to go and look at the revenue streams of CallServe - a startup Internet phone company. CallServe, not yet two years old, is already cash-generative, simply because it allows people to place phone calls over the Internet, instead of using the normal public phone networks.

The bit that Orange will want to emphasise is this: "Average customer revenues continued the trend Orange has been forecasting, with the UK annual rolling blended ARPU increasing for the first time, from £246 for 2001 to £247 for the twelve months to March 2002. This was helped by the increasing proportion of contract customers and by the individual contract and prepay average revenues, which were largely stable from 2001."

It's hard to get excited about this; all it says is that the company is focusing more on rich customers - business users. Business users of mobile phones don't care -personally - how much they spend per month, and are less discriminating about how they moderate their personal phone habits. Orange has increased its number of "contract customers" - people who don't pay their own bills.

One person at least managed to be excited. Commenting on the results, Graham Howe, Deputy Chief Executive Officer and Chief Financial Officer, said: "These results keep Orange on track to meet our stated forecasts for 2002. As we reach high levels of mobile penetration and growing customer maturity, we see higher wirefree usage as mobile increasingly becomes the primary voice communication device for our customers.

Yes, voice. But there's no magical way of making all Orange's rivals slow down their price-cutting trends; and as landline voice calls drop in cost, so the pressure will increase on mobile customers to use other channels. And, as this column has consistently warned, the time is relentlessly approaching when people will use the Internet as their way of getting very cheap calls indeed.

What the City will really want to see, after the "excitement" of this quarter's figures, is some sign that people are going to use data services on Orange networks.

Orange is not the worst of the mobile carriers, when it comes to "mobile network development" - it was the pioneer in mobile data with its support of high-speed circuit-switched data, which it sells at half the price of voice. GSM gives each user a time slot; HSCSD users get two of these for the same price as voice users pay for one.

But from a good start, dedicating a whole GSM time slot and (reluctantly) giving the 2.5 generation data service a kick-start with aggressive pricing, Orange has seen actual revenues from data do very little. And the problem isn't easy to solve; because like all mobile operators, Orange doesn't provide a service in data; just a conduit.

It was a frequent boast of the mobile carriers - and the ordinary telcos - that they were not just "bit carriers" but provided a service. This made encouraging reading for stock brokers; but what evidence have we seen that it meant anything in reality? Not a lot, frankly.

If you want a single good example of "what good is mobile data?" for the year 2002, it would have to be remote email. This allows you to check your phone, to see whether you have incoming messages.

Of course, to be able to actually read the messages, you need Japanese thumbs (Japanese kids are famous for being able to manipulate phone keyboards rapidly) and you need to be under 35. After the age of 35, the typical pair of human eyeballs loses its ability to focus up close without reading glasses; and by the time most people are 40, they are desperately embarrassed about their need to put their spectacles on to dial a number. And no, they can't read email without it unless, of course, they are so myopic that they have to take their normal glasses off to do so.

The evidence is that there are some really clever software packages, and packged services. People like Peramon and Global Beach and come to mind; so do PC suppliers like Dell; people who have put together a box and software and a mobile deal which requires relatively little skill or intuition from the user.

Early adopters, of course, can make anything work. So far, the only people who are actually using GPRS as a conduit for email are early adopters of considerable skill - and even they aren't enjoying the experience.

Worse, they are not happy about what they get charged.

Dell is pretty upfront about costs of GPRS; its deal with mmo2 gives you fifty pounds a month worth of data. That is a pretty reasonable estimate of how much the typical remote-email user is going to spend; and if the carriers could get all their corporate customers to set themselves up on this basis, they would indeed get a lot more business.

But will they?

Initially, some will. Rapidly, they'll discover that there are really far cheaper ways of doing it. And equally rapidly, the carriers will discover that this is an area of competition, and will cut prices.

Realistically, GPRS will probably contribute a small incremental revenue stream next year; and sceptically, it probably will never represent more than 10% of revenues for the mobile carriers - if that. Because the final killer is that there isn't the capacity for it.

The simple trouble with GPRS, and the problem for which there isn't a solution, is that it uses "spare capacity" on the GSM phone networks. As long as the number of data users is small, they can fit their data in between the voice packets of normal phone users.

But if they ever became anything like a significant part of the package, they would find themselves squeezed out. There is no spare capacity on GSM, and at the rate people are not investing in new masts, there never will be. The only hope for big data growth for operators like Orange would be that people actually stop using their phones so much for voice - which would be a disaster for them.