Today, network quality is under the spotlight in every household and enterprise worldwide
as more and more work from home. However, as our new research indicates, network
performance has always been a mainstay of market demand.
Today, more than ever, we see the value which mobile connectivity brings to our societies.
In times of crises, the world’s mobile networks are proving yet again that they can deliver
the performance and reliability to support both consumers and enterprises in their hour of
need. In fact, quality of the network has been an important driver of market dynamics for a
However, today’s demands for network quality and capacity are not a new development. In
fact, they have been driving market demand for a lot longer and to a much greater extent
than most would probably expect.
For almost a decade now, we have analyzed why some service providers grow and drive
higher revenues than others. We call these leaders Frontrunners. While Frontrunners share
common traits, they often deploy a variety of strategies to enable profitable, sustainable
growth. The real key to their success is that they seek differentiation to create better
In a new analysis, based on 4G life cycle data from more than thirty countries, we have
drilled deeper into how much good network performance benefits Frontrunners. And our
research shows that investing in network quality is a powerful way for service providers to
drive lower churn and/or higher average revenue per user (ARPU).
In all countries we analyzed, the service provider with the highest network quality has
either higher ARPU and/or lower churn compared with the service provider with the lowest network quality.
In the top half of cases, where network quality is highest, we found that the lead service provider enjoys a higher average ARPU (+31 percent) and lower average churn (-27 percent). In the bottom half, where network quality is generally lower, we found that some service providers still enjoy higher ARPU (+61 percent) but with higher churn (+39 percent), whiles others have both lower ARPU (-14 percent) and lower churn (-32 percent).
When we looked across all service providers, not just leaders and quality laggards, network
quality correlated with increased ARPU and reduced churn.
After macro-economic factors, network quality is one of the biggest influences on churn
according to a multivariate analysis. Put simply, investing in network quality keeps subscribers happy. Or, as one executive at a service provider told me: “It is easy to attract customers. The problem is that when they see our poor network performance they leave.”
In aggregate, ARPU fluctuations seem to be driven primarily by macroeconomic factors. However, our analysis of Frontrunners shows significant revenue upsides for those investing first in high performance. The Frontrunner group achieved a 9.9 percent ARPU compound annual growth rate (CAGR) with 4G, while the rest of the market was at -0.8 percent CAGR. With 5G we already see Frontrunners charging price premiums averaging 15 percent.
It is clear that network quality already matters to consumers. This is hardly surprising as the service providers product is their network. We also see that network performance features more prominently in the marketing initiatives from successful service providers. One of our most successful customers – who have generated a strong market share gain and growth over many years – allocate more than 50% of advertising spend to network performance.
Important for consumers, but we are convinced that the quality of connectivity will mean even more for enterprise users, as enterprises will depend on connectivity for their business survival.
Case studies on the importance of network quality
- European market leader defending position
Network quality is a way for a market leader to maintain its leadership over the competition. Between 2010 and 2015, a market leader lost four percentage points market share to a new low price competitor, who surpassed the leader in networking benchmarks from P3, a leading international consulting, engineering and testing services company. The leader then launched a new strategy focusing on increasing capex to offer the best network experience. They regained their lead in P3 benchmarks, and these actions reversed market share losses by gaining 2 percentage points market shares. More importantly, they also increased their ARPU lead.
- Challenger surpasses closest competitor in emerging market
Improved network quality can also be a way to build market share. For example, in 2016, a challenger was third in market share and experienced an erosion in ARPU. The company shifted capital expenditures from fixed to mobile, including doubling its 4G footprint in cities.
This gave it the best network in the country, resulting in market share gains and a reversal of the ARPU trend; the provider now shows a stronger ARPU increase than its peers. These gains allowed the challenger to overtake the number two player in the market. Its investment also paid off with more post-paid subscriptions and earnings (EBIDTA) up five percent.
- Market leader in Middle East invests in network quality to stem losses and regain performance lead
From 2010 to 2014, the second player in the market invested heavily in network performance, and the leader lost 10 percentage points of market share. The leader increased capex for 4G, stemming market share losses. Additionally, the leader was able to significantly improve network performance which resulted in faster ARPU growth, churn reduction and an improved Net Promoter Score compared to the competition.
Key insights from our analysis
Successful service providers use a variety of strategies to create differentiation that fit their local market and their position in that market.
In the three examples above, we saw operators defending and regaining market leadership by increasing their investments in network performance.
Although network quality isn’t the only way to create differentiation and drive value for customers, it’s clear that it is a cornerstone of successful strategies and improved commercial KPIs. This has been historically true through the deployment of 4G and as our society and daily lives will depend even more on advanced digital services, we expect quality mobile connectivity to be of even greater importance in the 5G era.
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