Monday, June 30, 2014

The miserable circle of bad service: Telefonica edition

One of the puzzles of this world is why European phone revenues per customer are so low - and sustainably so. If there were any sign that these would rise then European telecom stocks would be a steal... but alas no sign...

Part of it is clearly usage. If you are French there is just a much narrower range of services on your phone for you to use. The average Frenchman with a smart phone uses less than a fifth the data of an American - and at least part of the reason has to be that there is less content in French.

Sitting in a cafe in Paris (even possibly a Starbucks) and seeing the usage you think that will change. The young speak English or at least use the net like Americans.

Data usage can't be all of it. Data speeds in most of Europe suck compared to the US or Telstra in Australia - and you will use the phone more if it delivers you information faster and more reliably. Better service costs more to provide - but average revenue per user is so much higher in America it more than pays for that.

But some of it has to be the special incompetence of European phone companies. They make Comcast look like customer friendly people. Truly.

I have an O2 [ie Telefonica] sim-card I use in Europe and with an Australian credit card it is simply impossible to top up. Telefonica are so obsessed with credit-card fraud risk (simply controllable by using PayPal for instance) that they refuse revenue opportunities. Fat ones from people who are price insensitive and need data everywhere.

There is a special place in hell for management of European phone companies - the people that will ensure that Europe disconnects itself from the new world. If you need a reason why Europe will lose in any new economy look no further.

Having spent thirty minutes unsuccessfully trying to top-up I am wishing for a new Spanish inquisition. Actually I am expecting one [if only so I can link the Monty Python sketch...]



Anonymous said...

Hey John,

For future, you may want to look at Vodaphone Australia's roaming plan where they charge you $5/day to include foreign countries in your Australian cap plan.


Anonymous said...

Thank you for wasting my time with this worthless post where you talk a lot of nonsense. (I am not European)

Anonymous said...

There's a reason they're terrified of credit card fraud. It's because they have no way of proving that a transaction is or isn't fraudulent. They therefore have to have a blanket 'no we won't cooperate and refund to banks' when banks inevitably come calling with fraud cases, or they have to refund them all, no questions asked.

It's not hard to figure out if a company has a wholesale refund process. Not hard and easy to abuse.

I know that doesn't make you feel any better though.

Anonymous said...

John, the real reason why ARPU is much lower in Europe is not low usage nor high incompetence. It is that we have healthy competition (within each country), relatively well-designed by regulators, with MVNOs and termination fees that get lowered regularly. We europeans are happy about that. Looking at the US, I can just shake my heads at the outragous prices the Verizons can get away with there.

You might have guessed it: I dont expect EU ARPU to rise much, but i expect US ARPU to fall.

Anonymous said...

BTW, in all european countries I know, you can easily top up any prepaid card at most/ any supermarket cashier, newspaper/ tobacco kiosk, post office etc.

Anonymous said...

Vodafone's $5 roaming is good on balance, but a word of warning...

You will have to setup your phone to roam data for it to work, and in doing this you expose yourself to your phone roaming data at all times, *including when you're in countries that Vodafone's special deal does not cover*.

We recently tried "Red Roaming" on a recent trip to Europe and it worked very well. However, during an overnight stopover in KUL on the way home - Malaysia is not on the list of Red Roaming countries - I forgot to disable data roaming on my phone and managed to rack up a $1500 in data charges in the space of 8 or so hours (presumably one of our tethered devices decided to download some updates).

CrocodileChuck said...

"Data speeds in most of Europe suck compared to the US or Telstra in Australia" (snip)

The blew all their money on 3G licences about ten years back. That's why FR & GER can't have nice things.

Anonymous said...

Rest assured that the customer service on the land-line side is just as miserable.

Oh, the stories I could tell about Deutsche Telekom...

Anonymous said...

you just need to get a voucher from a convenience store rather than trying to do it over the phone

Sandymount said...


I live in Ireland and holiday in Europe frequently.

Surely there is some truth to your points but I think you overlook cultural differences. Sitting in beautiful old squares in Monptelier watching young people smoking more than we do, drinking but far less than we do, chatting for hours (to real people not online) and not looking once at a phone is something I would never see in Dublin or London.

I doubt that is because telecom providers havent got up to speed yet.


Anonymous said...

Yeah, funny how you talk about Europ, as if al this is true for all european countries. I live in Sweden, and none of this is true!

Thomas said...

(1) Prices are low because regulators require so. That won't change (talking about France, It's getting cheaper year after year).

(2) I know you enjoy the network saturation/pricing power theme. You should have a look at Liberty Global: looks like Malone has a plan.

Anonymous said...

You may also want to look at some of the differences between US GAAP and IFRS on this. AIUI under US GAAP the US telcos are all including handset sales in the ARPU. Some IFRS reporters do as well (but not all) and if the handset is provided by a third party not included at all.

Anonymous said...

ARPU lower because of greater completion. Secondly it is quite easy to top up phones on pre pay accounts. So kind of wierd this post.

Unknown said...

I saw a very long post on Australian Business traveller re trying to buy a pre paid SIM in France that basically boiled down to "don't even bother trying".

That said, I found the following helpful when travelling in Europe:

Both took Australian cards. When using the local SIM, forward your aussie number to the local SIM via skype.

Or you could look into some local Aussie tech working on simplifying the roaming experience:

They won two of the local IT association awards recently.

(disclosure: I consult to them)

obelix said...

"I have an O2 [ie Telefonica] sim-card I use in Europe and with an Australian credit card it is simply impossible to top up. Telefonica are so obsessed with credit-card fraud risk (simply controllable by using PayPal for instance) that they refuse revenue opportunities."

Verizon in the US is the same. They require deposits and minimum customer tenure before they let the customer dial _abroad_ (gasp)! At least they did the last time I asked, which was some years ago.

Phaedrus said...

"....people who are price insensitive and need data everywhere"

You're a hedge fund manager. I don't think the world will end if you're out of contact for a few days.

Anonymous said...


Have a look for the trend on prepay vs contract. Last time I looked Europe was still nearly 60% prepay with prepay ARPU 25% of contract ARPU. It then becomes fairly hard to give latest IPhones to 60% of your customers every 1-2 years to drive data usage. By contrast Verizon has <10% prepay and US as a whole is c25% prepay with prepay ARPU 50% of contract. I.e. Perhaps (one of) Europe's problems is a legacy prepay structure that it needs to solve before it can start emulating the US.

Cheers, Rod

Richard said...

Hola John,
You might be hasty judging European telephone companies by Australian standards.
I live in Mallorca and use Movistar. My fiberoptic cable internet gives me speeds better than I had when I was living Melbourne. And I pay less than I did in Australia, but much more than most locals can afford.
The locals I talk to who have weak internet performance usually don't have enough money to pay for a decent plan, so the services the telephone companies provide, may have more to do with the macro environment than their capability.
(We chose Movistar because we liked the jersey of the professional cycling team they sponsor, and lucked out with a great service.)
I am surprised that you are having trouble with credit card payments. We use them for all our services.

Kikes said...

I live in Portugal which has a very interesting telecom market atm. Service is not that bad, and there has been a race to the bottom in terms of prices as the largest telecom by far (PT) merged with the a brazilian carrier, the cable provider Zon(spinoff from pt, now a competitor with PT's MEO) merged with third telecom provider Optimus and Vodafone was left hanging without cable offers, so they just partnered up with third cable provider.

Don't think that earnings for data are so low because of cultural differences but rather bcs they were brought up so low that people(specially young people in a country with very high young unemployment) don't want to pay much more, so they are now turning more into the bundles, which although they have higher prices, they're still low by american standards.

GC said...

Most of us in Europe top up with our ATM card. Every ATM, of which you can find a hundred in a 1 km radius) allows for topping up any of the 5 major providers (the others just have to get an agreement to the Banks' association).

Plus, yeah, as someone said already, we do not spend so much time bent over our smartphones, especially at pubs, bars or restaurants... we still kinda prefer talking.

Anonymous said...

As an Australian who has been living in living in London for a number of years, I beg to differ.

I get 500 GB of data and more calls/texts than I could ever use for just £9 per month, using an out of contract smart phone. I can use my plan around Europe for £2 per day.

20 mb home broadband with unlimited data in a semi-rural area for £20 per month, plus £5 for lovefilm/Netflix and all of the free satellite TV services. No need for cable, unless you must have sport.

While customer service leaves much to be desired, my overall telecoms costs are a fraction of what I used to spend in Australia. I'd guess the same services would cost perhaps 4x as much in Australia, maybe more?

As one of the other posts said, the benefit of competition for consumers (compared to the US or Aus oligopolies). Outcomes for shareholders are perhaps another issue entirely.

But I can imagine Australian business travellers are a customer segment that fails to get much attention from the European carriers.

Anonymous said...

A cursory glance at the top search results for ad hoc data charges says Verizon is around $40 / Gb and Telefonica around $15. That doesn't really help the lower-ARPU-due-to-incompetence argument.

Anonymous said...

Oh the years Vodafone has shaved off my life...severely ineffective business model - never thought I'd be longing for the days of chasing Verizon back in the States.

Anonymous said...

Pretty easy to get loads of revenue per person when there is no competition:

"Americans pay so much because they don't have a choice," says Susan Crawford, a former special assistant to President Barack Obama on science, technology and innovation policy.

Although there are several national companies, local markets tend to be dominated by just one or two main providers.

"We deregulated high-speed internet access 10 years ago and since then we've seen enormous consolidation and monopolies, so left to their own devices, companies that supply internet access will charge high prices, because they face neither competition nor oversight."

Why is broadband more expensive in the US?
By Tom Geoghegan BBC News, Washington


Buffett is smart and wants investments with "wide moats" i.e. no actual free market

Anonymous said...

This is a strange post with a lot of odd statements. Where to even start?

"Better service costs more to provide - but average revenue per user is so much higher in America it more than pays for that."

Well, yes, because US mobile plans are ridiculously overpriced. Not a lot of competition apparently. I live in NYC, and would love to get the deals my family in Europe is getting on their cell service

"Sitting in a cafe in Paris (even possibly a Starbucks) and seeing the usage you think that will change. The young speak English or at least use the net like Americans."

Ouch. Only a Anglophone person could ever write such a sentence. The idea that once they learn English, everything will change and things will become like in America. There is plenty of content available in all the major languages. Most people mainly use a few services, and those tend to be available in 50+ languages. And even if people know English, that does not mean they would choose to read content in English.

Now, there are differences in the way people use their phones in the various European countries, and people are probably more price sensitive overall. So, it's complicated.

But I think internationally the US market is much more the exception than the rule. I cannot understand how cell phone companies here have managed to con people into $100+/month all-you-can-eat contracts. And for home internet, cheapest here in Brooklyn is now $60 per month for lowest speed (except for initial one-year discounts), while my family in Europe gets good speed for about $20 per month. Something is going very very wrong in the communications market in the US, and I don't think it helps the economy if a small number of companies manage to suck a significant chunk of purchasing power out of people's pockets to make huge profits.

Anonymous said...


I live in Japan where we have three major carriers: SoftBank, docomo and AU. From anecdotal evidence I gather people pay around 6,000 to 15,000 JPY per month for data services and everything.

Conversely, I paid around £5 a month for all the services I needed when I used to live in the UK.

I believe it's the healthy competition in Europe that keeps prices down for consumers.

Anonymous said...

Almost all telcos block internationally issued cards partially or completely for prepaid topup due to fraud risk, this includes Telstra and all other Australian telcos'.

None of them figure the increased ARPU of visitors like you is worth making the exception, try going to Japan or Korea and see if you can even get a local SIM and you'll see that Europe aint that bad, just buy a topup in a convenience store as described.

Anonymous said...

Jon, you back from your trip?
Looking forward to more VRX posts!

Anonymous said...

And a quick search turns up this, which doesn't seem so bad, at thirty nine pounds for a gigabyte of roaming data:

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