Telecom operators faced with the temptation to increase their prices to counter inflation

Telecom operators faced with the temptation to increase their prices to counter inflation

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After having made heavy investments as part of the implementation of 5G, operators are facing a difficult context with galloping inflation. But increasing the price of packages can quickly turn into a headache.

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Times are tough for operators. They had to make heavy investments to deploy 5G infrastructure and acquire frequencies, but in addition, the inflation that weighs on consumers’ purchasing power places them in front of a difficult equation to solve. How can they make their investments profitable and maintain their margins without scaring away subscribers?

In 2021, the amount of investments by French operators, excluding frequency purchases, reached 14.9 billion euros, an increase of 10.9% (1.5 billion euros) in the space of a year. This figure climbs to 15.5 billion by integrating 664 million to buy frequencies in the 900 MHz, 1800 MHz and 2.1 GHz bands reallocated last year, according to theObservatory of electronic communications markets in France, an annual report produced by the Regulatory Authority for Electronic Communications, Posts and Press Distribution (Arcep). In 2020, operators had mobilized 2.8 billion euros as part of the auction process for the allocation of frequencies launched by the State. On arrival, the addition is therefore quite salty.

A difficult context

To these expenses are added other essentials for the activity, such as energy, the costs of which continue to soar with the war in Ukraine. Saving money in this register promises to be more than tricky since there are more and more networks deployed.

Disconnecting the most energy-intensive and obsolete networks, such as ADSL, 2G and 3G, could be a solution, but a time-consuming one. Thus, Orange will cease its investments in its aging network of copper telephone lines, on which are based the xDSL technologies still used by a majority of French people. That said, the dismantling of the historic network will not be completed before 2030. Moreover, the shutdown of many reactors in the French nuclear fleet only worsens an already very difficult context.

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It is not on the side of electronic components, the shortage of which greatly complicates the production of smartphones and internet boxes, that savings should be sought. A return to normal is not expected before 2024 and the soaring cost of certain materials, such as plastic, does not make things any easier. For now, the two leading European equipment manufacturers, Ericsson and Nokia, do not weigh this price increase on operators.

Operators facing highly volatile subscribers

In this delicate context, increasing the price of subscriptions is obviously very tempting, but this exercise is akin to a balancing act. And for good reason, the operators’ customers have never been so volatile and do not hesitate to change their package like their shirt. French market prices are among the lowest in the world and the French have understood this.

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Therefore, they do not hesitate to play the competition. While Arcep recently observed an increase in the average price of telephone plans, Free took its rivals on the wrong foot by committing not to increase its mobile rates for at least five years. As a reminder, the operator founded by Xavier Niel has never suffered a price increase since its arrival on the market for mobile offers 10 years ago. A feat in the very competitive world of telecoms.

5G, a lever to raise prices

One of the keys for operators is therefore to bet on 5G in order to bring added value to packages and thus increase their price. Thanks to this approach, operators have seen their revenues increase by 2.5% over one year, to 36.1 billion euros in 2021. But the margin for progress is significant insofar as 5G is still very much in the minority, with just over three million users in France, or 4% of active SIM cards.

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The phenomenon is also observed on a global scale, particularly in Asia and North America, which were the first regions to benefit from 5G offers. In these areas, one in two operators now offers 5G to its customers, and one in three applies a higher price, according to a study by Ericsson. Unsurprisingly, 5G plans are on average 11% more expensive than 4G plans.

According to CCS Insight, the next generation of mobile network should have 1.2 billion users worldwide by the end of 2022, almost double compared to 2021. But it is really on the horizon 2026 , where 5G is expected to reach four billion people on the planet, that operators in Western Europe should really be able to rely on it to boost their revenues.

Until then, they should expand their offers with packages including options, such as cloud gaming or streaming, to convince their subscribers to shell out a little more money. So many possibilities that should allow operators to overcome these complicated times, while waiting for the democratization of 5G to accelerate. We should also see them press for the Gafam to participate in the financing of the networks, thus raising a few hundred million additional euros.

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