Yoigo Piles On The Pressure With Price Cuts


Yoigo , the smallest mobile network operator in Spain, is introducing new low-priced tariffs which will intensify competition between operators. The move comes as operators in Spain are struggling with subscriber losses and declining revenues in a saturated mobile market and hostile operating environment. BMI believe s the cuts to tariffs reinforce Yoigo's position at the low end of the market, while heaping pressure on its larger rivals.

Yoigo Cuts To Maintain Low-Cost Credentials
Yoigo ARPUs And Market Share In Context

Yoigo announced cuts to tariffs of over 20% , including the launch of a new tariff that cuts the price of voice calls to EUc1 per minute in December 2012 . The cuts will also be applied to existing clients, with a subscription of EUR39 a month potentially reduced to EUR30 per month. The cut to tariffs follows the recent reintroduction of smartphone subsidies, which had been removed to cut down costs. Yoigo CEO , Eduardo Taulet , said 70% of new customers have been choosing tariffs including handset subsidies since reintroduction .

BMI believes cutting prices and reintroducing smartphone subsidies strengthen Yoigo's position in the value segment of the market, and will further increase its market share by attracting subscriptions away from its larger rivals such as Telefónica , Vodafone and Orange . Yoigo has made significant inroads in recent years, and outperformed during the recession, as its market share increased from 2.8% at the end of 2009 to 6.7% in Q312. We believe the cuts to tariffs reinforce Yoigo's brand identity as the low - cost operator in Spain, which has served it well as consumer incomes have been squeezed , heightening price sensitivity .

We believe it important that Yoigo diffe rentiate itself from its rivals after the gap between the market average ARPU and Yoigo's monthly blended ARPU narrowed in 2011. In Q4 09 Yoigo undercut the market average ARPU by EUR5.2, but by Q411 this figure had narrowed to EUR2.8. In 2012 Yoigo's pricing strategy saw this gap widen again slightly to EUR3.7 in Q312 , but the cuts in December 2012 will go further to clearly differentiate it from its rivals . BMI believes this will see Yoigo's market share expand as consumers continue to look for low-price deals as they struggle with squeezed incomes and unemployment or underemployment .

The strategy is in stark contrast to Vodafone, Telefónica and Orange, all of which have been looking for means of stabilising prices in a challenging operating environment that has resulted in steep declines in revenue and substantial subscriber losses . In March and April 2012 Telefónica and Vodafone respectively stopped smartphone subsidies in response . H owever , like Yoigo, Vodafone reintroduced subsidies to stem subscription losses. Meanwhile Telefónica has maintained the policy of withdrawing smartphone subsidies. Yoigo's strategy will put further pressure on its rivals to either lower prices or face further declines in market share.

An interesting angle arises from reports that Orange and Vodafone are among the bidders for Yoigo, which has been made available for purchase by Swedish operator TeliaSonera . Investors are likely to value an operator which is experiencing strong growth and increasing market share, as is the case. However, with outside investors likely to be hesitant to take on Spanish exposure, even though Yoigo is performing well the interest of Orange and Vodafone could be important - and they may consider the asset to be of greater value the more disruptive it is to their existing operations through TeliaSonera's intensification of price competition .

This article is tagged to:
Sector: Telecommunications
Geography: Spain, Spain, Spain, Spain