A new study claims that the price of voice and SMS is of growing importance to more European mobile users, while advanced handsets and services are becoming less important to fewer mobile users than a year ago.

The study, from Forrester Research, said that the economic downturn would not affect the European mobile penetration at 84 percent. But service providers are feeling the effect of decreased usage and spending as European consumers review their regular expenditures.

"In the economic downturn, mobile ownership won't see a reduction, but usage and spending will shrink," said Forrester analyst Pete Nuthall in the report.

Mr. Nuthall and his colleagues Michelle de Lussanet, Paul Jackson and Laura Wiramihardja collaborated on the report titled, "The European Downturn Sets Back The European Mobile Consumer Market."

European mobile markets are mature and saturated, leading to intense competition and plentiful promotions. Not surprisingly, the average European mobile consumer is not only more cost-conscious but also shops around for good deals.

Data from Forrester's European Technographics Benchmark Survey for the second quarter show that one out of two European mobile consumers enjoy prefer the flexibility of prepay phones over tied-down 12-month contracts with automatic renewal.

"This not only means that they can switch providers at any time, but they also have the comfort of knowing that they only pay for the voice minutes they use," the report said.

For example, 87 percent of Italian mobile consumers use prepaid phones, compared with France's 29 percent at the other end.

Forrester data also showed that 33 percent of European mobile owners are satisfied that their mobile phone offered the best value for money they could find.

In European's most competitive market of Britain, 41 percent of mobile consumers thought they had the best deal, compared with 27 percent of their Dutch counterparts.

The market has also built up an expectation of free handsets.

European mobile service providers promote pitch themselves heavily with subscription offers that include free or highly discounted advanced mobile phones. They also tend to reward their loyal customers with free phone upgrades.

"What has that done to the market?" the report said. "It's built the expectation that a new handset is a consumer's right, rather than a privilege."

Indeed, 36 percent of the surveyed European mobile consumers told Forrester that a free or near-free handset was important when choosing their next mobile package.

Price is rite
Forrester is now seeing early changes in European mobile purchase patterns with the economic shift in the past year.

Comparing this past second quarter's data with the year-ago period, the market researcher noticed that European mobile consumers had become more price-sensitive.

This seems to be the case especially with voice and SMS text messaging. Fifty-five percent of mobile users this year said that the price per minute for a call was a key influence, up 2 percentage points from 2007.

Also, 53 percent of consumers this year considered free calling minutes when selecting their next mobile purchase, up 3 percentage points from the prior year.

Europeans mobile consumers are now less loyal to both handset makers and carriers, Forrester noted.
Only 17 percent of European mobile consumers saw the handset brand as an important factor in their purchase, down 2 percentage points from last year.

Equally worrisome, only 23 percent saw the carrier brand as important, down 1 percentage point from 2007.

Finally, Forrester found out that handset capabilities and data usage have become less important.

An estimated 20 percent of mobile consumers listed handset features such as a camera and MP3 player as crucial, a drop of 3 percentage points from last year.

Also, 7 percent saw mobile Internet services as key, a 2 percentage-point fall, and a mere 5 percent considered games, television and music essential, accounting for a year-over-year drop of 3 percentage points.

"The rapid economic decline of the past weeks will intensify these effects even further: Mass-market mobile users will reprioritize their needs, with significant consequences for the mobile market," Mr. Nuthall said in his report.

"And in line with economists' views, Forrester does not expect this trend to end during the next year," he said.

SIM pickings
As a result of these market pressures, European carriers are responding with cheap and simple prepaid SIM-only deals.

Five years ago, SIM-only offers were the province of low-end mobile virtual network operators such as Telmore, mostly to induce late adopters to buy mobile phones.

A slowing economy has forced a revival of prepaid SIM-only deals.

With such offerings, European consumers get more minutes and text messages for the same price, the report said. They also get the same number of minutes and text messages for lower prices, in addition to greater flexibility with shorter lock-in periods.

While this is a setback to their mobile data goals, carriers can at least rely on the profitability of prepaid SIM-only deals until the European economy recovers.

However, Forrester expects that the mobile customer base in Europe will become increasingly polarized.

"Voice and SMS-only users will grow in number â?¦ at the expense of those with a mild interest in advanced services," the report said. "The proportion of current data users will remain stable."