For a moment, drinkers in the Rose & Crown’s beer garden became method-acting extras in a disaster movie as a chorus of smartphones screeched out the UK government’s emergency alert, a modern successor to the air raid sirens of the 1940s. Had the Russians fired an ICBM at London? Was a tsunami bearing down on the Thames barrier? Had the screaming mandrakes of Harry Potter infiltrated networks? Nope, this was merely Prime Minister Andy Burnham telling people not to have barbecues in case they start a forest fire.
This gross abuse of a system designed for genuine emergencies guarantees millions of phones will remain ignored in pockets or handbags next time. But it did emphasize their annoying ubiquity. Days later, Wetherspoons, a chain of low-cost pubs, tried to fight that by imposing a ban on playing videos or music without earphones. Calls will also have to be conducted the old-fashioned way, with handset clamped to head. The omnipresent low-cost pub has gone to war with the omnipresent low-cost device.
It’s thanks to those low costs that a gadget with more compute power than NASA’s 1969 moon-landing systems is today owned by everyone old enough to eat solids. But the average punter doesn’t sound very grateful. Despite their smartphone addiction, UK citizens moan about prices more than they do about the exorbitant and rising fees they are charged by water and electricity companies. A cornucopia of even lower-cost deals served up by piggybacking mobile virtual network operators (MVNOs) invites constant interest.
Falling average revenue per user (ARPU), a hallowed metric in telecom, has been the curse of the industry since 3G came along. In 2008, when that technology was the most advanced anyone could use, Vodafone made about £40 (US$54.40) in monthly average revenue per user (ARPU) from a UK postpaid customer. By the end of Vodafone’s most recent fiscal year (which finished in March), the same class of customer was generating less than £17 ($23.10).
Digi-style disruption
What looks like a race to the bottom, however, has in Europe produced some low-cost and high-quality winners on the network-operating side of the equation. The most notable include Iliad, a French company that went on the rampage in its domestic market years ago before using the purchase of network assets as a Trojan horse (see what we did there) for its later invasion of Italy. Less well known but no less recently successful is the publicly listed Digi Communications of Romania.
Share-price watchers would be hard pressed to find a better-performing European telco stock. Since the start of the year, Digi’s stock is up about 75%. Between March 2025 and now, it has gained more than 185%. In Romania, the operator now serves more than 8.4 million mobile subscribers (or what it calls “revenue-generating units” (RGUs)), up from fewer than 3.4 million seven years ago. More impressively, in Spain, now its second-biggest market, Digi has grown from about 1.6 million mobile customers to nearly 8 million over the same period.
It has done that by offering low-cost but consumer-friendly services while avoiding investment in newfangled network technologies, observes Tom Rebbeck, a partner with Analysys Mason, a consulting and market research company. Network ownership is not a prerequisite for Digi, which has approached each market differently. Its pragmatism contrasts with the more religious pursuit of specific technologies by the likes of Dish in the US (now defunct as a network operator) or Rakuten in Japan, neither of which impresses the analyst.
“They launched with very aggressive leading-edge technologies, and in both cases have not done very well or been very successful,” said Rebbeck at a press event organized by Community Fibre, a disruptive UK broadband operator, a few weeks ago. “Digi has stuck with typical vendors, typical solutions. They’re not trying to be super aggressive on new technologies.” Asked by an equity analyst about AI, Digi executives apparently said they would leave that to others and stick to what they know. Whatever the CEOs of incumbents believe, they rarely display such independence of thought.
There are some important caveats, however. Digi has grown partly through acquisition, as Rebbeck points out. It also slid to a net loss of €45.9 million ($53.5 million) for the recent first half, after reporting a €10.3 million ($12 million) profit the year before, despite growing its revenues by 11% year-over-year, to around €1.2 billion ($1.4 billion). Finance costs were blamed.
Even so, Digi’s performance dispels a few myths about the low-cost model, as far as Rebbeck is concerned. For one thing, the losses are relatively small and have come at a time of “heavy investment in expansion,” he said. Compare it with Japan’s Rakuten Mobile, which has just reported a second-quarter operating loss of $200 million, faces a huge bill for network rollout and has failed to sign up more than 10 million customers in a market of more than 230 million subscriptions.
More striking is the apparent view of some industry folk that low-cost deals are of interest only to a relatively small segment of the market. It is inconceivable that any publican would say only a few customers are interested in low-cost but tasty beer, and Rebbeck describes the equivalent argument in telecom as “bonkers.”
“Only a small part of the market wants to pay for a good service at a low price? That just doesn’t add up,” he said. “One of the big operators in Spain basically said they think the market for this is like 10%, 15%. I think if you look at Romania, it clearly isn’t 10%, 15%.” Digi’s acceleration in Spain would also suggest otherwise.
Vendors in a fix
So, should incumbents fear an approaching cyclone of low-cost, Digi-like deals that will overturn their business? Possibly, but not necessarily. Prices have already crashed in MVNO-rich markets like the UK, limiting the opportunity for any prospective new entrant like Digi. Barriers to entry as a network operator remain substantial. Companies need spectrum licenses and funds to invest in network deployment. On the broadband side, Community Fibre is being selective by focusing its rollout on specific parts of London.
Above all, perhaps, after years of building networks and upgrading them to the latest technologies, network operators have solved the capacity problem. Such, at least, is what Analysys Mason’s research appears to indicate. “At the peak time, what percentage of loading are we hitting from a fixed network or from a mobile network?” said Rebbeck. His data shows a downlink figure of just 12% for broadband networks based on GPON, an aging fiber standard, and even lower percentages for 5G.
This is not the sort of analysis that network equipment vendors like to hear. But if the opposite were true, telcos would not be guiding for lower capital intensity (spending as a percentage of sales). By the early 2030s, Analysys Mason expects this to fall from historical levels of 20% to “just over” 10% in high-income markets. The UK’s BT is a standout case of an operator forecasting a sharp fall in costs and bumper profits as it discards the mechanical diggers used to lay fiber. It is firmly on track to hit its target of passing 25 million homes by the end of this year. Headcount is already plummeting.
The real losers are likely to be Ericsson and Nokia, the European vendors of network equipment. Recent growth at Nokia has been fueled by data center companies buying optical and Ethernet products, rather than telcos. But they still account for only 9% of sales.
Ericsson’s mobile business is bigger and more profitable. Yet both Nordic vendors have slashed thousands of jobs in recent years to protect margins. In the market for radio access network products, which accounts for most of Ericsson’s revenues and about 37% of Nokia’s, global telco spending dropped from $45 billion in 2022 to $35 billion last year, according to Omdia, a Light Reading sister company. Dell’Oro, another analyst firm, expects cumulative radio access network (RAN) revenues to be 10% to 20% lower in 6G than they were in 5G for the first six years after launch.
Offered mere crumbs of business in China, Ericsson and Nokia have relied heavily on the more lucrative US for profits. Still generating postpaid monthly ARPU of around $50, that mobile market looks extraordinarily susceptible to a Digi-style challenge and has the likes of Elon Musk queuing up to disrupt. For parts of the industry, it is an emergency alert.
