Telecom News Bulletin

The current mobile industry business model can’t survive, writes consultancy PRTM in a fascinating new report on the state of the market released in the lead-up to the Mobile World Congress trade show, running from Feb. 15 to 18 in Barcelona.

PRTM says that the most successful carriers and the ones most likely to thrive in years to come are those that have continually revamped their operations to drive profitable growth, setting off a virtuous circle in which their profitability earns them support from shareholders to make acquisitions and expand overseas, thus further fueling growth. The top two examples of such success cited by the report are Spain’s Telefónica and Norway’s Telenor, both of which have expanded aggressively over the past five years in both developed and developing markets.

One of the main findings in PRTM’s analysis concerns the shifting global position of operators. Since 2003, the leader board of the world’s top carriers ranked by number of subscribers has changed dramatically. China Mobile and Vodafone still weigh in at No. 1 and 2, respectively, as their combined customer bases have surged by 580 million in the past six years. But right behind them now are Mexico’s América Móvil (with 178 million subscribers, up 334% since 2003) and Telefónica (with 154 million, up 397%), which were ranked 7th and 10th, respectively, in 2003. New entrants to the top 10 include Egyptian operator Orascom, whose 2005 purchase of Italy’s WIND launched it into the big leagues, and South Africa’s MTN. Falling from the top 10 were Japan’s NTT DoCoMo (which grew subscribers only 22% during the six years), Verizon Wireless, and Telecom Italia Mobile.

Though there’s much talk in the industry about concentration and consolidation among carriers, PRTM’s figures deliver one surprising finding: The growth of mobile communications around the world has actually spread the wealth, so to speak, among a broader group of operators. In 2003, the top 10 players accounted for more than two-thirds of the subscribers served by the 30 largest carriers in the world. By 2009, that percentage had fallen to 60%, and as a group the top 10 lagged the growth of the industry as a whole, while smaller players grew faster. The real stars of the top 10 were those, like Telenor, Telefónica, and América Móvil, whose growth handily exceed that of their peers and of the industry as a whole.

What’s the secret of their success? Constant reinvention and expansion in developing markets. In 2003, Telefónica was a relatively small player, with 31 million customers and $13.1 billion in revenues. By 2008, its revenues had hit $51.6 billion, thanks to acquisitions in places as diverse as Britain, the Czech Republic, and South America. At every step along the way, PRTM says, Telefónica has refined its business model to suit changing markets and customer behavior.

Still, enormous challenges lie ahead for all operators due to continued price pressure and the explosion of wireless data traffic. Ameet Shah, the lead author of the PRTM report, says:

We are about to make the shift to a world of mass market usage of the mobile Internet, ushering in the ‘mobile lifestyle.’ But this world is not tenable with the operating models and business paradigms of today. The race is on to reinvent the mobile operator so that it can serve the new world and the blueprint is coming into focus. The development of networks that can carry 10–100 times today’s volumes, without a significant increase in operating costs, will require major capital investment, driving massive consolidation that will leave only two or three networks per country.

Shah suggests a number of critical steps. First, he argues that owning and operating a wireless network infrastructure may no longer be necessary or advisable for carriers. Indeed, the cost of building next-generation networks is such that the current redundancy in many countries where often three or more carriers each operate separate facilities will likely give way to widespread network sharing. In some places, this will require regulatory changes. And it necessitates a huge mentality shift for carriers, which have traditionally framed their self-image as operators of networks, to become true service providers shorn of a physical infrastructure.

That leads to Shah’s second major point about carrier culture. He argues that many still behave like they did in the “land grab” era of the 1990s and early 2000s, when the industry was young and subscriber acquisition was the main game. Today, he says, the focus has to switch to customer retention and the best way to do that is to eliminate the hideous (and often alienating) complexity of pricing and service plans and to establish deeper, more loyal relationships with profitable customers.

In an earlier PRTM report, called “Closing the Wireless Generation Gap,” the consultancy offers additional perspective on the challenges ahead. Author Dan Hays proposes five strategic and tactical maneuvers that operators need to consider in order to get the most from their costly and disruptive upgrades to next-generation, or 4G, networks. Among the recommendations: aggressively redeploying older equipment to secondary markets to recapture the spectrum gobbled up by antiquated networks, and dramatically rethinking how services are packaged to drive adoption of new technologies at higher prices.

One way or another, PRTM concludes in its new report, operators are facing another of the periodic transitions that have marked their dynamic but rocky history over the past two decades. This time, the opportunity could be even more significant than the last great shift, when mobile phones graduated from being a business luxury in developed countries to a consumer necessity all over the world.

To the extent that wireless is becoming the sine qua non for connectivity of all types always on, real-time, ubiquitous, and location specific operators have the chance to take an enormous leap in size and importance…assuming, that is, that they can figure out a way to handle the crush of new data traffic while making money from it. PRTM figures that to be among the top 10 in 2014, an operator will need to have at least 300 million customers and annual revenues in excess of $50 billion. Looks like there’s a lot of growth still to come.

Via Business Week