As their markets become saturated and as lower-margin data overtakes voice as the primary traffic on their networks, mobile operators are going to have to change dramatically, altering their operating models, cutting costs and completely reshaping their cultures, if they’re to survive, let alone thrive.
That’s the view of Pierre-Azain Sur, global communication industry leader at PwC, who says the industry’s model of high growth through the expansion of market share is over.
“It’s now less about the acquisition of subscribers and more about the preservation of the subscriber base,” Sur says. “It’s about how to deliver service more effectively and efficiently at a lower cost.”
As demand for data continues to grow, voice is becoming less important in the revenue mix. “Data on mobile networks in developed countries is relatively cheap compared to what voice was when it was at the same stage in the lifecycle,” he says. “There is compression on the top line just because there’s not as much price elasticity on data as there was in voice at the same point in the lifecycle.”
Operators around the world are trying to figure out how to make money from offering social media services, entertainment and financial transactions. But few have figured it out. “They really have to think about strategic alliances, opening up their platforms to content developers, creating ecosystems that they will then be able to generate revenue from. It’s easier said than done and no one has cracked the code yet.”
But they have a big factor counting in their favour, says Sur. Even though they are “challenged on the economics and profitability of their core business”, they still generate “very hefty profit margins and free cash flow” and so have a “lot of firepower to be able to acquire assets that will be accretive to their businesses”.
However, a significant cultural shift will be needed. In the voice world, they were in control of the throughput on their networks, he says. “They literally owned the content.”
In the data and services world, they are no longer in control. “To capture some of that value, they have to open themselves to other players in the ecosystem. And that’s literally a 180-degree cultural change for them. Big ships don’t turn quickly, but the ones that turn the quickest will have the maximum chance of success.”
Many have set up innovation incubators to try to come up with future revenue-generating ideas. They’re also entering joint ventures. Weve in the UK is a good example, Sur says. It’s a collaboration between mobile providers EE, O2 and Vodafone around m-commerce. “Rather than going their separate ways and trying to create separate ecosystems, they collaborated to create a common platform. It was launched earlier this year and early signs are it’s going to be very successful.”
Sur believes there will be much trial and error by operators and what the ecosystem will ultimately look like is “anyone’s guess”.
“The difficulty for CEOs of telecoms operators across the globe is they are at the head of very big organisations that have to move very nimbly.”
Some pundits have argued that mobile operators should forget about trying to compete beyond their traditional core business of providing connectivity — that they should focus on being excellent “dumb pipes” and leave everything else to so-called “over-the-top” service providers like Google.
“It’s one theory. I personally do not share it,” says Sur. “If that’s the strategy I’m following, I have to be the most cost-efficient dumb pipe in the world and I have to own a lot of it globally. That’s not the way most operators are trying to go, but, who knows, it may very well be where it’s all going to end up.”
However, Sur thinks mobile operators can build businesses in new areas, even it means not competing directly with over-the-top players. How they extract and monetise data they have on their users will be key to their success, he says.
“There’s a higher level of trust, generally speaking, by the subscriber towards their telco than they have with Facebook or Google. Is there a way you can strike a balance and keep privileged relationship with your subscriber base while monetising that data. I believe there is.
“I’d be willing to engage with my telecoms provider on letting them use some of my data for things like targeted advertising, tailored to what I need and what I consume, provided I know they maintain privacy outside of the consent I’ve given them. I think there is a field to occupy there, and the telcos have a prime opportunity to do so.” — (c) 2013 NewsCentral Media
