Global Trends for Mobile Operators show Stagnant Revenues and Declining Margins

Network Providers cannot Invest their way to Profitability

In a stunning new overview of recent trends for Mobile Operator ARPU, Revenues and EBITDA, Strategy Analytics compares facts with survey responses from Operators in North America and Europe.

While network operators around the world have spent over $700 Billion in infrastructure investment over the past ten years, revenue growth has been almost flat since 2007. Operators appear to be in denial that the business model has changed and unwilling to recognize that investment alone does not lead to increased profitability.

In a new report from Strategy Analytics Wireless Network Service (WNS) ‘Are Telecommunications Operators in Denial?’ estimates that as regulators encouraged a large number of undifferentiated mobile competitors, consumers were able to capture a disproportionate share of the savings from massive new technology investments i.e. a large ‘consumer surplus’. As network operators have added more and more broadband capacity there has been a ‘race to the bottom’ to capture market share at ever lower prices – especially in countries where there are more than 3 strong competitors.

Phil Kendall, Executive Director Wireless Network Services, notes,

“Our ‘Wireless Operator Performance Benchmarking’ Report indicates that with new capacity and increased competition ARPU has been steadily declining in every region of the world. Lower ARPU and the slow revenue growth that we forecast in our earlier ‘Global Mobile Service Revenue to Stagnate at $1 Trillion Mark’ are leading to a steady erosion of margins since 2010 in most regions.”

Sue Rudd, Director Service Provider Analysis for the Wireless Networks and Platforms service points out that,

“Despite massive cost savings per Gigabyte (GB) from new investment in LTE, the Total Cost of Operations (TCO) for Mobile Broadband Networking is projected to fall by only a factor of 3, while selling prices per GB are projected to fall by a factor of 10 over a period through 2018,”

“As we noted in our Report ‘Software Defined Networking (SDN) Moving Faster than Hype – Shifting Cost Curve and Demanding New Processes at AT&T, Deutsche Telekom, Telefonica….’meven though Network Functions Virtualization (NFV) and Software Defined Networking (SDN) may reduce costs by an even greater factor of 4 to 5 times – i.e. by a further 33% to 67% from today’s projected rate, costs will still be declining half as fast as prices.’.

Harvey Cohen, President of Strategy Analytics noted that,

“until network operators develop consumer-centric businesses driven by differentiated marketing strategies their financial performance is likely to continue to decline. Specifically Network Operators must rethink their fundamental business models, focus on actionable market segmentation, adopt differentiated competitive strategies, and dramatically enhance their marketing communications.”

He added,

“The industry is at a turning point where it is unlikely that technology improvements and operational excellence alone will halt the downward trend in profitability or improve revenue growth.”

If you are interested in reading the full report, it is available here.
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