Economist: Mobile Operators Feel the Pinch of Market, Tech, and Regulatory Changes

By January 11, 2018 Uncategorised No Comments

As of June 2017, there were 7 billion mobile subscribers, representing two-thirds of the world’s population, Economist said in the Telecoms section of its Industries in 2018 report, citing GSMA data.

Let that sink in for a minute. 7 billion. And that’s just people. Let alone Internet of Things (IoT) devices.

You know what comes next… this is both an opportunity and challenge for telecom operators and service providers.

“Resulting financial strains … may prompt a rethink of strategy and investment priorities,” Economist said in its report.

Half Full or Half Empty?
In response to subscriber and data usage growth, Economist expects that during 2018 operators will focus on expanding their 4G coverage in developing markets (like India and Sub-Saharan Africa), and improving reliability in more developed regions.

Overall, telecom will continue to be a buyer’s market, with consumers generally enjoying “a range of cheap data-rich packages.” Operators, however, are feeling the pinch of tight margins, as the “insatiable appetite for mobile connectivity” forces them to make large capital expenditures even as competition forces prices down, resulting in lower average revenue per user (ARPU). Economist predicts that over the next year mobile operator ARPU will fall by 2.3%.

It doesn’t help that the boundary between telecom and IT is blurring, and telecoms are “vulnerable to takeovers from internet players such as Facebook and Google.” Market competition forces really are different now, and will continue to change.

“The days when operators could rely on revenue from a reliable voice and SMS service are long gone,” Economist said in its report. “Competition from over-the-top (OTT) providers such as WhatsApp, Skype and Netflix has backed the telecoms sector into a corner. Now it faces a new challenge from app developers, whose business interests are expanding rapidly.”

Overall, Economist said market pressures mean telecom companies will struggle with revenue challenges, even as subscriber numbers continue to grow.

During 2018, Economist expects “total telecoms revenue in the 60 biggest markets to fall by 2% … This will largely reflect a 3% rise in telecoms investment as operators spend money on connectivity, which they hope will pay off in the longer term.”

Adapting to Change
How can and should telecom operators adapt? Economist suggests three strategies:

  1. Offer new, differentiated OTT services
  2. Enable a wider range of mobile applications
  3. Build greater flexibility into backhaul infrastructure using software-defined networking (SDN) and network functions virtualization (NFV)

On the bright side, continued IoT growth will create new revenue streams for some telecom companies.

Regulating Change
When Economist’s report went to press, the U.S. Federal Communications Commission hadn’t yet repealed Net Neutrality, but topic did get a mention.

“Were net neutrality to be overturned, it could allow companies such as Verizon and AT&T to reassert their dominance in a market that is already narrowing,” Economist noted.

Meanwhile in Europe, “the elimination of EU roaming charges will bite further into the margins of telecoms companies in 2018.” And, contrasting strongly with the U.S., it looks unlikely that the EU’s competition commissioner, Margrethe Vestager, will ease up on merger and acquisition scrutiny, nor will the European Parliament pursue deregulation, anytime soon, Economist said.

In October, the parliament acknowledged that operators need encouragement to invest in 5G, but “limited the regulatory benefits enjoyed by operators that team up to deliver next-generation connectivity,” and voted that regulators should be “given greater powers to tackle ‘joint dominance’ and oligopolistic behaviour.”

Developing markets are yet another landscape for regulatory forces. Rapid market growth creates intense competition, and sometimes that forces regulators to intervene, Economist noted.

Two examples cited in the report:

  • In Mexico, America Movil’s takeover of Telmex won it two-thirds of the mobile market
  • In India, Reliance Jio has forced competitor’s hands with free and low-cost packages

Other forces at work affecting the telecom market, mentioned in the Economist report, include continuing development of artificial intelligence (AI) technology, struggles around cyber-security, and the availability (or lack thereof) of investment capital for new and upgraded telecom networks.

In her role as Senior Marketing Writer at Accedian, Mae blogs, manages social media strategy, and produces a variety of collateral focused on thought leadership around telecom industry news and trends. She has more than 15 years of journalism and marketing experience, covering business-to-business technology, including telecom, for a variety of organizations including TMCnet.com and Ziff Davis. Mae holds a B.A. in communications from Thomas Edison State College.

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  • Acronym Guide

    327 Terms, Page 1 of 82

    2G

    Second Generation
    A cellular telecom network that uses second-generation wireless technology. Such networks digitally encrypt phone conversations, and allow data services including SMS text messages.

    3G

    Third Generation
    A cellular network that uses third-generation wireless technology based on standards that support wireless voice telephony, mobile and fixed internet access, video calls, and mobile TV. Such networks are capable of data transfer rates of at least 200 Kbps and as fast as 21 Mbps.

    3GPP

    Third Generation Partnership Project
    International collaboration among telecommunications associations, with the purpose of developing and maintaining the Global System for Mobile Communications (GSM) specification for 3G mobile networks.

    4G

    Fourth Generation
    A cellular network that uses fourth generation wireless technology to deliver mobile broadband internet access in addition to voice and text messaging. Two synonymous 4G systems are commercially deployed: Mobile WiMAX an Long Term Evolution (LTE). LTE is the predominant system in the U.S.

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