Smartphones to run operators into the red in 3 years ???

[dra123456]

Saw this news on CNA's website. I'm curious how this affects our local Telcos like Singtel, Starhub and M1.
===================================================================================

Smartphones to run operators into the red in 3 years
Posted: 03 February 2011 1910 hrs

PARIS: Rocketing smartphone use could drive mobile operators into losses in three years unless they rapidly adopt technology to capture more revenue from data services, according to a US network company.

Rising investment costs to handle exploding data traffic combined with lower revenue per unit of data could begin to drive some operators into the red in as soon as two years, Tellabs said it calculated based on independent analyst data.

"Carriers can spend themselves bankrupt well before users run out of hunger for capacity," said Tellabs chief executive Rob Pullen.

"Our study shows that simply adding dumb capacity is unsustainable. To avoid the 'end of profit', carriers must bring intelligence to their networks -- it is critical to carrier survival," he was quoted as saying in a statement.

A number of industry players expect mobile data traffic, driven mostly by smartphones, to nearly double each year for the next several years.

While operators are investing heavily to add capacity and roll out fourth-generation networks, they are having difficulty earning money from data transfer and forecasts see falling revenue per unit of data transferred if current trends continue.

Dozens of companies such as Tellabs are offering mobile operators solutions to manage network traffic, reducing needed investments and opening possibilities to capture more revenue through priority services.

"Mobile carriers face a stark choice about their business models: it's either the smart mobile Internet or an unsustainable dumb-pipe business," said Vikram Saksena, Tellabs' chief technology officer.

Tellabs' findings come days before the mobile industry holds its annual gathering in Barcelona, where a smartphone-driven boom in data traffic overwhelming networks and capturing revenue from data are set to be at the top of the agenda.

Tellabs did not analyse specific mobile operators, but used a model that generalised costs and revenue structures in three major regional markets.

It found that operators in North America were most vulnerable to changes wrought by mobile Internet and that some could plunge into unprofitability as soon as the beginning of 2013, others at the end of that year based on median cost and revenue assumptions.

For developed Asia-Pacific markets, operators would enter the red from the third quarter of 2013 to the third quarter of 2014.

Western European operators are forecast to enter unprofitability from the beginning of 2014 or 2015.

[d.o.g.]

While operators are investing heavily to add capacity and roll out fourth-generation networks, they are having difficulty earning money from data transfer and forecasts see falling revenue per unit of data transferred if current trends continue.

Dozens of companies such as Tellabs are offering mobile operators solutions to manage network traffic, reducing needed investments and opening possibilities to capture more revenue through priority services.

Errr.... if the telcos are too dumb to raise prices then they deserve to lose money. This might actually be an investment opportunity if the telcos start losing money and their shares prices decline. Eventually they'll raise prices and profits will come back. Smartphone users will get used to paying more for data. They have no choice. There are only that many carriers, and all the carriers face the same costs.

All it takes is for the CEO at one carrier to actually be rational and raise data prices. This will drive away smartphone users, which will cut bandwidth demand. Those who remain will pay more, so the data network can break even or at least lose less. Because usage is lower the carrier can also offer faster speeds i.e. more fees for more speed. Competitors who welcome the migrating users will face a spike in demand, forcing increased network buildout. But since per-user fees are too low to cover costs they will face increased losses. Eventually they will also raise prices, forcing the smartphone users to migrate to another carrier, who will bleed even more.

Finally the last carrier will give up and raise prices too. Then the smartphone users are stuck because there is no cheap carrier left. They have to pay up. Revenues rise across the board, and the carriers make money. Problem solved. But as to WHEN the first CEO is going to take that step and drive away his unprofitable customers, that is another question altogether. Hopefully it occurs soon. The sooner fees rise, the better for the telcos. In the meantime smartphone users are having a great ride at the telcos' expense.

[bb88]

While operators are investing heavily to add capacity and roll out fourth-generation networks, they are having difficulty earning money from data transfer and forecasts see falling revenue per unit of data transferred if current trends continue.

Dozens of companies such as Tellabs are offering mobile operators solutions to manage network traffic, reducing needed investments and opening possibilities to capture more revenue through priority services.

Errr.... if the telcos are too dumb to raise prices then they deserve to lose money. This might actually be an investment opportunity if the telcos start losing money and their shares prices decline. Eventually they'll raise prices and profits will come back. Smartphone users will get used to paying more for data. They have no choice. There are only that many carriers, and all the carriers face the same costs.

All it takes is for the CEO at one carrier to actually be rational and raise data prices. This will drive away smartphone users, which will cut bandwidth demand. Those who remain will pay more, so the data network can break even or at least lose less. Because usage is lower the carrier can also offer faster speeds i.e. more fees for more speed. Competitors who welcome the migrating users will face a spike in demand, forcing increased network buildout. But since per-user fees are too low to cover costs they will face increased losses. Eventually they will also raise prices, forcing the smartphone users to migrate to another carrier, who will bleed even more.

Finally the last carrier will give up and raise prices too. Then the smartphone users are stuck because there is no cheap carrier left. They have to pay up. Revenues rise across the board, and the carriers make money. Problem solved. But as to WHEN the first CEO is going to take that step and drive away his unprofitable customers, that is another question altogether. Hopefully it occurs soon. The sooner fees rise, the better for the telcos. In the meantime smartphone users are having a great ride at the telcos' expense.

I think things are a little more complicated than that. Firstly, majority of the users are locked into contracts. Any price changes only affect new signups. So there's the time delay to consider.

Consider that together with tech improvements. The trend has always been pay less for the same or paying same for more. Computers, laptops, mobile phones, Tv, etc. Once in a while something new comes along such as new gen consoles, smartphones that attempts to raise the price (and margin) by value added services/features/etc. But price would only go down as the tech matures.

The price of a 30MBps NGNBN is cheaper than what I paid years ago for 256Kbps Magix. The price of a 40" LCD is cheaper than the 29" Trinitron of yesteryears.

In tech biz, I see sustainability only in intelligent use of tech to reduce cost and offer more. If you blindly increase cost, I think that's doomed to fail. Of course, there's always the need to identify the loss making segment and cut them out. But remember that the nature of the biz transaction is not once off but recurring throughout lifetime of potentially decades.

Therefore, what the telco should do is to think of how to get those loss making customers upgrade their service to result in profit. If you cut them out, they jump to competition. If the competition is able to generate even a small profit for this new customer, you lose double.

What the article is trying to say is that the whole world is shifting from dumbphones to smartphones. People use data services more than voice. The demand of data on network and infra and much higher than voice. If telcos solely upgrade their pipes and infra to support the shifting trend and expectations of smartphones users, it is not sustainable. Don't forget, people won't like to pay more for the same as far as tech is concerned. It will come a point when the cost of upgrading outgrows the ability to satisfy customers at a profit.

Therefore telcos need to think of new ways to increase their revenue. Selling voice services is not really helpful. Voicemail? Voip? Would you got for an unlimited voice plan with limited data or a low voice with high volume data? Consumers won't bite.

Selling data bandwidth is expensive (cost of upkeeping infra vs. subscription price) and not scalable. So what next? If telcos cannot wise up on this, then they will see reducing profits and finally red.

Telcos may need to sell data services instead. Maybe guaranteed quality of service (fast connection to certain sites), location based services, etc. Something that the telcos also get revenue from instead of only from the bandwidth. Video streaming, VOD, etc. All these can ride on top of their data infra. And they can sell the service and get customers to upgrade plans for more bandwidth.

I just notice that M1 is trying to sell on "cyber wellness" by offering anti-virus solution for their data services. That's the value proposition that M1 is trying to bring. And perhaps that's where they also can bring in new revenue.

SH is remaining in their "premium" service segment. They hold higher prices, and sell better (perceived) quality. They had been investing in the past years into infra such as AAG that is likely to generate returns soon. Recently also starting new submarine lines projects. SH is IMO, using tech to reduce their cost and provide higher quality and hold profit margin. With that as the strength, SH is trying to take a bigger slice of the biz market, and also reduce reliance on ST infra. Not so much happening on the retail front it seems.

[freedom]

I thought the popularity of the first generation iphone, would have made the telcos raise the data traffic price much earlier. til today, the price did not rise. I think it is enough to say that people over-paid the data usage long time ago.

[corydorus]

In oligopoly industry is not easy to be unprofitable I think.