If mobile's 'golden age' is waning, what lies ahead?

European operators were given an opportunity this week to express their views en masse over the single market proposals put forward by the European Union's digital chief, Neelie Kroes, and they certainly made good use of it.

Major operators such as Orange, Vodafone, Telefónica and Deutsche Telekom gathered in Brussels on the occasion of the European Telecommunications Network Operators' (ETNO) Association summit, and reports from the event provided a good indication of the level of displeasure among executives over planned initiatives such as the removal of roaming charges.

In their view, regulators should not be focusing on pettifogging issues such as how much operators charge each other to complete cross-border calls, fixed or mobile. The overwhelming message from operators was that they want to be able to consolidate when they need to in order to achieve greater economies of scale. Indeed, tired of waiting for things to change, some have pressed ahead with deals to test the current regulatory thinking on M&A, as pointed out by Sanford C. Bernstein analyst Robin Bienenstock.

For example, Telefónica's plan to buy KPN's German unit, E-Plus, is viewed by many in the industry, including Orange CEO Stephane Richard, as a bellwether for consolidation.

For her part Kroes lived up to her "steely Neelie" nickname by pretty much telling operators to stop moaning and accept what lies ahead. Using various different food analogies (perhaps she was speaking just before lunch), Kroes told them her proposals "are about making the pie bigger."

"You can't pick which bits you want from the menu. This isn't a restaurant," she added.

In any case, Kroes has little sway over consolidation issues, as that is a matter for competition commissioners at the EU. Nonetheless, Current Analysis analyst Emma Mohr-McClune advises operators that while the EU's "Connected Continent" package does not directly address the need for less competitive authority intervention and regulation of M&A activity in Europe, "the collective of measures could indeed make the European telco market a more attractive acquisition zone."

Perhaps operators are moaning too much, and roaming charges are no small issue for the consumers that have to pay them. I am sure I am not alone in continuing to turn off data roaming when I travel outside my domestic carrier's market.

However, they are worried, and with good reason. Not only has business been tough of late due to competition and the economic crisis, a new report from research firm Ovum claims that mobile operators are set to face a decline in global revenue by 2018 for the first time in mobile industry history.

In a report that will probably send shivers down the spines of telecom executives across Europe, Ovum predicts that global connections will grow by a CAGR of less than 4 per cent between 2012 and 2018, while global revenues will grow at less than half that rate. However, it forecasts that global service revenues will contract in 2018 for the first time in the history of the mobile industry, declining from 2017 levels by 1 per cent, or $7.8 billion (€5.76 billion).

Developed regions such as Western Europe will have a particularly challenging time. Ovum forecasts that connections in Western Europe will grow by a CAGR of less than 1 per cent, while revenues will decline at a CAGR of 1.48 per cent.

As such, Ovum said, innovation in services, tariffs, business models, network operations, and partnerships will be key revenue-generating strategies over the next five years.

In the light of these kind of reports, you can understand the frustration that operators have over regulations that want to strip them of much-needed revenue at a time when they are trying to invest in new technologies such as LTE and fibre that they believe will be their future salvation, among other aspects. Indeed, reports this week have shown encouraging signs for LTE after Vodafone UK reported 100,000 LTE customers in under two months, Telenor Norway said it reached 400,000 LTE customers in a year and CCS Insight noted that adoption of LTE smartphones is speeding up, with LTE set to be the prevalent technology in mobile phones by 2017.

At the same time, other reports such as this week's statement by UK regulator Ofcom that it plans to increase spectrum fees for 900 MHz and 1800 MHz frequencies came as a further blow for operators in the UK, and indeed the UK in particular seems to have learned little from the disastrous aftermath of the 3G spectrum auctions.

AT&T CEO Randall Stephenson, who has made no secret of his interest in Europe, also put in his two cents at the ETNO event. His advice? Be more like the United States--be more flexible. In particular, Stephenson called for changes in how spectrum policy is managed in order to make policies more consistent.

Investment in the region by a telecoms major such as AT&T would provide a much-needed boost for Europe.

Deutsche Telekom' CFO Timotheus Hoettges summed up the mood at the conference by saying new rules are needed for competition in Europe, and suggesting that markets that are already very competitive should be deregulated. "We cannot compete in our environment anymore," Hoettges told Bloomberg gloomily. "Europe is at a scale too small to be relevant."

A great deal of work lies ahead. The mobile industry's "golden age" may be waning, as Ovum put it, but developments with LTE and increased interest by operators in exploring how they can differentiate their offers through tariff innovation and new types of services should help push the industry through to the next stage--whatever that will be.

"It is clear that mobile operators are facing a new reality: they must do much more with much less," Ovum analyst Sara Kaufman said. "Consolidation will help to alleviate some market pressures and is inevitable in many markets. But the need for revenue stabilisation is becoming paramount for a sustainable future."--Anne

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