Compared to their landline brethren, mobile network carriers have led a charmed existence during the last few years. Landline carriers are losing customers around the world to wireless providers, and wireless growth has surged in both developed and developing countries while landline customer growth has stalled or even dropped.
But the halcyon days for wireless carriers around the world are drawing to a rapid close. And 2007 will likely be the year this trend accelerates, causing many wireless carriers to face a mild panic, especially in developed countries. The expectation is that broadband wireless services will pick up a good deal of the slack as the carriers build more complex business models. But not soon enough for most operators.
The problem looming in wireless, first and foremost, traditional voice subscriber growth is thinning. It took 12 years for the GSM/W-CDMA global subscriber base to hit one billion. It took just 2.5 years to reach the second billion. And it will take just another year to reach the third billion, as the three-billion threshold will be breached by year's end. At the same time, wireless operators have gambled billions in new technologies such as 3G, HSDPA, WAP and mobile television. In most markets, these haven't caught fire (in some cases, in fact, they have flopped as revenue enhancers, although the jury is still out on mobile TV, which won't hit its stride until the end of this year).
In fact, a 2007 Telecommunications Industry Review report released by Insight Research Corp. shows that revenue from IP services represented a meager 0.9% of all global wireline and wireless revenue last year. That is projected to reach just 5.7% of the revenues forecasted for 2011. Even as the telecom industry ramps up to build the broadband networks that deliver new services, 'the overall revenue contribution from these new IP services is expected to be modest,' says Robert Rosenberg, Insight's president. 'Voice still rules, and will for some time to come.'
Maybe so, but the problem wireless carriers must resolve right now is that after years of torrid growth, new mobile voice subscription growth is declining, Even worse, the vast majority of mobile customers are using their phones primarily for voice calls, eschewing the new wave of data and multimedia services. The challenge for mobile providers is to quickly reverse that disappointing data trend and test new services and businesses on a skeptical customer base.
The mobile voice growth figures cause some industry executives and many industry analysts to flash red warning lights at mobile network operators. Gavin Patterson, principal analyst with Informa Telecom & Media, warns in a recent report that worldwide mobile subscriber growth has declined since 2001, a trend that will accelerate through the end of the decade. After rising 19.4% last year, growth will fall to 10% in 2008 and plummet to just 3% in 2011. However, to be fair, Patterson's report also notes that dual-SIM and multi-SIM ownership is growing in some parts of the world. In fact, he says, about 22.5% of all mobile subscriptions worldwide result from dual/multi-SIM ownership and this figure will rise through 2011. But will that be enough to compensate for a saturated market‾ Highly doubtful.
Martin Garner, director of wireless intelligence for research firm Ovum, says the majority of the world's mobile growth will continue to come from the Asia-Pacific region, although the fastest growth rate will shift from China to India, Pakistan and Bangladesh.
World market penetration will hit 47% in 2007, compared to 41% at the end of 2006. That means many mobile operators will find it much harder to make a buck, especially in developed markets like Western Europe, Japan and the US.
'In the most developed cellular markets, penetration is well over 100%,' Garner concludes. 'Italy, for example, is currently very close to 140%. Clearly this means that there are multiple connections per real user, and some statistics are becoming available to measure this phenomenon.' Garner notes that the SIMs-per-user number is about 1.7 in Italy. But multiple users also abound in less-developed, high-growth markets such as Egypt, South Africa and Turkey where the number is 1.2.
Garner predicts 406 million new mobile connections worldwide this year, which translates to a growth rate of about 15%. APAC will account for 1.2 billion of the world's three billion connections by year's end. Africa will emerge as the world's fastest-growing region with 28% growth this year (although here, too, the rate of growth is slowing). The rise of both cheap handsets and pan-regional players are helping fuel growth this year, but a troubling sign, notes Garner, is that 'the other three very high growth regions of Eastern Europe, Latin America and Asia Pacific will all decelerate as the larger markets within those regions start to mature.'
One way wireless carriers are compensating for the slowing growth in mobile voice is by building new service infrastructures. Garner says W-CDMA doubled its user base to just short of 100 million people last year. 'Similarly, cdma2000 1X EV-DO increased its user base by 88% in 2006 to end the year on 50.5 million,' he says. 'The high-speed networks will continue to be the fastest-growing technologies in the market during 2007, with W-CDMA showing the greatest share gains.' Ovum forecasts an 83% rise for W-CDMA this year and 61% for cdma2000 1X EV-DO. (The predictions don't include connections for China and India because not enough information is available.)
The key issue, of course, is whether (and how soon) this investment in new technology will pay off. 'Worldwide, broadband service providers of all stripes continue to try to create viable business models to deliver high-speed broadband,' notes Insight Research's Rosenberg in his report. 'Overseas carriers are rolling out broadband on a mass scale, targeting consumers and small businesses, and bundling new premium services like VoIP, VPN, video, games and entertainment. This worldwide IP-based applications services market is beginning to take off. The architecture of and market for next-generation enhanced services is also beginning to take shape.'
The report also notes that wireless carriers are well-positioned to benefit from the new service structure being put in place because they have more control over and experience with content in their networks and have built solid billing platforms. Both factors help insure reliable and stable revenue from the content provided to wireless customers
The expectation that data revenue will offset slower subscriber growth is also contained in the recent 2007 Telecom Preview report from A.G.
To be successful in capturing the new data business, wireless carriers will need to shift their focus from ideas to fundamental execution, says Brian Corey, telecom practice leader at Katzenbach Partners LLC. He warns in a report called 'Carriers at the Crossroads' that worldwide mobile operators, which together comprise a $600 billion revenue business, have to become more innovative and flexible in managing their businesses.
'Until now all the carriers have needed to do is to meet demand and marker their service,' Corey says. 'But their space is suddenly threatened by multiple new technologies, new competitors and new regulations, all in a more saturated marketplace.' He adds that success will come in the ability to excel in areas they may not have paid much attention to before, such as managing multiple business lines, coping with increased risk and enhancing organizational effectiveness.
'Mobile carriers have made bad strategic bets in the past, for example, investing millions in licenses for the WAP wireless protocol and 3G "&brkbar; which have not produced sufficient revenue and profitability,' he adds. 'In a lower-margin environment, the risk of taking the wrong action is greater that the risk of inaction. That's a change from where the industry has been.'
He says mobile carriers need to diversify their businesses by choosing one or more strategic options. These include acquiring businesses (or being acquired) to move into the quadruple-play services world; building a new business (such as VoIP) along the existing one; creating experimental businesses while staying focused on the core business; or stalling off the competition through lobbying.
Most wireless operators may wind up choosing one of more of these strategic options, especially as data grows more important. Corey's report notes that as their strategies evolve, their organizational structures will become more complex and people and goals will need to be better aligned than they have been in the past.
'Cellular carriers are moving from a world where ideas rule to a world where the idea only succeeds if the organization can perform,' says Corey. 'It's the end of the land-grab era of acting quickly and pushing for growth, and the beginning of maturity.'
The landscape may indeed be changing dramatically for wireless carriers around the world, but one thing seems certain in the near future: they will be exploring and investing in different business models if they expect to thrive on a rapidly evolving playing field.