There have always been daunting challenges in the wireless business, but in LTE we see the first technology which some operators feel compelled to roll out just to keep up with rivals, without fully understanding where profits and growth will come from.
According to forecasts by Maravedis-Rethink, between 2012 and 2017 mobile operators will have invested a total of $34.7 billion in 4G infrastructure, and the LTE subscriber base will have hit 875.75 million. Despite those large figures, there could be virtually no profit at all. If those carriers were purely to replicate current service models on 4G networks, data revenues would continue to grow, but would be lower than capacity spend every year until 2018.
Given tight investment climates, it is vital that carriers boost the revenues they can derive from their new networks as well as reduce planned capex by adopting more cost efficient approaches such as RAN sharing. When it comes to new revenue streams, there is an overwhelming message coming from the operator base--consumer data is no longer enough.
Increased applications and data uptake among consumers will remain critical to most operators to maintain or boost market share, revenue and cash flow. However, rather like voice, basic data services are increasingly an essential base platform for revenues, but one with little profit growth potential. The ability to add ARPU and profit will lie in new services, according to the most recent quarterly survey conducted for Maravedis-Rethink's MOSA (Mobile Operator Strategy Analysis) service. This tracks the business models and spending plans of the top 100 4G operators around the world.
Despite the apparently gloomy imbalance of network cost vs. data ARPU, there are many signs of hope. By 2017, mobile operators will have added, on average, $150 of incremental ARPU a year driven by LTE (adjusted for inflation), according to MOSA. The real success stories could achieve $300--though others will be the victims of shake-out and consolidation. Very little of this extra revenue will come from consumer data, as growth shifts to emerging economies where users are highly price sensitive. A panel of operators expected only 4 percent of the new revenue to come from direct charges to consumers.
The rest will come from new services, with M2M and smart grid having the largest potential, followed by innovative wholesale models, enterprise services and vertical market applications, especially in the cloud. Among new revenue streams driven by LTE, operators expect M2M services to account for about 20 percent of the new sales, followed by new wholesale platforms and a bigger role in the mobile enterprise.
A key element by 2017 will be mobile cloud offerings, for enterprise, M2M and consumer segments. These alone will add an average of almost $60 in incremental ARPU per year by 2017, with some carriers achieving as much as $165. However, they will also be driving significant network expansion--mobile cloud traffic will grow 28x between 2012 and 2017 and account for 74 percent of the total at the end of that period (8.2 exabytes a month).
The most advanced operators will create entirely new businesses around these new services, to free them from the legacy business structures and potentially to spin them off or offer their services on third-party networks in the future. For example, consider Telefonica Digital, one of MOSA's selected 4G leaders for third quarter 2012.
SK Telecom of Korea also has a separate brand and business unit for new cloud and applications initiatives, called SK Planet. It has pioneered key trends in Korea, such as the "freemium" model, but it is also influencing the global ecosystem and aiming to expand its offerings worldwide, especially via partnerships with carriers in neighboring countries such as Japan's NTT Docomo.
So, contrary to some doomsayers, there are plenty of opportunities for innovators. However, only operators that adopt creative business strategies will survive the transition to a profitable model successfully. The coming three years will be critical in determining which carriers will succeed and which will fail, but in nearly all cases, they will be sowing the seeds now.
Adlane Fellah is CEO of Maravedis. The findings are from the inaugural Quarterly Report for Maravedis-Rethink's new MOSA (Mobile Operator Strategy Analysis) service. Formerly known as 4G Counts, the service has been completely relaunched to reflect the changes in the mobile broadband landscape. For more information, see www.maravedis-bwa.com or contact Adlane Fellah on [email protected].