Making a Case for Mobile Operators

Mobility continues to shape and restructure our private and working lives in fascinating and incredible ways. Cellular networks and short-range technologies such as WiFi are its primary enablers. On the cellular front, mobile operators and wireless carriers have shouldered the immense cost of rolling out infrastructure and licensing spectrum. But are they participating in due measure as mobile opportunities expand?

The 2015 publication by The GSM Association (GSMA) called “The Mobile Economy” is a recommended read for anyone with a stake in this industry. The report takes stock of where mobile stood in 2014 and the direction it is taking as we move towards 2020. The real jaw dropper is the $3 trillion contribution from the industry itself towards the estimated $78 trillion worldwide GDP in 2014 (according to the World Bank). That’s almost a 4 % share towards our global GDP.

Operator revenue growth to slide

Looking ahead, the mobile industry is striding forth with confidence at an average annual growth rate of roughly 4 %. That’s good news. Unfortunately not for all. Mobile network operators’ (MNO) year-on-year revenue growth is predicted to fall from around 5 % as measured in 2012 to 2 % as predicted for 2020 by the GSM Association. In other words, MNO revenue growth is eroding. You might contend a slowdown in expansion is better than contraction per se. Answering these two questions might shift your perception however:

1. Who has invested the most to date in the mobile industry?
2. Who has empowered most of us with the anywhere-anytime paradigm over the past two decades?

How to rollout new network infrastructure despite dwindling revenue growth?

Acquiring costly spectrum from governments and rolling out country-wide cellular networks with the latest technology is an expensive business. In 2014 MNO’s spent over $200 billion worldwide (capex) to increase coverage and capacity for us all. Shouldn’t we give credit where credit is due?

The problem with 24-month contracts

Incredible but true: the data explosion on mobile networks fueled by smartphones ought to result in higher per-bit pricing until such time that capacity is in excess, going by the perennial law of supply and demand. One would expect operators to get an ARPU (average revenue per user) boost . Instead, price wars in fierce, competitive environments spur operators on to sell low-cost, tiered plans that offer megabyte/gigabyte buckets of monthly data based on 24 month contracts. It’s difficult to predict the behaviour of customers in terms of their data consumption habits over such a long contract period. One thing is certain though, empowered by ever new mobile devices and applications, their data usage is sure to increase over time. Consistent bandwidth on cellular networks is and will thus remain a sought-after commodity. As a result, MNOs’ are under more pressure than ever to upgrade their infrastructure and find novel approaches to avoid next-gen all-IP networks from being more than just “dumb pipes” that other providers use to rake in profits with higher-margin services.

Change is the only constant

Mobile network operators in developed markets are gearing up to the future and crafting new, sustainable business models by

• merging with other regional operators for network sharing and creating more negotiation clout when purchasing infrastructure through economies of scale
• moving from unlimited data plans to tiered versions and finally to value-based contracts
• making strategic acquisitions or entering partnerships to combine mobile services with fixed-line telephony, Internet access (cable/DSL), and TV in converging quad-play world
• treating data based on traffic type to ensure Quality of Service (QoS) and ultimately customer satisfaction
• working on deals with providers who wish to provide a consistent mobile user experience for their prized services
• slashing handset subsidies
• developing alliances, partnerships, joint ventures with market leaders in promising verticals such as M2M/IoT, Connected Car, Mobile Wallet, video streaming, location-based advertising and app development.

Proponents of the network neutrality who advocate the Internet’s continued success depends on a level playing field for all may not like any of this. Yet acquiring spectrum and rolling out wireless networks doesn’t come on the cheap and business models need to adapt to the changing markets.

Mapping out the future

Next to keeping their networks geared to next-generation technology, operators simultaneously need to identify the most lucrative business cases from the swath of opportunities unfolding. Conferences, forums and trade shows are ideal places to learn from peers in a complementary sector and rub shoulders with technology experts and thought leaders.

Conferences, forums, trade shows and seminars according to mobile/wireless topic over the past 2-years - Source: 2015 wi360 Event Guide

wi360 maintains a free wi360 Event Guide focused exclusively on the mobile and wireless industry which is continuously updated through the year.

Designed in China - Assembled in China

Fueled by WhatsApp peer pressure, our ten-year old recently bought his first smartphone. Make: Huawei. Price: Euro 70.00 without a plan/contract. Performance: admirable. Anyone used to Apple’s macrocosm will find it hard to believe that a smartphone can retail at that price. Mobile phones in Europe used to be all about Nokia, Ericsson, Motorola and Siemens. Then came Apple and Samsung. Names disappeared. Now it’s China’s turn in changing the handset game.

A common Western misconception

“Made in Hong Kong” was imprinted on many of the toys in my boyhood days (way back in the seventies). Then this label was synonymous with “cheap”, “plastic”, “throw away after light use”. At that time China meant little more to me than the occasional meal at a restaurant, the timeless wisdom of a nation as portrayed in the sayings of Confucius, or the iron-fisted communism and class struggle headed by Chairman Mao. Quite frankly, today China is much more than world’s manufacturing workbench. It’s well on its way in advancing to a major R&D force whose impact is beginning to be felt by high-tech consumers around the world. Are the days of “Designed in California - Assembled in China” numbered?

China: think big, think volume

When a topic touches something as vast and far away as China, it’s tough staying grounded and getting the facts right. Clearly China not only has the brains, capability and drive to impact technology worldwide. More than that it has an immense end-user base at home that allows scaling volume production into realms unthinkable for many of us in the West. Case in point: China Mobile boasts some 750 million subscribers. That’s on par with the total population of Europe! Imagine, one single wireless operator with this sheer number of customers at the controls of mobile voice, messaging, apps, handsets and other desirable services.

Reaching out and moving in

On the infrastructure side Chinese companies like Huawei and ZTE have already made inroads in foreign markets. I remember their sleek offices quietly opening in Dusseldorf on the river Rhine several years ago. Price disruptions in telecoms infrastructure followed and ever since Alcatel-Lucent, Ericsson and NSN (Nokia Solutions & Networks, formerly known as Nokia-Siemens Networks) have been feeling the bite at their established clientele. Yet it’s not all threat. Flip the coin and China’s colossal market offers tremendous trade opportunities for foreign companies.

Telecoms market research on China

In wi360’s research and event directory you will find many studies from various sources that provide a detailed view of China’s mobile and wireless landscape. Here are a few sample results when entering “China” in the Search field for Reports at wi360 .

• China Telecommunications Report from Business Monitor International provides an overview of the Chinese telecoms market. In addition it profiles 19 MVNOs (mobile virtual network operators) in the country.
• China’s top five vendors account for 20% of the world’s smartphone shipments from Canalys ranks smartphone vendor shipments and growth in China’s domestic and foreign markets
• The Mobile Industry Alliance’s (MEA) Certimo benchmark measures user experience ratings for popular Android smartphones sold in China from manufacturers such as HTC, Huawei, Lenovo, LG, Meizu, OPPO, Samsung, Sony, Vivo, Xiaomi and ZTE, and these have been published by Tencent, China’s largest Internet portal. Results can also be found on MEA’s website.
• Consumer Demand Analysis of Smart Wearable Devices in China is a survey from MIC - Market Intelligence & Consulting Institute in which Chinese consumer purchasing behaviour with respect to wearables is profiled
• TD-LTE Market Developments and Forecast, 2014–2016 from Digitimes details mobile networks based on China’s homegrown TD-LTE standard and their outlook in 17 further countries where they have been deployed
• Strategy Analytics’ report titled China Mobile’s One Man Show to End reveals the strategies of China’s three operators regarding LTE FDD (note: not TD LTE) infrastructure in the country
• Global and China EMS and ODM Industry Report, 2013–2014 from ResearchInChina takes stock of manufacturing services for consumer electronics in China, Taiwan and other countries around the world

Understanding China and its wireless markets as well as the companies, services and products that comprise it mobile ecosystem is an important step in spotting and tapping potential opportunities and participating in the country’s unquestionable growth in trade. Western manufacturers may even be at an advantage in being able to produce high-quality kit at much lower production volumes that allow product customisation and variation. “Designed in California - Assembled in California” could potentially be a prized imprint from the perspective of future Chinese consumers.